Potential Gold Mine? (No)
Potential Gold Mine? (Answer: No)

Leslie Spoltore, a partner in our Wilmington, Delaware office, recently wrote a post on our Delaware Family Law Blog about a uniquely unusual to Delaware “asset:” license plates.

Unlike every other state in the Union, there seems to be an dedicated, obsessed, and well heeled local market for low number Delaware license plates. According to the article written by Adam Duvernay of The News Journal, a couple recently paid $325,000.00 for license plate number 14. In Delaware, you can reuse the license numbers and even transfer them to other people (either through sale, will, or auction). Consequently, enthusiasts will bid to own low plate numbers. For perspective, the Governor, Lieutenant Governor, and Secretary of State have license plate numbers 1, 2, and 3, respectively. Number 6 sold in 2008 for $675,000.00.

The larger point behind this unique bit of Americana is that the value of a marital estate may take many forms. We’ve written about the million dollar shoe collection, but there could be any number of unusual collectibles or pieces of personal property that are more than the norm and, in fact, justify their own consideration, appraisal, and identification as marital assets. I have had a case where our claim for antique carnival games was countered (unsuccessfully) by a claim for value in a Longaberger basket collection (apparently the secondary market had dropped out at the time of the case).

You simply never know where the value may appear and it is important for clients and lawyers to fully explore every potential source of value.

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// Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a partner in Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter@AaronWeemsAtty.

Given the current economic climate, divorcing parties are more vigilant than ever about the value and disposition of their marital assets. This article discusses methods and concepts which will help divorcing parties streamline the process of dividing their marital personal property, or personalty, during a divorce. Personalty can mean anything from an apple corer to a Rolex. Basically, it’s the “stuff” you acquired during your marriage. 

While it is often the case that divorcing parties cannot agree on anything, let alone go through their home piece by piece and divvy up personal effects, to the extent you are able to divide your possessions amicably, you should.   The primary reasons you should be dividing your own property are twofold: first, no one will have a better understanding of your assets and their value to you than you will; second, you should not have to pay an attorney to argue about who is keeping the living room sofa. 

 

Get as much of a “head start” as you can on the division of personalty. By head start I do not mean taking the assets you want and hiding them, I mean you should familiarize yourself with the plausible means by which you can divide your asset and the concepts that will help you do so in a streamlined fashion. The following are points you should consider when you and your spouse are dividing personalty.

 

Make lists and take pictures of your personal assets: Lists and pictures are a comprehensive way of inventorying your assets. Having an inventory allows you and your spouse to review the assets available for distribution. Inventories also serve as a way for parties to understand what items you can agree on and which will be at issue. Pictures can be used to illustrate whether items have been moved, have gone missing, or were inadvertently omitted from a list.

 

Account for depreciation: It is often the case that parties utilize different “accounting methods” when reviewing the value of assets depending on which party receives the item. For instance, the party getting a five year old car will use the blue book value while trying at the same time to claim that the five year old sofa is worth the same amount it was the day it was purchased. 

 

Keep in mind that the majority of your possessions have depreciated significantly and account for that depreciation in your internal calculation of who is getting what value. While you may feel like you are not receiving as much you would like from some of your items, provided your “accounting method” is consistent, you do not stand to lose as much as you might fear by accepting that the purchase price is not necessarily the current value, your property division will go more smoothly and you and your spouse will not spend as much in attorneys fees.

 

Agree on what should be appraised: Items of significant value which cannot be agreed upon should be appraised. The caveat here is what items you and your spouse think need to be appraised, who bears the cost of the appraisal, and how an appraiser is chosen. 

Creating a “cut off” value or a rule will help you decide which items to have appraised. For instance, agree on a dollar amount and do not have items you think fall below that dollar amount appraised. Alternatively, you can use a rule to help you decide, such as “if it should have been, or was, individually insured, have it appraised.” Laying these ground rules should help you and your spouse prevent later squabbling over which assets should be appraised.

 

With regard to who will pay the appraiser and how he or she is picked, call your attorney. While you do not want to rack up your bill arguing about these issues, your attorney will have insight as to how appraisal costs should be divided and be able to provide you with the names of appropriate appraisers.

 

Create a valuation methodology: It is imperative that you bear in mind the potential difference in the replacement value of your assets and their actual resale value. While something might be insured for one amount, its “street value” may be another amount. If you are getting something appraised, find out both how much you could sell it for on the day it is appraised and how much replacing it would cost. While it seems these numbers should be the same, many times they are not. When you are accounting for how much an asset is “worth” to you, remember this distinction!

 

When you cannot agree, use a neutral mediator or arbitrator: Using a neutral third party will save you money, time and hassle. Rather than having both you and your spouse pay your attorneys to listen to you bicker back and forth about personalty, choose one party to simply make decisions regarding the division of assets. Make the arbitrator’s or mediator’s decision binding. By having a third-party make a binding decision, you are essentially giving that person the power to make decisions about your property. 

 

While you may not be happy with any or all of the mediator’s or arbitrator’s decisions this process is more expedient and less expensive than many alternatives. Binding mediation or arbitration will move the process along and will allow you to move on to other (more important) issues. This method also has the benefit of keeping the division of personalty out of the judicial system. Court fights about property tend to be very costly and annoy the Court. Also, it is common practice for Family Court Master’s and Judges to enter an Order for equitable distribution and give the parties (30) days to divide personalty or appeal to binding arbitration. Remember, you are better off deciding the outcome than letting someone else.

 

Know your motivation: In most cases, there are two primary motivating factors affecting parties’ behavior as they attempt to divide their personalty; emotion and economy. While both these factors will play a role in parties’ decisions, they cannot be allowed to overwhelm your decision-making. Moderating, or at least staying attuned to, your motivations is essential. An over-emotional or overly economic approach will cause parties problems and cost money.

 

An example of an overly emotional reaction would be one spouse attempting to claim every chair, seat, and sofa from the house. Sadly, this does happen. While the spouse that does this may feel temporarily vindicated by the knowledge that his or her ex-spouse will not be able to sit down comfortably until he or she buys some seats, this impractical approach ultimately fails. The spouse who was controlled by his or her emotions will most likely lack artwork, tables, a bed… you understand my point. 

 

By the same token, an overly economic motivation will also lead to failure. For instance, adamant refusal to negotiate with your spouse over an item because of its economic value without taking into account other significant factors will lead to a negotiations deadlock. 

 

Even if you cannot control your motivating factors, at least be aware of them! Being cognizant of your motivations will allow you to “step back” and consider whether fighting about a particular item will help or hurt you in the long run. If you can understand your spouse’s motivations regarding the division of assets you will have even greater negotiating success.

 

Finally, if you and your spouse are at odds about an item, ask yourself whether you will care, remember or replace that item in (6) months or a year. If the answer is “no” then give it up and move on to something that really matters to you.

 

Keeping in mind the above points will allow you to make better decisions about dividing your personalty. Good luck!

Over the past twenty years the landscape of executive compensation has changed markedly.  One new feature is the appearance of executive stock options as a form of compensation.  Stock options are a device by which key employees are granted the right to purchase shares of stock at a given price.  The “option” is to acquire a fixed number of shares of the employer’s stock at the closing price on the date the options was granted.  On the day the options are granted, they have no value because the price of the option stock is equal to the closing stock price that day.  The theory is that as the employees work and improve the state of the company the stock will increase in value.  If I am granted the option to buy stock in my company at $10.00 a share and the stock price goes to $12.00 a share, my option has an intrinsic value of $2.00 per share. If I have 10,000 such options, the options are worth $20,000 before tax. If the price of the stock goes to $20.00, those same options have a value of $80,000.  Options are usually granted so as to vest over three years following the grant.  Once vested, they are usually exercisable for a period of ten years.  These terms can vary based upon the language of the grant.

Alas, the last nine months have not been good to option holders. Many stocks have lost 40% of their value or more.  When the purpose of the option is to incent employees to drive stock prices higher, there is very little incentive to work hard and produce results in a world where the options are exercisable at $10.00 and the stock is trading for $6.00. As the option holder I have to drive the stock price back to $10.00 before the option has any hope of creating value. In some extreme cases options are out there at prices in excess of $50.00 where the stock is trading for less than $10.00.

Hope may be on the way.  The Wall Street Journal reports that companies as diverse as Google, Toll Brothers and Starbucks are developing programs to either re-price or exchange options so that incentives are re-instated. The reason is that two-thirds of public companies have 75% of their options “underwater”; meaning that the options are more expensive than the stock itself and that they have no value.

While these schemes are picking up speed, they are not approaching the level of re-pricing that occurred after the stock market nosedive of 2001. What has changed is that under new accounting rules options need to be reported as expenses by the offering businesses.  This hurts already meager earnings. Second, companies are chary to re-price options until they feel certain that stocks have reached their low ebb.  Otherwise, the incentive is again taken out of the option pricing system.  Finally, some companies are moving away from options in the direction of restricted stock.

The question in a divorce proceeding is whether an exchanged or re-priced option is a post separation asset or a marital asset recast into a new form. Let’s say an employee spouse is granted a series of options just months before separation at $10.00 a share.  After separation the stock drops to $3.00 a share.  The employer decides to redeem the options and substitute the same number of options with a price of $3.00 a share. Are these new options marital? Would it be a different result if the old options were canceled? Suppose the substitute options have a revised vesting schedule?

There is no law on this in Pennsylvania today. There is a reason to try to anticipate this issue and address it in the context of negotiating a property settlement agreement by providing in the agreement that if options are retired and substitute or re-priced options issued, these options should be treated as marital as well. The same principles may be applicable to options granted by a new employer as a device to compensate a new hire for marital options that were left on the table when the employee changed jobs. Again, the law in this regard is not clear, but the point is one that merits discussion in any divorce negotiation.

For more information. Online.wsj.com “Underwater Stock Options Not Dead Yet” 3/18/09; 7:53PM

We are litigating several cases currently where much of the value that is subject to equitable distribution comes from an increase in the value of assets that were in the hands of one spouse prior to marriage or gifted to one spouse only during the marriage.  In contrast to the view of most other states (including New Jersey and Delaware) Pennsylvania includes the value of this any increase in value of non-marital property that came about during the marriage.  Assuming that you were married on January 1, 2000 or inherited property on that date, as of December 31, 2007 chances are that there was a pretty heft increase in the value of that asset if was invested in real estate or equities.  In some situations, the increase might even outstrip the value of the underlying gift.  A fair example would be if you had inherited shares of the retailer Target in late 2000.  The stock was worth $33 a share.  If you separated in late 2007 the stock was up almost one-third to $50. If you inherited 1,000 shares, the underlying $33,000 would be your non-marital estate and would not be subject to division in equitable distribution.  But the $17,000 increase in the stock would be “in” the marital pot and could be divided either in value or in kind.

When the market last crashed (November 2000-September 2001) many litigants who separated before the tumble found themselves in trouble because the statute referred only to the increase between the date of the gift or marriage (in the case of pre-marital property).  Any subsequent decrease was not referenced in the statute.  So a part could find him or herself subject to an order dividing gain that no longer was around to divide. The 2005 amendments to the Divorce Code addressed that with Section 3501(a.1).  That Section stated that the increase subject to distribution was the lesser of (a) the increase from date of marriage or gift to date of separation or (b) the increase from marriage or gift to the date of distribution.

 

Target offers a great example.  Mr. X inherits or marries already holding his $33,000 of Target stock.  The couple separates when the price is $50 and Mrs. X lays claim to half or more of the $17,000 increase.  But, alas, the case did not settle on the date of separation and today (11/10/08) Target closed at $36 a share.  If they are dividing the estate tomorrow, the “increase “ is 1,000 shares x $3 a share ($36-33).  The increase in value case is no more.  Need a more extreme example.  If the Chairman of Lehman Brothers married on January 1, 2004 and owned a million shares he had $40,000,000 in premarital assets.  By January 1, 2007 he had doubled his net worth and risked an equitable division of another $40,000,000 in value.  Today his 1,000,000 shares are worth $60,000.  Can he ask his bride to share in his loss? Not the way the statute reads today.  Of course, had he margined his stock to buy a $10,000,000 unit at Trump Tower in Manhattan, we may have some marital debt to divide once the property is sold.

 

With the markets being as volatile as they are, it is tough to settle cases.  But today it pays to watch the ticker while your in the room dividing.