PROPERTY AND DEBT DIVISION IN OHIO
R.C. 3105.17 and Property Division in General.
In Ohio, the division of property and debts in a divorce is governed by Section 3105.17 of the Ohio Revised Code. Anyone who reviews R.C. 3105.17 will find that it contains most of what they need to know about the general rules of property division in Ohio. However, he or she will also find that R.C. 3105.17 is confusing in the way it is organized.
In this author's opinion, R.C. 3105.17 is best analyzed as a three step process in any given case: (1) Determining what the options are for the "Duration of Marriage"; (2) Determining what IS and what ISN'T "marital property" based on each of the possible durations of marriage; and (3) Determining what the Court is likely to do and what the court could do based on any given scenario.
Step #1: What is the duration of the marriage?
Pursuant to R.C. 3105.171(A)(2), "during the marriage" can mean either: (a) the period of time from the date of the marriage through the date of the final hearing in an action for divorce or in an action for legal separation; or (b) a different date that the court finds to be more appropriate. If the court is going to use a date different from the date of the divorce hearing, say the date on which the parties separated, for example, then the Court has to find that using the date of divorce would "be inequitable", and that the alternative date is "more equitable."
This determination is made by the Court, so the parties to the divorce need to be able to anticipate what the various possible dates are, what the ramifications of each could be, and what the parties' position should be given these possibilities. This may seem like a lot of work, but differing valuation dates can result in substantially different financial awards for the parties.
Step #2: Determine what constitutes "marital property" and what constitutes "separate property
The next step in the process is to determine what the court will divide as "marital property" and what the court is likely to conclude is the "separate property" of one of the parties.
In general, "marital property" is defined, by statute, as all property currently owned by either or both parties acquired by either or both of the parties during the marriage as well as any interest accumulated from the marital property.
Absent the court's determination otherwise, the statutory definition of marital property in Ohio divorce expressly includes active income defined as: "all income and appreciation on separate property, due to the labor, monetary, or in-kind contribution of either or both of the spouses that occurred during the marriage." R.C. 3105.171
In general, property is marital until determined to be separate by the Court. "Separate property" means all real and personal property and any interest in real or personal property that is found by the court to be any of the following:
(a) Property interests obtained by one party prior to the date of the marriage;
(b) Property excluded by "valid antenuptial agreement";
(c) Inheritance by one party (whether before, during, or after the marriage);
(d) Passive income and appreciation on separate property. "Passive income" means income acquired other than as a result of the labor, monetary, or in-kind contribution of either spouse.
(e) Personal injury compensation. Caveat: Does not include lost wages or reimbursement of medical expenses covered by marital property.
(f) A gift to one party (whether before, during, or after the marriage). Caveat: Must be proven by clear and convincing evidence to have been to one party not the couple.
(g) Property acquired after legal separation.
Issues in proving, dis-proving, qualifying separate assets and liabilities.
The burden of proving a separate property interest is on the party claiming it. Further, a claim of a separate property interest must be properly traced and few, if any courts will accept testimony without supporting documentation as meeting this burden. Such cases can become extremely complicated and complex.
Commingling vs. establishing what is "active income" and what is "passive income"
The Commingling of separate property with other property of any type does not destroy the identity of the separate property as separate property, except when the separate property is not traceable. R.C. 3105.17(A)(6)(b)
Example: Fred has an IRA with $5,000.00 in it as of the date of marriage, August 15, 1995. Since August 15, 1995, Fred deposited an additional $10,000.00 from his income into the IRA. Fred claims a separate property interest in the first $5,000.00, plus the income on the account. Mary points out that not all of the income is "passive" since he also deposited $10,000.00 in wages during the marriage, and that Fred has the burden of tracing the account including differentiating between passive and active interest on the account.
Step #3: Given the date of valuation, and the determination of what is marital and what is separate, what is the Court likely to do?
The court's duty, pursuant to R.C. 3105.17, is to first "determine what constitutes marital property and what constitutes separate property, and then "divide the marital and separate property equitably between the spouses." R.C. 3105.17(B). Although this is largely a discretionary decision on the part of the judge, there are some general rules and guidelines set out by the statute that the judge is required to follow.
Division of Marital Property
The general rule is that the court's property division "shall be equal" unless a "distributive award of separate property" is deemed appropriate. However, the statute goes on to provide that "[i]f an equal division of marital property would be inequitable, the court shall not divide the marital property equally but instead shall divide it between the spouses in the manner the court determines equitable." R.C. 3105.17(C) In other words, the Court must divide marital property equally unless the court has reason to believe an equal division of property would be unfair.
In dividing property, the court is also required to consider each party "to have contributed equally" to the production and acquisition of marital property, and the court is required to make the property division prior to making any award of spousal support to either spouse under R.C. 3105.17(C)(3).
There are some factors which the Court must consider in dividing property. These mandatory factors include:
(i) The duration of the marriage;
(ii) The assets and liabilities of the spouses;
(iii) The desirability of awarding the family home, or the right to reside in the family home for reasonable periods of time, to the spouse with custody of the children of the marriage;
(iv) The liquidity of the property to be distributed;
(v) The economic desirability of retaining intact an asset or an interest in an asset;
(vi) The tax consequences of the property division upon the respective awards to be made to each spouse;
(vii) The costs of sale, if it is necessary that an asset be sold to effectuate an equitable distribution of property;
(viii) Any division or disbursement of property made in a separation agreement that was voluntarily entered into by the spouses;
(ix) Any other factor that the court expressly finds to be relevant and equitable.
Distribution of Separate Property & Distributive Awards
In general, the court in an Ohio divorce case is required to distribute separate property to the party who holds the separate property interest unless the Court determines a "distributive award" is appropriate. Ohio law defines a distributive award as "any payment or payments, in real or personal property, that are payable in a lump sum or over time, in fixed amounts, that are made from separate property or income, and that are not made from marital property and do not constitute payments of spousal support, as defined in section 3105.18 of the Revised Code." R.C. 3105.171(A)(1).
Pursuant to the statute, there are two grounds for a distributive award. First, if a distribution of separate property is necessary to "achieve equity between the spouses and the court determines that "a division of the marital property in kind or in money would be impractical or burdensome." Second, in cases involving "financial misconduct" involving the "dissipation, destruction, concealment, or fraudulent disposition of assets." id. In considering a distributive award, the court must consider the same factors it considers in the general property division.
The court may also issue any orders underthat it determines equitable, including, but not limited to, the following:
(i) a lien on specific marital property or separate property to secure property division;
(ii) an order granting a spouse the right to use the marital dwelling or any other marital property or separate property for any reasonable period of time; or
(iii) an order requiring the sale or encumbrancing of any real or personal property, with the proceeds from the sale and the funds from any loan secured by the encumbrance to be applied as determined by the court.
Pitfalls to Avoid.
It's important in any divorce case to remember that the court must "issue written findings of fact that support the determination that the marital property has been equitably divided and shall specify the dates it used in determining the meaning of "during the marriage." R.C. 3105.171(G). The court does not have to determine value of nominal assets or debts, but cannot proceed without a valuation of major assets or debts absent an agreement otherwise by the parties. However, once a party "waives" his or her right to a specific valuation of the property, the party cannot raise the court's failure to conduct a specific valuation of the assets and debts as an issue on appeal.
Waiver of specific valuation can be found to have occurred when the party enters into an agreement regarding the division of assets without first demanding a specific valuation or even if the party simply does not take the steps necessary to give the court the information the court needs to value the assets. Thus, it is important to make sure you have obtained the information necessary regarding the assets and debts, including their values, and solid documentation verifying it, before entering into settlement negotiations.
Retirement Accounts, Pensions, 401(k), IRAs, and other retirement and qualified savings accounts are always a potential quagmire for attorneys in divorce cases. These qualified accounts are very complex, are governed by federal statutes, and mistakes in dividing such accounts can be extremely costly for the parties. That is why the proper division of these accounts are the subject of advanced divorce seminars. Some attorneys believe in referring the drafting of orders to divide such accounts off to businesses which specialize in drafting qualified domestic relations orders while others belief the attorney has the duty to oversee the preparation of these orders.