Video Transcript about Utah’s property division.
I’m Dan Couvrette, the publisher of Family Lawyer Magazine and divorcemag.com, and today I have the pleasure of speaking with Utah family lawyer Sharon Donovan as part of a series of interviews that I’m doing with top family lawyers across the country. Sharon works at the law firm of Dart Adamson and Donovan, which has offices in Salt Lake City and Park City, Utah. I’m excited to be speaking with Sharon for a number of reasons. One is that she is truly one of the top family lawyers in the country – and specifically in Utah. She has over 40 years of experience and has been recognized in many, many ways as a top family lawyer.
She’s a fellow of the American Academy of Matrimonial Lawyers, which is a select group of top family lawyers across the country. She is a member of the American College of Trial Lawyers, and if you go to her website, you’ll see she has many accolades that confirm her status, Sharon and I are going to be talking about how property is divided in a divorce in Utah. We’ll cover the basics, but we’ll also get into how stock options, retirement accounts, and inheritances are divided when it comes to divorce. Sharon, thank you for taking the time to talk with me today!
Sharon Donovan: I’m happy to be here.
Let’s start with defining the difference between an equitable distribution state and a community property state. Which one is Utah?
Utah is an equitable distribution state – as are a lot of states – which means that the court has a lot of discretion to divide property in a divorce in Utah. It does not have to be equal, but it does need to be fair and equitable under the circumstances, considering a number of factors. That’s unlike other states such as California and Idaho, which are community property states, meaning that everything is divided 50-50 without regard to any of the other factors that the Utah courts would usually consider.
Can you define the difference between marital property and separate property in Utah?
Marital property is typically property that’s been acquired during the marriage by one or both spouses, and the court should divide that property equitably. Separate property is the subject of a lot of litigation in Utah because it is typically property that one party brought into the marriage. We call that premarital property. Property acquired by gift or inheritance is normally considered non-marital property, unless it has been so comingled that it looses its separate character.
Who decides what is marital property and what is separate property – and what if one spouse disagrees with the other about what is and what isn’t?
Hopefully, the parties can agree with the help of good lawyers, mediators, or collaborative professionals – but in the event that they are unable to do so, the courts have to get involved. In Utah, the judges will first identify the character of the property before making a decision. Is the property marital property, which would be typically divided equitably, or would it be separate property (with no exceptions) that would typically go back to the party that brought the asset into the marriage? And overall, the court would decide what an equitable division of property would be.
Does equitable division mean that there’s a 50-50 split on the property in a divorce? How does that work?
It isn’t always 50-50. As a general rule, the judges and lawyers start with the premise of 50-50, but the court has the power and the discretion to award a disproportionate division of assets if it’s equitable; for example, the court looks at how long they’ve been married, the work history of the parties, their ages, and their medical condition. The court might order a disproportionate division of the marital property to take into account alimony or attorney’s fees. The courts’ decisions are generally upheld if they are found to have made an equitable decision.
A family lawyer’s experience makes a huge difference because there are a lot of factors to take into account regarding the final settlement. Is it true that lawyers can greatly influence the end result?
Lawyers can have a great impact on the end result depending on any process that you use. Collaborative lawyers certainly make a difference, and in mediation, the lawyers can make a huge difference and picking the right mediator can make a huge difference. The experienced lawyers know who the right professionals are so that you can select a team that can really help resolve your case. If you have to go to trial, which would not be my first choice, you want to have a lawyer who is experienced in the law, has a good reputation with the courts, and is also knowledgeable about trial practice.
If one spouse worked outside of the home during their marriage, are their contributions to their retirement accounts considered marital property?
We get a lot of cases where you have a pretty typical marriage relationship: one party stays at home with the children and doesn’t work outside the home, but works very hard on domestic duties, and the other party is the primary breadwinner. It doesn’t matter who earned the money as long as it was earned during the marriage – including the retirement accounts. The retirement accounts would be divided equitably, oftentimes 50-50.
Would that be true for something like stock options an ex-spouse could execute after the marriage has ended? Would there be some consideration for that sort of thing?
Stock options are just fraught with conflict and litigation. The simplest way to divide stock options in a long-term marriage would be to divide them equally or equitably. Perhaps there’s a four-year vesting and everything is vested. The problem you get is if stock options are granted but you can’t exercise them yet. Let’s say you can’t exercise them for two years after the divorce. Some people would say the last two years don’t count as marital property. Other people might say that you should calculate a percentage, like you would in a “wood ward formula,” in a retirement case. There’s a lot of discretion and there’s a lot of litigation over those sorts of issues.
What if one spouse received money from an inheritance? Would that be considered separate property? Let’s say they took that money and used it to renovate their home or buy a boat, and then they got a divorce. Can they still claim the inherited money as their separate property, or is that now part of the community property?
They can claim their inheritance, and there’s a lot of litigation over separate property becoming marital property because it’s been commingled because a party – say the wife – used a lot of her inheritance to remodel the house and buy things for the family. If she just spent her inheritance and it’s gone, she doesn’t get credit for it. It’s just gone. If it hasn’t been commingled or lost its separate character, or if it has been commingled but you can trace it, it remains separate property. We use forensic accountants a lot to trace separate property. There are often separate property claims if it can be traced; we spend a lot of time in litigation or mediation over those types of issues.
What if one spouse brought multiple properties – let’s say a vacation home, rental house, or a building – into the marriage? How are those assets divided?
Generally, if you have a separate property issue – say an inheritance – but then you use that inheritance to buy a property – say a vacation home – and the other spouse worked very hard on maintaining that property and remodeling it. They were in charge of all of those decisions, and they helped pay the mortgage on the vacation home. We would call that a “contribution exception” because the other spouse contributed substantially to the increase in equity. Under those circumstances – if it was equitable – the court would generally award the spouse who didn’t inherit the money some equitable interest in the increase in value of that property.
Earlier, you touched on mediation, collaborative divorce, and litigation, and said that your last choice would be litigation. How is property division affected when you mediate or work in the collaborative model? What is the best process to divide assets?
Of the three options in Utah, the most common is mediation. We have mandatory mediation in every case, which means that before the court will either allow you to go to trial or perhaps even set a trial, you have to go to mediation. We have some very capable mediators, some of whom are retired judges. A retired judge brings their gravitas to mediation, and since they know what the courts would do, they’re really good at helping couples to work out an equitable settlement.
The other, newer process is called collaborative family law: that’s where you have a trained collaborative lawyer on both sides and both parties are motivated to settle their case in a collaborative way where court isn’t an option. If it doesn’t work out, then the collaborative lawyers withdraw and the parties have to start all over. They have to hire litigators, which is very expensive, and most people don’t want to do that.
The third option is litigation – and having litigated for over 40 years, I’ve found that if people have some control over the result, they usually feel better about it. With the mediation or collaborative processes, they have some ownership over the result. With litigation, a judge – who may be short-tempered because he had a fight with his wife that morning – makes the decisions for you. If they make a decision that we don’t think is equitable, you have to spend a lot of money on appeals, and your case can drag on and on and on. We find that parties and their families do better when there’s the least amount of conflict and you can finalize the divorce sooner rather than later.
I want to point out that this is generous advice from a lawyer who would make more money if you litigated your case than if you mediated or used the collaborative process. This is the type of lawyer that you want to work with: somebody who gives you options and always looks for the best solutions.
Let’s talk about QDROs, because retirement accounts are often one of the biggest assets that folks have. Can you describe what a Qualified Domestic Relations Order is, and how and when is it used?
When there’s a retirement account that needs to be divided – typically a 401(k) or a 403(b), but not an IRA – the concern is that if you just wrote a check out of your retirement account for your spouse to deposit into another account, that money would be taxable, and we don’t want to do that. Instead, the court can sign and send a Qualified Domestic Relations Order to the plan administrator telling them to divide the marital portion of the retirement account in some way, oftentimes 50-50. Those funds are rolled into a separate account for the other spouse until that spouse is ready to pull it out – hopefully, not until retirement age, because there are penalties if you pull it out early. Contrast that with IRAs: typically, all you need is a transfer form for an IRA, and you don’t need a QDRO. Some plans cannot be divided, so you want to have a lawyer who’s very knowledgeable about retirement plans. There are also a lot of issues with survivor benefits. We just did a military retirement pay case and the survivor benefit that you have to pay for became a huge issue in that case. You need to have a lawyer who’s knowledgeable about retirement and survivorship issues – or if they’re not knowledgeable, they will consult with somebody who is.
Someone in their 20s or 30s may not be concerned about retirement yet. Is there any reason why they should pay attention to retirement plans if they’re going through a divorce?
One of my pet peeves is that young people should start saving for their retirement sooner rather than later, because as you reach retirement age, you can see the time value of money and the compounding of interest. If you’re in your 20s or 30s, and if $20,000 gets transferred into an in an IRA or a 401(k) account in your own name and you don’t touch it until you’re in your 60s, it’s amazing how much money that plan could be worth. I think that young people, maybe even more so than the middle-aged and so-called “grey divorcees,” should be advised about not touching that retirement account.
One final question for people who are thinking about getting married or remarried after divorce. Let’s say one party has lots of money and the other party doesn’t; how does the wealthy party protect their assets if they’re contemplating getting married?
Many people who are watching this video have heard about prenuptial agreements or prenups, and we do a lot of those. With the younger folks, you might have one party who has a lot of family money, trust money, and the family wants to protect that wealth; a prenup can do that. We also see middle-aged engaged couples, one or both of whom may have been married and divorced multiple times. They want to protect their money because they’ve done this before, or because they want to leave their money to their children from a previous marriage. Prenups are common for second and third marriages. In Utah, we have lawyers who handle a lot of that type of work. For example, one of my law partners, Amy Kennedy, does a lot of prenups. If you’re going to do a prenup, you must do it early. You don’t wait until all your relatives have flown in for the rehearsal dinner and your fiancé is pregnant to say: “Sign this or else!” That’s just not a good look, so you want to do it in advance, and you want both sides to have lawyers and have time to really talk it through.
I want underline once again the value of working with a family lawyer who has a tremendous amount of experience and a great team behind them. I advise anybody who’s contemplating a divorce in Utah to visit Sharon’s firm’s website: www. dadlaw.net. You’ll learn more about Sharon and other members of her family law department, and find resources such as divorce guides and newsletters. Sharon, thank you once again for your time; it has been a real pleasure.
It’s been a pleasure talking to you. Thank you.