Splitting Assets in a Divorce: What Not to Overlook

Marital vs. Separate Property in Washington

Before we dive into what assets to make sure you consider, it is important that we remind you that Washington is a community property state. Legally, property and monetary rights acquired before your marriage, as well as gifts and inheritances received before or after your marriage, are your separate property. Separate property is not divisible and remains the property of the spouse who acquired the assets.

Marital (or community) assets are subject to division in divorce and are generally split equally between spouses. Community property includes all property obtained with community funds during the marriage and all earnings either spouse made during the marriage.

Don’t Overlook These Assets During Property Division

When splitting assets, it is important to ensure that all valuable possessions are accounted for to avoid disputes and ensure a fair settlement. Below, we outline some assets that can be forgotten that you should make sure to account for when negotiating or litigating a property division agreement.

Retirement Assets

Retirement accounts, such as 401(k)s, IRAs, and pension plans, are often significant assets acquired during a marriage. As we mentioned, earnings made during the marriage are community assets, which means any contributions to retirement accounts are considered marital property.

Deferred compensation can be easily overlooked in divorce proceedings because it is not always immediately accessible. The funds may be locked away in the plan until a certain age or event occurs.

Like all other marital assets, the division of retirement accounts is done equitably, though they may take into account each spouse's contributions. A Qualified Domestic Relations Order (QDRO) can be ordered to transfer funds from one spouse's retirement account to the other.

Business Interests

A business started during a divorce is subject to division, and in cases where a business was started before the marriage, its growth may be divided during a divorce in some cases. The court will typically consider factors such as the business's income, assets, liabilities, and growth potential. In equally diving business interests in a divorce, the court may ask one spouse to buy the other party out.

Restricted Stock Units

Restricted stock units (RSUs) are a form of employee compensation that grants the recipient the right to receive shares of company stock at a future date, often subject to certain conditions like staying employed for a specific period. Generally, only RSUs acquired during the marriage are community assets.

However, there are nuances to consider, particularly when RSUs are granted during the marriage but vest after the separation. In such cases, courts may use various formulas or approaches to determine the portion that is community property and the portion that is separate property.

It can be easy to overlook RSUs when dividing your assets, especially if your spouse has never mentioned having these assets. You (with the help of your attorney and/or financial investigator) can check your spouse’s paystubs, W-2s, benefits statements, and brokerage accounts for this data.

Intellectual Property

Intellectual property (IP) refers to intangible assets that result from creative work. It encompasses a wide range of creations, from artistic works to inventions and business processes. IP is a valuable asset that can provide significant economic benefits to individuals and organizations.

Examples of intellectual property include:

• Copyrights, which protect original works of authorship, such as books, articles, music, and software.
• Patents, which grant exclusive rights to inventors for their inventions for a limited period.
• Trademarks, which identify goods or services and distinguish them from those of competitors.
• Trade secrets, which refer to confidential information that gives a company a competitive advantage.
• Industrial designs, which protect the ornamental appearance of products.

Intellectual property itself may not be divisible, but IP royalties are. When an individual or organization licenses their IP to another party, they may receive royalty payments. These payments are a form of compensation for the use of the IP. Royalty rates can vary depending on factors such as the nature of the IP, the terms of the license agreement, and market demand.

The division of intellectual property can be complex, as it often involves determining the value of the property, which can be difficult to quantify. The court may use a Discounted Cash Flow (DCF) analysis to estimate the value of future earnings. This valuation method quantifies IP value by:

• Forecasting the future cash earnings the IP is expected to generate. This involves estimating revenue streams, costs, and expenses associated with the IP. Factors such as market size, competition, licensing agreements, and product life cycles are considered.
• Determining the discount rate. A discount rate is chosen to reflect the time value of money and the risk associated with the IP. This rate is used to discount future cash flows to their present value. A higher discount rate indicates greater risk or a lower perceived value. The expected lifespan of the IP, influenced by factors like patent expiration or market obsolescence, is crucial in determining the duration of cash flow projections.
• Calculating present value. Each projected cash flow is discounted to its present value using the chosen discount rate. This process accounts for the fact that a dollar received today is worth more than a dollar received in the future due to factors like inflation and opportunity cost

The present values of all projected cash flows are summed to determine the IP's total present value. This value represents the IP's estimated worth based on its expected future earnings.

In some cases, rather than calculating the value of the IP, the court may award one spouse ownership of the intellectual property in exchange for other assets or a monetary payment.

Cryptocurrencies

Crypto assets can be easily hidden and forgotten in divorce proceedings. Its digital nature and decentralized storage make it less tangible than traditional assets like bank accounts or real estate. This can lead to inadvertent omissions when dividing marital property.

While it can be hard to account for crypto assets, and the value of cryptocurrency can fluctuate, the court can consider the date of acquisition, the value of the cryptocurrency at the time of divorce, and any contributions made by each spouse when dividing these assets.

Credit Card Points & Rewards

Credit card points and airline miles can be valuable assets that are often overlooked in divorce proceedings. These points and miles can be redeemed for travel, merchandise, or other rewards. While they may not have a direct monetary value, they can be worth a significant amount of money.

There is no set formula for calculating the value of points and rewards. However, some credit cards allow miles and point-based rewards to be converted to cashback rewards, which do have a set cash value.

Value Associated with Professional Degrees & Licenses

While the degree and license themselves are not considered community assets, the court may offer a spouse a greater share of community assets to compensate them for the loss of the benefits associated with the professional license or degree. However, compensation for these assets is usually only awarded for cases where the degree or license was obtained during the marriage, and the other spouse greatly contributed to its acquisition.

Experienced Property Division Attorneys

In property division matters, an attorney with the appropriate experience to match your situation is important to help you determine all your separate and marital assets and assess their value to ensure a fair division of assets. McKinley Irvin is well known for our ability to handle cases with complex asset divisions. Contact us to discuss your case.