Maryland Divorce Attorney Blog

Anyone facing the possibility of a separation and divorce that involves significant assets should confer at an early stage with a Maryland Divorce Attorney. Such a conference should include an evaluation of all property disposition issues. The potential for disappearing or undisclosed assets are just a couple of issues that should be explored at an early phase of separating from a spouse.

In sitting down with a Family Law attorney, you need to understand the context in which property issues will arise. At the time of separation and divorce, a couple's financial affairs become subject to careful scrutiny. Title to property may have been set up in a way that would lead to a disproportionate benefit to one of the parties. In order to avoid an unjust result, Maryland's Marital Property Law empowers the judge at the time of divorce to balance the equities between the spouses. In a three step process, the court identifies marital property, values it and then makes a monetary award. The last step is a subjective decision that the judge makes based on the eleven factors set forth in section 8-205 of the family law article

Sometimes, a divorcing spouse attempts to obstruct this process. One form of obstruction is for marital property to "disappear". Such action can be considered a fraud on the marital rights of the other spouse. There must be evidence that the property was expended for the principle purpose of keeping the judge from considering its existence in making a monetary award. On the other hand the spouse who is charged with dissipation of property has the opportunity to prove that it was used for appropriate purposes, for example mortgage payments and other legitimate expenses.

Maryland's laws relating to property disposition in Divorce are not intuitively obvious to the layman. As discussed in a prior blog post, it is far too easy for a party to inadvertently prejudice their position. Even in separations that are expected to be amicable, careful analysis and understanding of your rights is recommended.

In my last blog, I gave an overview of how closely held businesses will be treated under Maryland's Marital Property Law. Most owners have poured their heart and soul into making their business a success. Therefore, it is not surprising that the combination ending a marriage and subjecting the business to judicial scrutiny, may create an emotionally charged atmosphere. In such instances, the experience and skill set that is needed is that of a Maryland divorce lawyer with business litigation experience. One of the most difficult aspects of such cases involves the valuation of the business.

Unless an owner can qualify as expert witness in valuing businesses, he or she cannot testify to the valuation. Instead both parties will have to hire expert witnesses. "There are probably few assets whose valuation imposes as difficult, intricate and sophisticated a task as interests in close corporations". Book value is usually to simplistic an approach. It fails to deal with goodwill, actual profits and discounting of minority interests.

Factors that an expert will consider include the nature and history of the business, the economic outlook in general and outlook of the specific industry, book value and financial condition of the business, its earning and dividend-paying capacity, any good will or other intangible value, prior sales of stock and market price of stock of similar businesses traded on a stock exchange or over the counter. This list is not all inclusive and there is no formula for determination of how they interact.

Once an expert has obtained the available information, there are three principle methods of evaluating a business: (1) capitalization of indicated earnings at a reasonable return on investment, after consideration of interest rates and risk, (2) comparing price to earnings ratios for comparable businesses that are publicly traded or (3) appraisal of individual assets both tangible and intangible.

The Baltimore-Washington Corridor including Howard County, Anne Arundel County, Baltimore County, Harford County, Prince Georges County and Montgomery County is blessed with many successful privately held business that create a special issue for Maryland Divorce Lawyers. A closely held business is one that is privately owned as opposed to one whose stock is publicly traded. In Separation and Divorce, an interest in a closely held business can become quite contentious. In such cases, it is helpful to engage legal counsel who has experience not only in Maryland Divorce cases but also in Business and Business Litigation.

If legal formalities have been carefully followed in the establishment of the business, ownership of the business can be expeditiously established. The next issue is whether the business is marital property. A business that was started during the marriage is probably marital, unless an exception such as a valid Pre-Marital Agreement can be proven. Even if a spouse owned his or her business prior to the marriage or received an interest by gift or inheritance, it may become partially marital property due to efforts expended during the marriage to increase the value of the business.

Once a business is identified as Marital it needs to be valued as of the date of the divorce. If the business is partially Marital (e.g. owned prior to the marriage), the necessary valuation is the difference between the values of the business at the time of the Divorce and at the time of the marriage.

The value of Marital Property in the form of a closely held business is added to the value of other Marital Property. Considering the Marital Property in the possession each party, the Court will consider each of the factors set forth in Section 8-205 of the Family Law Article to determine the grant of a Monetary Award. Such an award it intended to correct any inequity created by the way in which property acquired during the marriage happened to be titled.

The fifth amendment to the U.S. Constitution gives every individual the right against self incrimination. While this right is typically invoked in criminal proceedings and Congressional hearings, it is also seen in civil cases including divorce proceedings. Maryland Divorce Lawyers know that the right to refuse to testify frequently arises in cases involving adultery. Pursuant to Section 10-501 of the Maryland Criminal Code, adultery is a misdemeanor punishable by a fine of up to $10. This ancient state law gives errant spouses an alternative to admitting adultery or committing perjury.

Unlike the criminal law arena, the court may draw an adverse inference from the invocation of the refusal to testify. This can be costly in a marital property dispute. In Turner vs. Turner, there was evidence that husband had used illegal drugs and was involved with another women during the marriage. He invoked the right not to answer questions relating to his withdrawal of funds from a joint bank account of husband and wife. Wife claimed that he had dissipated these funds. The trial court agreed and her award under the Marital Property Act was augmented as a result. This decision was upheld on appeal. In part the appellate court upheld the ruling on the grounds that it was appropriate to draw an adverse inference from husband's decision to plead the fifth.

The take away from this opinion is that murderers, rapists and other felons can invoke the privilege without consequence. Parties to divorce are well advised to think strategically. It may be a way of avoiding embarrassing testimony but can be costly.