PROPERTY DIVISION TRIAGE - IDENTIFYING UNUSUAL TYPES OF DIVISIBLE PROPERTY
2000 National Legal Research Group, Inc.

Introduction

When health-care institutions are faced with a large number of catastrophic injuries in a very short period of time, they resort to a process known as triage. A doctor or nurse evaluates the patients, categorizing them as likely to survive without immediate attention; likely not to survive even with immediate attention; or likely to survive only if treated immediately. The institution's limited resources are then focused upon the third group of patients those in acute, immediate need of health- care services.

Attorneys considering property division issues in a divorce case are in a somewhat similar situation. In the context of a busy family law practice, it is not feasible to research in great detail the divisibility of every asset owned by the parties. The firm's attorneys have limited time available for research, and they must spend that time in the most efficient manner possible.

To use their research time efficiently, many practitioners conduct a process similar to triage. They scan a list of the parties' property and mentally characterize assets as either clearly divisible, clearly not divisible, or sufficiently questionable to merit future research. Research resources are then concentrated upon the assets whose divisibility is questionable.

When an asset falls into the questionable category, most practitioners have sufficient research skills to determine whether it is actually divisible. But the application of those research skills depends upon whether the practitioner initially places the asset into the questionable category. If the practitioner fails to recognize at least the possibility that an asset might be divisible, the issue is never researched. The result might be the loss of a potentially divisible asset.

To avoid this type of loss, family law practitioners must develop their ability to recognize quickly when an asset might be divisible. They must, in other words, develop their ability to conduct property division triage. The primary purpose of this article is to set forth in summary fashion unusual types of divisible property, so that the reader will acquire a better sense of what might be divisible. The secondary purpose is to provide authority on the divisibility of specific types of assets, to give the reader a starting point for researching the divisibility of those assets.

Divisibility vs. Value

There are, in general, two types of assets which attorneys tend to overlook in divorce proceedings. The first type of assets are those which do not immediately look like property, for example, government benefits, bonus programs, or frequent flyer miles. The second type of assets are those which look like property, but which appear to have less value than they actually have. For instance, hobby collections are often overlooked, not in the belief that they are not divisible but rather in the belief that their value is too small to worry about. To conduct accurate property division triage, the practitioner must be able to sense not only the likelihood that an asset will be divisible but also the likelihood that it will have substantial value.

Overview

The substance of this article begins with a summary checklist of divisible or potentially divisible assets. The pages after the checklist then discuss each item which appears on it. The summary checklist references the page on which each individual type of asset is discussed.

Since this article focuses upon unusual types of marital assets, assets which are generally accepted as divisible receive minimal discussion. Assets which may or may not be divisible, but which have been discussed extensively in other sources, also receive minimal discussion. For example, retirement benefits and goodwill fall into this category. The article fully discusses those unusual types of assets which have not been generally considered in other available sources.

This article uses the term "divisible property" or "divisible asset" to mean an asset which the court is permitted to divide that is, an asset which meets the legal definition of the term "property." In the minority of states which follow the all property division system, which gives the court power to divide any "property" owned by either party, the court has power to divide any asset defined as "divisible" in this article. In the majority of states which follow the dual classification division system, "divisible property" can actually be divided only if it also meets the relevant statutory definition of "marital property." This article will make various side notes on the marital/separate property issue, but its primary focus is upon which assets do and do not constitute "divisible property."

Potentially Divisible Marital Assets:

A Summary Checklist

1. Real Property
a. Marital Residence
b. Recreational Properties (Vacation Home, Condominium)
c. Rental Properties
d. Commercial Properties
e. Leased Property
f. Security Deposit
g. Future Interests (Remainders)
h. Oil, Gas, and Mineral Interests

2. Transportation
Automobiles
a. Trucks and Vans
b. Motorcycles
c. Boats
d. Airplanes

3. Businesses/Investments
a. Self-Operated or Family Business (including a professional practice)
b. Investment Stock
c. Stock Options
d. Mutual Funds
e. Bonds
f. Degrees and Licenses
i. Property Claim (Michigan, New York, Oregon)
ii. Unequal Division/Reimbursement Alimony (other states)

4. Bank Accounts
a. Checking Accounts
b. Savings Accounts
c. Money Market Accounts
d. Certificates of Deposit
e. Savings Bonds
f. Safe Deposit Boxes

5. Retirement Benefits
a. Defined Benefit Plans
i. Private Employer
ii. Government/Military (former career?)
iii. Disability Benefits
b. Defined Contribution Plans
i. 401(k) Plans
ii. IRAs
iii. Thrift Savings Plans (federal employees; a supplement to their normal defined benefit plan)
iv. Other Private Plans
c. Profit-Sharing Plans
d. Employer-Sponsored Life Insurance
e. Vacation Time and Sick Leave
f. Survivor Benefits

6. Intellectual Property
a. Patents
b. Copyrights
c. Contracts for Royalties

7. Other Income-Producing Assets
a. Promissory Notes
b. Annuities
c. Trusts (not always separate property)

8. Personal Injury Benefits
a. Structured Settlements
b. Unpaid Judgments
c. Pending Claims
d. Unfiled Causes of Action
e. Workers' Compensation Awards

9. Life Insurance (Cash Surrender Value)

10. Dissipated Assets

11. Family Pets

12. Other Personal Property
a. Household Furnishings
b. Antiques (furniture, firearms)
c. Works of Art (paintings, sculptures)
d. Adult Collections (coins, stamps, guns)
e. Childhood Collections (model trains, baseball cards)

13. Customer Bonus Programs
a. Frequent Flyer Miles
b. Other Programs

14. Income Tax
a. Pending Refunds
b. Capital Loss Carry-Forward
c. Dependency Deduction for Children
d. Other Tax Benefits

15. Government Benefits
a. Marketable Licenses (e.g., radio licenses, fishing quotas)
b. Contractual Benefits
c. NOT Social Security (federal preemption)

Potentially Divisible Marital Assets:

An Annotated Checklist

1. Real Property
a. Marital Residence
b. Recreational Properties (Vacation Home, Condominium)
c. Rental Properties
d. Commercial Properties

Real property obviously constitutes a divisible asset. Because of its substantial value, it is likely to be acquired with a mixture of both marital and separate funds, and thus is a frequent subject of disputes over transmutation. When transmutation has not occurred, real property is also the subject of many disputes over the proper method of measuring hybrid, marital, and separate interests. All of these subjects have been extensively covered by other sources. See, e.g., Brett R. Turner, Equitable Distribution of Property 5.09-5.10, 5.23-5.24 (2d ed. 1994 & Supp. 2000); Louise Everett Graham, "Using Formulas to Separate Marital and Nonmarital Property: A Policy Oriented Approach to the Division of Appreciated Property upon Divorce," 21 Ky. L.J. 41, 54 (1985); J. Thomas Oldham, "Tracing, Commingling and Transmutation," 23 Fam. L.Q. 219, 224-26 (1989); Sally Burnett Sharp, "The Partnership Ideal: The Development of Equitable Distribution in North Carolina," 65 N.C. L. Rev. 195, 217 (1987).

e. Leased Property

For specific cases involving property which is leased rather than owned, see Castiglione v. Castiglione, 259 A.D.2d 582, 686 N.Y.S.2d 486 (1999) (time-share property was a marital asset); MacDonald v. MacDonald, 226 A.D.2d 596, 641 N.Y.S.2d 349 (1996) (leasehold interest was marital property); and Milner v. Littlejohn, 126 N.C. App. 184, 484 S.E.2d 453 (1997) (where husband leased automobile, court could award automobile to wife during term of lease, but could not award her outright ownership; error to order husband to purchase car at end of lease period). But see Finnical v. Finnical, 992 S.W.2d 337 (Mo. Ct. App. 1999) (leased car not marital property; noting absence of evidence that husband would keep the car when the lease expired).

f. Security Deposit

When the parties make a security deposit upon leased property during the marriage, the right to return of that deposit when the lease ends is marital property. Quinn v. Quinn, 83 Md. App. 460, 575 A.2d 764 (1990); Iaquinto v. Iaquinto, 248 A.D.2d 676, 670 N.Y.S.2d 572 (1998).

g. Future Interests (Remainders)

For specific cases involving future interests, see Gregg v. Gregg, 510 A.2d 274 (Del. 1986), and Moyars v. Moyars, 717 N.E.2d 976 (Ind. Ct. App. 1996) (remainder interest in land was property; noting that future interests can be transferred for consideration).

h. Oil, Gas, and Mineral Interests

For specific cases involving oil, gas, and mineral rights, see Huckabee v. Huckabee, 544 So. 2d 170 (Ala. Civ. App. 1989); In re Marriage of Hollensbe, 165 Ill. App. 3d 522, 116 Ill. Dec. 450, 519 N.E.2d 40 (5th Dist. 1988); Fix v. Fix, 125 Idaho 372, 870 P.2d 1331 (Ct. App. 1993); Gray v. Gray, 922 P.2d 615 (Okla. 1996); Norris v. Vaughan, 152 Tex. 491, 260 S.W.2d 676 (1953); and Colman v. Colman, 743 P.2d 782 (Utah Ct. App. 1987).

2. Transportation

Automobiles

a. Trucks and Vans
b. Motorcycles
c. Boats
d. Airplanes

Vehicles, like real property, are obviously divisible assets.

3. Businesses/Investments

a. Self-Operated or Family Business (including a professional practice)

Businesses of all types, including specifically professional practices, are universally treated as divisible property to the extent of their tangible physical assets. The difficult question is not the divisibility of the business but rather the divisibility of its goodwill its intangible value as a going concern, over and above the value of its individual assets. Goodwill is always divisible when it can be immediately realized by sale on the open market. The divisibility of unmarketable professional goodwill is a very disputed issue; roughly one-half of all states considering the question have held that such goodwill is not divisible. See generally Turner, supra, 6.22; Brett R. Turner, "Classification and Division of Business and Professional Goodwill," 8 Divorce Litigation 121 (1996); Alan S. Zipp, "Divorce Valuation of Business Interests: A Capitalization of Earnings Approach," 23 Fam. L.Q. 89 (1989).

Stock in a self-operated or family business is often partly marital property even when acquired before the marriage. In most dual classification states, the marital estate includes active appreciation in separate property appreciation which is a result of marital funds or marital efforts. Because the owner of a self-operated business has such great control over its value, courts frequently find that appreciation in the value of such a business is at least partly active. See generally Turner, supra, 5.22.

b. Investment Stock

Investment stock is obviously a divisible asset. Where the stock is separate property, but substantial marital funds or effort went into its selection, the appreciation could be marital property. Many persons do not put substantial time and effort into selecting their investment stock, however, so appreciation in investment stock is usually passive, rather than active. See generally Turner, supra, 5.22.

c. Stock Options

There is general agreement that stock options of all sorts are divisible property. The classification of unvested options has been a very hot issue in recent years, as there has been a great increase in the frequency of stock option programs, especially in the high technology area. To summarize the cases, options earned during the marriage are marital property; options earned before or after the marriage are separate property. The period over which any given set of stock options is earned is a complex question of fact. The most common result is that the options were earned gradually, over the entire vesting period. This is not automatically true, however; for instance, some of the cases find that unvested options were given in consideration of past as well as future services. Counsel faced with a stock option plan should obtain a copy of the plan itself, plus any documents or letters accompanying the various options, and research the question in detail. See generally Turner, supra, 6.15; Brett R. Turner, "Stock Options and Other Restricted Benefits as Divisible Property in Divorce Actions," 9 Divorce Litigation 201 (1997).

d. Mutual Funds
e. Bonds

Bonds and mutual funds are generally treated as divisible assets, in much the same manner as investment stock.

f. Degrees and Licenses

i. Property Claim (Michigan, New York, Oregon)
ii. Unequal Division/Reimbursement Alimony (other states)

Academic literature has long debated the proper classification of degrees and licenses, but the case law is relatively clear. In Michigan and New York by case law, and in Oregon by statute, degrees and licenses are divisible property. In all other states, they are not divisible property. Contributions to degrees and licenses are still a valid basis for an unequal division of other assets, however, and where divorce occurs shortly after completion of the degree or license, most states will award the contributing spouse some form of reimbursement alimony. See generally Turner, supra, 6.21.

4. Bank Accounts

a. Checking Accounts b. Savings Accounts c. Money Market Accounts d. Certificates of Deposit e. Savings Bonds f. Safe Deposit Boxes

Bank accounts of all sorts are clearly divisible property.

5. Retirement Benefits

a. Defined Benefit Plans

i. Private Employer
ii. Government/Military (former career?)
iii. Disability Benefits

b. Defined Contribution Plans

i. 401(k) Plans
ii. IRAs
iii. Thrift Savings Plans (federal employees; a supplement to their normal defined benefit plan)
iv. Other Private Plans

c. Profit-Sharing Plans
d. Employer-Sponsored Life Insurance
e. Early Retirement/Severance Benefits
f. Vacation Time and Sick Leave
g. Survivor Benefits

Almost all states agree that retirement benefits are divisible property. Arkansas and Indiana continue to divide only vested benefits, but the law is otherwise uniform nationwide. Turner, supra, 6.09. Federal law prevents division of military disability benefits, veterans' disability benefits, Tier I railroad retirement benefits, and certain deductions from military retirement pay. Id. 6.04-6.06.

The difficult questions involving retirement plans are questions of classification. There is a major split in authority on the extent to which post-divorce increases in retirement benefits constitute marital property. One line of cases, following the marital foundation theory, gives the marital estate its normal percentage share of the entire pension, including future increases, reasoning that the future increases are given in consideration of the employee spouse's entire time of prior service. Another line of cases holds that post-divorce merit increases in retirement benefits are consideration only for post-divorce efforts. (Cost-of-living increases in the marital share of the benefits, of course, are always marital property.) See generally Turner, supra, 6.10; Jerry Reiss, "The Emerging Marital Controversy: When Should Postdissolution Retirement Benefit Increases Be Treated as Marital Property," 7 Divorce Litigation 162 (1995); Gary A. Shulman & David I. Kelley, Dividing Pensions in Divorce ch. 14 (1996).

Several types of retirement benefits are sometimes overlooked in a hasty review of the parties' property. Do not overlook the possibility that retirement benefits may have been acquired in a former career. Many private pensions have short vesting requirements, sometimes as short as five or ten years, so that employees who left their employer long ago will receive benefits at some future point. Also, older divorcing parties who served in the military may be entitled to military retirement, even if they have since accepted civil service or private sector employment. The relationship between military and civil service retirement is complex there are ways to trade off one for the other and in any case where both benefits are available the divorce decree should include provisions to protect the nonowning spouse from future conversion of benefits. See generally Turner, supra, 6.06.

Also, do not assume that civil service employees have only the normal defined benefit retirement plan (Civil Service Retirement System (CSRS) or Federal Employees' Retirement System (FERS) benefits). The federal government has also created the Federal Thrift Savings Plan (FTSP), a defined contribution plan for federal employees. The Plan is operated by its own federal agency, the Federal Retirement Thrift Investment Board (FRTIB), and not by the Office of Personnel Management, which oversees other civil service retirement benefits.

FTSP benefits are clearly subject to division by state divorce courts. 5 U.S.C.A. 8435; 5 C.F.R. 1653.2. Like every other federal agency, however, the FRTIB has its own set of procedural requirements for state court orders. 5 C.F.R. pt. 1653. In particular, because the FTSP is a defined contribution plan, any attempt to divide FTSP benefits in the same manner as civil service retirement benefits is almost certain to result in trouble. The safest alternative is to read and rely upon the FRTIB's own set of regulations in drafting orders to divide FTSP benefits.

Only one reported state appellate decision expressly divided FTSP benefits, and in that case the court simply noted the fact of division; the correctness of the trial court's order was not at issue on appeal. Tybus v. Holland, 989 P.2d 1281 (Alaska 1999). In Fairfax County, Virginia, which sees a steady volume of divorce cases involving federal employees, FTSP benefits are routinely treated as marital property to the extent acquired during the marriage. See, e.g., Lynch v. Lynch, Chancery No. 143989 (Fairfax County, Va., Cir. Ct. Dec. 15, 1997); Stanton v. Stanton, Chancery No. 142019 (Fairfax County, Va., Cir. Ct. Nov. 17, 1997). One of these decisions was affirmed by the App. Mar. 3, 1998).

One specific type of employment benefit which is sometimes overlooked is vacation or sick leave. When the employer permits these types of leave to be accumulated, and pays a retiring employee the value of any unused benefits, unused vacation and sick time is a divisible asset. See Schober v. Schober, 692 P.2d 267 (Alaska 1984); Brotman v. Brotman, 528 So. 2d 550 (Fla. Dist. Ct. App. 1988); Lesko v. Lesko, 184 Mich. App. 395, 457 N.W.2d 695 (1990); In re Marriage of Meeks, 276 Mont. 237, 915 P.2d 831 (1996) (accrued sick leave and vacation time is creditable service for purposes of dividing retirement benefits); Ryan v. Ryan, 261 N.J. Super. 689, 619 A.2d 692 (Ch. Div. 1992); Grund v. Grund, 151 Misc. 2d 852, 573 N.Y.S.2d 840 (Sup. Ct. 1991); In re Marriage of Williams, 84 Wash. App. 263, 927 P.2d 679 (1996) (accumulated vacation time and sick leave constituted divisible property); In re Marriage of Hurd, 69 Wash. App. 38, 848 P.2d 185 (1993); Nuss v. Nuss, 65 Wash. App. 334, 828 P.2d 627 (1992). But see Thomasian v. Thomasian, 79 Md. App. 188, 556 A.2d 675 (1989) (accumulated leave is not divisible property).

6. Intellectual Property

a. Patents
b. Copyrights
c. Contracts for Royalties

All forms of intellectual property are divisible assets for divorce purposes. Turner, supra, 6.25; Brett R. Turner, "Division of Intellectual Property Interests upon Divorce," 12 Divorce Litigation 17 (2000); Judith R. Forman & Vincent M. Waldman, "Identifying and Dividing Intellectual Property: Practical Considerations at Marital Dissolution," in 1999 Wiley Family Law Update 75 (Eric Pierson ed., 1999). The only case ever to hold that federal law prevented division, Rodrigue v. Rodrigue, 55 F. Supp. 2d 534 (E.D. La. 1999), was recently reversed by the Fifth Circuit. Rodrigue v. Rodrigue, No. 99-30334, 26 Fam. L. Rep. (BNA) 1447 (5th Cir. July 7, 2000).

7. Other Income-Producing Assets

a. Promissory Notes
b. Annuities
c. Trusts (not always separate property)

Notes, annuities, and trusts are all usually divisible property. Trusts are separate property when acquired by gift or inheritance, or when they pre-date the marriage. Trusts established by the parties themselves, using marital funds, should be ignored when they are revocable; the power to revoke these trusts essentially constitutes ownership of the trust assets. Irrevocable trusts cannot be ignored, but they are marital property to the extent that marital funds were used to create them. See generally Turner, supra, 6.18, 6.28.

8. Personal Injury Benefits

a. Structured Settlements
b. Unpaid Judgments
c. Pending Claims
d. Unfiled Causes of Action
e. Workers' Compensation Awards

Personal injury benefits are generally divisible property. A few states still refuse to divide unfiled causes of action, on the theory that they are unvested. Most states treat even an unfiled claim as a divisible asset. Turner, supra, 6.17.

Once again, the more difficult issue involving personal injury benefits is classification. A majority of dual classification states treats such benefits as marital property only to the extent that they constitute consideration for lost marital wages and medical expenses paid with marital funds (the analytic approach). A minority of dual classification states, and of course all of the all property states, treats all personal injury benefits as marital property (the mechanistic approach). Turner, supra, 6.18-6.19.

9. Life Insurance (Cash Surrender Value)

There is general agreement that life insurance is a divisible asset. In dual classification states, insurance is marital only to the extent that the premiums were paid with marital funds. The policy is given only its cash surrender value. Turner, supra, 6.28.

10. Dissipated Assets

Assets which are not owned at the time of divorce, but which were dissipated in anticipation of the marital breakdown, can often be treated as marital property and awarded to the spouse who dissipated them. See generally Turner, supra, 6.30.

11. Family Pets

Family pets of all sorts are treated as divisible property. See, e.g., Bolan v. Bolan, 32 Ark. App. 65, 796 S.W.2d 358 (1990) (dog and cat); Bennett v. Bennett, 655 So. 2d 109 (Fla. Dist. Ct. App. 1995) (dog); In re Marriage of Stewart, 356 N.W.2d 611 (Iowa Ct. App. 1984) (dog); Kennedy v. Kennedy, 256 A.D.2d 1048, 683 N.Y.S.2d 608 (1998) (horse); Arrington v. Arrington, 613 S.W.2d 565 (Tex. Civ. App. 1981) (dog). See generally Laura W. Morgan, "Who Gets Fluffy? Division of Pets in Divorce Cases," 11 Divorce Litigation 113 (1999). Pets are not children, and it is reversible error to apply openly any form of "best interests of the pet" analysis. E.g., Bennett; Arrington, 613 S.W.2d at 569 ("[T]he office of "'managing conservator'" was created for the benefit of human children, not canine").

Because the court cannot overtly consider the best interests of the pet, a threat to seek an award of the family pet can sometimes be of great concern to an animal-loving client. In these situations, it may be possible to reach something of the same result by arguing the general rule that property of great sentimental value to one spouse should be treated as part of that spouse's share of the marital property. Turner, supra, 8.11, n.303. This rule has traditionally been applied to family heirlooms, but there is no reason why it could not likewise be applied to a family pet. In most cases, the spouse with the greater emotional attachment will also be the more qualified caregiver.

12. Other Personal Property

a. Household Furnishings
b. Antiques (furniture, firearms)
c. Works of Art (paintings, sculptures)
d. Adult Collections (coins, stamps, guns)
e. Childhood Collections (model trains, baseball cards)

All of these miscellaneous types of personal property are clearly divisible assets. They frequently have particular sentimental value to one spouse and are therefore awarded to that spouse at the division stage, Turner, supra, 8.11, but their value is clearly subject to division. See In re Marriage of Harding, 189 Ill. App. 3d 663, 545 N.E.2d 459 (1989) (stamp collection); Long v. Long, 129 Md. App. 554, 743 A.2d 281 (2000) (model train collection); In re Marriage of Keedy, 813 P.2d 442 (Mont. 1991) (baseball card collection); Van Boxtel v. Van Boxtel, No. 99-0341 (Wis. Ct. App. Apr. 11, 2000) (collection of "precious moments" figurines).

The particular risk with regard to these assets is not that counsel will overlook their status as divisible assets, but rather that counsel will underestimate their value. Collectible items are frequently sold for surprisingly large prices, and this is particularly true in the era of eBay and other Internet auction sites. Overlooking the value of collectible items can exclude thousands of dollars from the marital estate. See Long v. Long, 129 Md. App. 554, 743 A.2d 281 (2000) (valuing husband's model train collection at over $400,000); Holden v. Holden, 31 Va. App. 24, 520 S.E.2d 842 (1999) (noting that husband had sold his premarital comic book collection during the marriage for $17,000).

To the extent that a hobby collection was acquired before the marriage, it may be separate property in a dual classification state, although the owning spouse bears the burden of proving the portion which was so acquired. Long. Long held that the burden had not been met and classified the entire collection as marital property. The same rule applies when part of the collection was acquired by gift. Van Boxtel.

13. Customer Bonus Programs

a. Frequent Flyer Miles

No reported decision expressly considers whether frequent flyer miles constitute divisible property. Two decisions suggest that such miles can be a marital asset, without directly addressing the question of whether they are property. In re Marriage of Balanson, No. 98CA0982 (Colo. Ct. App. July 22, 1999); Beasley v. Beasley, 717 So. 2d 208 (Fla. Dist. Ct. App. 1998). Two decisions actually divided frequent flyer miles, without considering at the appellate level whether such division was proper. Hakkila v. Hakkila, 112 N.M. 172, 812 P.2d 1320 (Ct. App. 1991); Williams v. Williams, 1998.TN.30412 (http://www.versuslaw.com) (Tenn. Ct. App. Oct. 21, 1998). Conversely, one decision noted in passing that the trial court treated frequent flyer miles as separate property. In re Marriage of Brewer, 137 Wash. 2d 756, 976 P.2d 102 (1999).

The major problem with treating frequent flyer miles as property is that the miles are not an enforceable right. Almost all airlines reserve the right to change the program at will, or even repeal it outright. There exists something of a market for frequent flyer miles, but it is tolerated rather than approved by the airlines. On the face of the law, frequent flyer miles are almost never transferable.

Conversely, while the airlines can change frequent flyer programs, such changes are infrequent. Like many other airline rules, the rule against transfer of frequent flyer miles is sometimes waived, especially when waiver is requested by a regular airline customer. Indeed, some airlines are even willing to make divorce-related transfers of frequent flyer miles on a case-by-case basis. If one looks at the practice of the airlines, rather than the letter of their regulations, frequent flyer miles look more like divisible property.

The most difficult issue regarding frequent flyer miles is valuation. A reported Florida case, and two unreported Virginia trial court cases, rejected any monetary award on grounds that no evidence of value had been presented to the court. See Beasley v. Beasley, 717 So. 2d 208 (Fla. Dist. Ct. App. 1998); Barker v. Barker, No. HD-144-1 (Richmond, Va., Cir. Ct. Dec. 19, 1995); Silberblatt v. Silberblatt, No. CH000205 (Botetourt County, Va., Cir. Ct. Apr. 30, 1997). (Silberblatt was appealed to the Virginia Court of Appeals, but the court's holding as to frequent flyer miles was outside the scope of the issues presented. See Silberblatt v. Silberblatt, No. 1793-97-3 (Va. Ct. App. en banc July 13, 1999).) Another case noted in passing the apparent difficulty of valuing such miles. Hakkila v. Hakkila, 112 N.M. 172, 812 P.2d 1320 (Ct. App. 1991).

The major problem with valuing frequent flyer miles is that the programs are not at all consistent. One can obtain for the same points tickets with different fair market values. This inconsistency makes present valuation almost impossible, so that frequent flyer miles would have to be divided by some form of deferred distribution. Direct transfer of the miles, if permitted by the airline in question, is a good option. See In re Marriage of Balanson, No. 98CA0982 (Colo. Ct. App. July 22, 1999); Hakkila v. Hakkila, 112 N.M. 172, 812 P.2d 1320 (Ct. App. 1991); Williams v. Williams, 1998.TN.30412 (http://www.versuslaw.com) (Tenn. Ct. App. Oct. 21, 1998); see also Beasley v. Beasley, 717 So. 2d 208 (Fla. Dist. Ct. App. 1998). Alternatively, the court might order that, upon use of any frequent flyer miles, the owning spouse pay the nonowning spouse cash equal to one-half the fair market value of the ticket thereby acquired. This valuation method was advocated for use by the Internal Revenue Service in Sharon Alice Pouzar, "Frequent Flyer Awards as Taxable Income: Time to Pay the Tax Man," 5 Tex. Wesleyan L. Rev. 55 (1998).

For extended treatments of frequent flyer miles, see Brett R. Turner, "Division of Frequent Flyer Benefits in Divorce Cases," 11 Divorce Litigation 129 (July 1999), and James L. Dam, "New Asset in Divorce and Estate Planning: Frequent Flyer Miles," 99 Law. Wkly. USA 1059 (Nov. 29, 1999). The Dam article is particularly interesting because the author paid great attention to airline practice, a subject which he found to differ materially from airline policy.

b. Other Programs

Inventive marketing professionals are applying the frequent flyer miles concept to a wide variety of different products. Most people today participate in a variety of different programs whereby use of a product or service grants a future credit against the price for using the same product or service, or even a different product or service, at a future date.

It is likely that the courts will face in the future a significant number of cases addressing the divisibility of this type of credit. The only reported case available at present is Lapham v. Ruflin, 241 A.D.2d 969, 661 N.Y.S.2d 373 (4th Dep't 1997). Lapham involved a credit card, each use of which gave the owner credit toward the purchase of a new General Motors automobile. The card was used to pay a marital debt, and an automobile credit resulted. The court held that the credit was marital property.

14. Income Tax

a. Pending Refunds

The right to receive a future tax refund is clearly divisible property. In dual classification states, the right is marital property to the extent that it arises from marital tax years. See In re Marriage of Ormiston, 168 Ill. App. 3d 1016, 523 N.E.2d 148 (1988); Moore v. Moore, 695 N.E.2d 1004 (Ind. Ct. App. 1998); Rundell v. Rundell, 423 N.W.2d 77 (Minn. Ct. App. 1988); In re Marriage of Summer, 777 S.W.2d 267 (Mo. Ct. App. 1989); Fornachon v. Fornachon, 748 S.W.2d 705 (Mo. Ct. App. 1988); Lazarus v. Lazarus, 240 A.D.2d 544, 659 N.Y.S.2d 59 (1997). The refund is marital property even if the taxpayer spouse chooses to apply the refund as a credit against future taxes. See Forester v. Forester, 174 Wis. 2d 78, 496 N.W.2d 771 (Ct. App. 1993). Of course, a refund of tax withheld from separate income would be separate property. Cerny v. Cerny, 440 Pa. Super. 550, 656 A.2d 507 (1995).

b. Capital Loss Carry-Forward

Federal and state tax law permit taxpayers who sustain certain types of losses in one year to carry that loss forward and deduct it from taxable income in later years. The right to claim this capital loss carry-forward is divisible property. See Silverstein v. Silverstein, 943 S.W.2d 300 (Mo. Ct. App. 1997); Finkelstein v. Finkelstein, ___ A.D.2d ___, 701 N.Y.S.2d 52 (1st Dep't 2000). But see Cerratani v. Cerratani, 221 A.D.2d 814, 634 N.Y.S.2d 228 (3d Dep't 1995) (capital loss carry-forward is not divisible property; rejected by Finkelstein, which created a split in the law of New York).

c. Dependency Deduction for Children

Most states treat allocation of the dependency exemption for children as a matter of child support and not property division. See, e.g., Kriesel v. Gustafson, 513 N.W.2d 9 (Minn. Ct. App. 1994) (federal income tax exemption for minor children is not divisible property, although exemption can be allocated under the law of custody and child support). A few states continue to suggest that the exemption itself is a marital asset. See Coble v. Coble, 931 S.W.2d 206 (Mo. Ct. App. 1996); Lee v. Lee, 58 Ohio Misc. 2d 4, 567 N.E.2d 1350 (C.P. 1989); see also Fear v. Rogers, 207 Mich. App. 642, 526 N.W.2d 197 (1994) (holding that allocation of the tax exemption is ordinarily a matter of support, but refusing to rule out the possibility that it could be treated as a property division issue).

d. Other Tax Benefits

Scattered decisions treat other forms of credits against taxes in later years as divisible assets. See Thomas v. Thomas, 407 N.W.2d 124 (Minn. Ct. App. 1987) (sole proprietorship's tax credit); Dombrowski v. Dombrowski, 131 N.H. 654, 559 A.2d 828 (1989) (charitable contribution carry-forward under federal income tax laws).

15. Government Benefits

a. Marketable Licenses (e.g., radio licenses, fishing quotas)

In recent years, advocates of the free market have convinced government at various levels to implement market-based regulatory schemes. Instead of deciding which persons are permitted to consume a scarce resource, the government grants a limited number of licenses to use that resource, and then permits the licenses to be transferred for consideration. The underlying theory is that under this sort of system the right to use a scarce resource is allocated more efficiently, at a price which more accurately reflects the true cost of using the resource.

When the right to use a particular resource is transferable for consideration, the right is marital property in a divorce case. See Ferguson v. Ferguson, 928 P.2d 597 (Alaska 1996) ("individual fishing quota" giving fisherman the right to fish in Alaskan waters); In re Marriage of Wright, 180 Ill. App. 3d 911, 536 N.E.2d 700 (1986) (seat on major commodities exchange); In re Marriage of Hunt, 933 S.W.2d 437 (Mo. Ct. App. 1996) (license to operate radio station); Scavone v. Scavone, 243 N.J. Super. 134, 578 A.2d 1230 (App. Div. 1990) (seat on major stock exchange); Lipan v. Lipan, 160 A.D.2d 201, 554 N.Y.S.2d 7 (1990) (taxi medallion allowing owner to operate taxicab in New York City).

If the government benefit at issue has been applied for but not received, and the success of the application is materially uncertain, the benefit may not be divisible property. See Malone v. Malone, 563 So. 2d 1061 (Ala. Civ. App. 1990) (husband had applied for broadcasting license but not yet received it; expectancy of receiving license was too speculative to be divisible property); Heggen v. Heggen, 452 N.W.2d 96 (N.D. 1990) (husband had applied for drought-assistance payments, but no decision had been made on his application); Branson v. Branson, 411 N.W.2d 395 (N.D. 1987) (anticipated future government farm-support payments).

Of course, the mere fact of eligibility for a government benefit, in the absence of an actual application, is not divisible property. See Jones v. Jones, 121 N.C. App. 523, 466 S.E.2d 342 (1996) (mere eligibility for Veterans Administration subsidized loan was not property).

b. Contractual Benefits

Other government benefits which depend upon contract and not upon statutory entitlement are also divisible property. See Welder v. Welder, 520 N.W.2d 813 (N.D. 1994) (husband signed contract with federal government during the marriage to keep certain farmland out of production to conserve it from erosion; future benefits were property and not a mere expectancy).

c. NOT Social Security (federal preemption)

Federal law clearly prevents state courts from treating Social Security benefits as divisible property in a divorce case. Fleming v. Nestor, 363 U.S. 603 (1960); In re Marriage of Boyer, 538 N.W.2d 293 (Iowa 1995); Gross v. Gross, 8 S.W.3d 56 (Ky. Ct. App. 1999); Pleasant v. Pleasant, 97 Md. App. 711, 632 A.2d 202 (1993); Thomas v. Thomas, 221 A.D.2d 621, 634 N.Y.S.2d 496 (1995); Wolff v. Wolff, 112 Nev. 1355, 929 P.2d 916 (1996). See generally Laura W. Morgan, "The Effect of Social Security Benefits on Divorce Cases," 5 Divorce Litigation 209 (1993).

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