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Manual > 11 - Property and Debt > Quantity and Quality

Quantity and Quality

Property and debts are often valued in divorce situations without sufficient attention to the fact that they each have "qualities" as well as a "quantity" (the determined value of the asset or debt). For example, a house is unique in its ability to offer a party a "roof over his head," and also have substantial stability and sentimental value for one or both parties. Similarly, a pension, IRA, or other retirement interest may be determined to be of a certain present value, so long as that asset is not liquidated prior to a parties' retirement or at the defined age. So long as the investment is held, there are typically substantial tax benefits, including deferred taxation on the original investment as well as deferred taxation on earnings upon the investment. If a retirement asset needs to be "invaded" prior to its maturity, there are huge tax penalties, including an overall 10% penalty, as well as present taxation of all contributed amounts and on accumulated and distributed income. If a party has a clear interest in long-term retirement assets, then a pension type of investment may be very attractive in mediation. If, however, the party might need to "invade" the investment prior to timely distribution, then the true value of the asset may be one-half or less of the assumed value if held to maturity. Similarly, automobiles, vacation homes, whole life insurance, personal property, stocks and bonds, business partnerships, trust interests, and all other assets and debts have special "qualities" that the parties should be fully informed about in making their property and debt decision decisions. With regard to debts, note that they differ in both amount (quantity) and quality, such as whether they are secured or not, interest rate, and required rate of repayment. Taking both the quantity and qualities of property and debt into account, one can see that it is difficult, if not impossible, to truly divide property and debts in divorce in an "equal way." 

Identify Desired Outcomes and Standards for Division

Against the background of the parties' perceptions of their respective "legal rights" (and the costs and uncertainty of pursuing those "legal rights"), and also appreciating the various quantities and qualities of their property and debt division, mediating parties are assisted in making decisions by clarifying their respective goals and interests with regard to their property and debt division. For example, for one party staying in the marital home may be a priority, at least while children remain at that home and in school. For another party, they may greatly favor liquidity, or, on the other hand, having as a highest priority their long-term financial well-being. Some participants will feel themselves in a position to absorb more marital debt, whereas for others minimizing debt is a primary goal. Once the mediator has assisted the parties to identify their desired results and interests, difficult property and debt division decisions can typically be resolved by identifying some principle or standard that both parties can accept. For example, if neither party wants to take retirement interests, because they each view themselves as needing immediate financial liquidity, and they do not want the risk of taxes and penalties, they may agree that, since neither of them wants those assets, they should be divided equally (on the basis of an equal suffering or some such standard) between them. If parties both desire to stay in the marital home, then it may be that they would adopt a standard such as an "auction" between them to see which of them is prepared to pay a higher price for the home. Disputed personal property items can also often be resolved based on such an "auction" approach. Other standards that can be utilized by parties are alternating choices between desired items, selling items and dividing the net proceeds, each equally or proportionately contributing to ongoing debt, and the like.

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