Who Gets the Family Bible? Division of Hybrid Property in Divorce.

Who gets the family Bible

When blood is split apart?

Tell me who gets the family bible

When two grownups lose heart?

• Rick Logan, “Family Bible” (written by Jon Brion and Adam McKay)

As Mr. Logan touched on in the illuminating divorce case study Step Brothers, the separation of marital assets in divorce is a tricky question.  The most difficult assets to divide are hybrid assets comprised of both separate and marital components, the largest of which is typically real estate.  With potentially hundreds of thousands of dollars or more on the line, it is critical that the quantification of the separate and marital components of real estate be correct and fair.

In Virginia, as well as over 40 other states, the concept of equitable distribution governs the division of marital assets as set forth in Code § 20-107.3.  As discussed in Bosserman v. Bosserman, “the purpose of Code § 20-107.3 is to fairly divide the value of marital assets acquired by the parties during marriage with due regard for both their monetary and non-monetary contributions to the acquisition and maintenance of the property and to the marriage.”[1] To this end, the Virginia courts have set forth several methods of tracing and determining the separate and marital components of hybrid property.

One common method is known as the Brandenburg formula from the Kentucky divorce case Brandenburg v. Brandenburg[2], and adopted by the Virginia courts in Hart v. Hart[3].  The Brandenburg formula may be illustrated algebraically as follows:

Where:

MI=Marital interest in subject property value
MC=Marital contribution to acquire subject property
SC=Separate contribution to acquire subject property
V=Value of the subject property, generally net of liabilities on the subject property

The Brandenburg formula only includes reductions in mortgage principal as separate or marital contributions, resulting in a potentially inequitable distribution of property under certain types of mortgages (e.g. interest only mortgages).

Another method of determining the separate and marital components of hybrid property was set forth in Keeling v. Keeling[4].  Based on the facts and circumstances of the case, the court found the application of the Brandenburg formula “would be harsh and inequitable” and therefore applied a new formula, now known as the Keeling formula, calculated as follows:

Where:
SI=Separate interest in subject property value
SC=Separate contribution to acquire subject property
PP=Purchase price of subject property
V=Value of the subject property, generally net of liabilities on the subject property

Once the separate interest has been calculated, the separate interest is subtracted from total equity to determine the marital interest.

To illustrate the difference in equity values when applying the Brandenburg and Keeling formulas consider the following fact pattern.  A couple is married on January 1, 2XX1, and buys a house on the same day.  The total purchase price of the house is $250,000, with the husband making a down payment of $100,000 from separate funds and the couple taking out a mortgage for the remaining $150,000.  When the couple separates on December 31, 2X10, the house has a fair market value of approximately $500,000 and the mortgage has a principal balance of $100,000.  Using the Brandenburg and Keeling formulas, the value of the separate and marital components of the couple’s real estate is as follows:

Now, assume the same facts as before except the mortgage was interest only for first 7 years and the principal balance as of the date of separation was $140,000.

The examples above show that the values determined by the Brandenburg and Keeling formulas can differ significantly based on the particular facts and circumstances of each case.  As set forth in Keeling, the courts can apply Brandenburg, Keeling, or any other acceptable formula to determine a fair and equitable distribution of marital property.  Accordingly it is imperative that the financial expert and attorney work together to determine the appropriate approach given the particular facts and circumstances and the venue.

[1] Basil L. Bosserman v. Lorraine S. Bosserman, 9 Va. App 1, 384 S.E.2d 104 (1989).

[2] Brandenburg v. Brandenburg, 617 S.W.2d 871 (Ky. Ct. App. 1981)

[3] Hart v. Hart, 27 Va. App. 46 (1998).

[4] Keeling v. Keeling, 47 Va. App. 484; 624 S.E.2d 687 (2006).