Ryan Kalamaya explains how payments are made from one spouse to another to divide property at the end of a divorce. Divorce attorneys often call those property division payments "equalization payments". Ryan discusses promissory notes, interest rates, and common issues such as securitizing the payments with real estate or a business.
Step by Step Colorado Divorce Guide
The initial thought of trying to file for divorce can be overwhelming and emotionally exhausting.
Ryan Kalamaya, one of the founding partners of innovative law firm Kalamaya | Goscha, has created a simple, step by step guide to the Colorado divorce process, so you know what to expect and how to best protect yourself and your assets.
Each 5-minute episode will cover the process for divorce, parenting in a divorce, property division, and more. To watch the videos of each episode, click here.
About Kalamaya | Goscha
Kalamaya | Goscha is an innovative law firm with an award-winning team of trial lawyers specializing in highly personal disputes — divorce, child custody, property division, maintenance/alimony, pre-marital and marital agreements, and collaborative divorce — in Colorado. If you have additional questions or would like to speak to one of our attorneys, give us a call at 970-429-5784 or email us at firstname.lastname@example.org.
DISCLAIMER: THE COMMENTARY AND OPINIONS ON THIS PODCAST IS FOR ENTERTAINMENT AND INFORMATIONAL PURPOSES AND NOT FOR THE PURPOSE OF PROVIDING LEGAL ADVICE. CONTACT AN ATTORNEY IN YOUR STATE OR AREA TO OBTAIN LEGAL ADVICE ON ANY OF THESE ISSUES.
Ryan Kalamaya (1s):
Welcome to Divorce at Altitude, a podcast on Colorado family law. I'm Ryan Kalamaya each week, along with my business partner and cohost Amy Goscha or an expert, we discuss a particular topic related divorce, or co-parenting in Colorado. In addition, we have created a short series of lessons that will take you through the legal process of divorce and answer your questions from simple to complex divorce. Isn't easy. The end of a marriage, especially when children are involved, brings a great deal of loss and change. We hope these practical tips and insights will help you on your journey to a new and better life.
Ryan Kalamaya (43s):
This is a how to episode on Property Division Payments, Promissory Notes, and security in a Colorado divorce. Now let's say the Eric and Melanie go through their divorce and they're at the end. And they have an agreement that Eric owes Melanie $2 million. He doesn't have that in cash. That's how much after let's say that she gets the house, he gets his business, that he owes her and oftentimes Divorce attorneys. We call this the equalization payment. Now that obviously assumes that there's an equal division of property. So another allocation of, of property could be just simply called a Property Division payment.
Ryan Kalamaya (1m 24s):
But for purposes of this episode, I'm going to refer to it as the equalization payment. So how does that get paid? And what are the things that Eric and Melanie are gonna need to consider in connection with Eric's Property Division or equalization payment to Melanie? The first is the amount and how it's going to be paid back and certainly on something $2 million, Melanie's going to be concerned about having something in writing. Now they will have the general amount, the $2 million referenced in their separation agreement, but is that it is that all they really need, well, most divorce lawyers will reduce it further and have a promissory note that spells out the interest rate the terms of the agreement.
Ryan Kalamaya (2m 11s):
And they'll furthermore, take that promissory note and put some sort of lien, such as a deed of trust, which I'll get into on security, but really the there's going to be a separate agreement in a promissory note, an IOU now for $2 million, it's a pretty significant IOU, but Eric and Melanie will need to talk about, as I said before, the length of time, does Eric have five years? Does he have 10 years? Generally people are surprised at not having as much time in paying back some sort of Property Division Payments as, so for example, like a mortgage 30 years is the general industry standard. I have never seen a 30 year agreement to pay back someone and a Property Division scenario in a divorce, whether or not interest is charged is something that Eric and Melanie are going to certainly consider.
Ryan Kalamaya (3m 3s):
And if they go to court, the court can or cannot, or rather will not in some scenarios, order interest and the amount is going to depend. So it could be 5%. It could be 8%. It really is dependent on the circumstances. The market circumstances on the date of this recording interest rates are rising. And the news of the day is that mortgage rates are about 5%. So there's going to be a risk premium. So Eric's going to likely be paying more than 5%. If we were to do a promissory note, as of this recording, you can also have different kinds of Promissory Notes. You can have an amortization schedule or interest only with a balloon payment.
Ryan Kalamaya (3m 45s):
So for those that don't know what that means. It's rather does Eric make monthly payments and our, is he paying back principle or is he just paying back interest? Generally speaking, the principal is not going to be taxed to Melanie and it's not going to be considered as income for purposes of calculating child support or maintenance, but the interest aspect will be. And the other factor, other thing that Eric and Melanie are gonna need to consider is when Eric pays, is he going to pay back upon some sort of liquidation event? So if he sells the, for example, his business, or if he keeps a house, then there might be a liquidation event when he sells the house.
Ryan Kalamaya (4m 29s):
So that gets into security, which is another issue that Eric and Melanie are need going to need to talk about what happens if Eric just moves to Argentina and never pays back Melanie? Well, if she's just left with an IOU, she's going to struggle to get back her money. So most divorce lawyers will look at what collateral or what property that Eric has that could secure his payment on the $2 million. So if he gets a house, then one could create a deed of trust and put a lien on the house. So the equity in the house that Eric takes is going to provide security to make sure that that Melanie gets paid back.
Ryan Kalamaya (5m 9s):
If there's a business involved in that is all that there is then one could do, what's called a security agreement. These are pretty technical issues. And in fact, my firm, because we don't practice real estate or business law, we will retain some sort of separate counsel to draft these agreements, to make sure that they say what we want them to say. And we won't get into necessarily the nitty gritty in the separation agreement, but we'll use a corporate attorney or somebody else to draft these agreements on the security. Another issue on security is life insurance. What happens if Eric dies? You could have a life insurance policy that secures and ensures that Melanie's going to get paid back the $2 million in the unfortunate circumstance of Eric dying early.
Ryan Kalamaya (5m 55s):
So the other, I guess, final issue is whether or not there's going to be a buyout afterwards. Sometimes what will happen is Eric will get the house and then he'll trade that for the $2 million or the parties will reach an agreement after their divorce. That changes the terms in that circumstance. They would certainly want to have an amendment to the separation agreement. And there's some tax reasons to make sure that that transfer is tax-free. But then, you know, obviously they want to have something in writing, but those are certainly some factors that people are going to need to keep in mind when they're dealing with Property Division Payments and equalization payments in a Colorado divorce.
Ryan Kalamaya (6m 37s):
There's much more, but if you are dealing with a Property Division payment of $2 million as Eric and Melanie, you should certainly want to consult with an attorney in that circumstance. But hopefully this gives you an overview of the various issues at play in that scenario. Thanks for listening or watching this short lesson on the Divorce at Altitude podcast. If you found this helpful, please leave a review or share with a friend. It does help for others that are going through or thinking about a divorce in Colorado. If you want to find out more information, please visit Kalamaya law or Divorce at Altitude dot com. That's K a L a M a Y a.law.
Ryan Kalamaya (7m 17s):
Remember, this is educational information. It's not intended to be legal advice. Please consult with an attorney about the particulars of your case. We're happy to answer questions. Feel free to give us a call at (970) 315-2365.