The DC Court of Appeals in Gail v. Sherman, specifically addressed division of property created after separation and the formula used by the court to equitably distribute such property.

Sherman had appealed the trial court decision granting her a sum of $40,000 for her equitable portion of the value of AutoBody that her husband Sherman had created after the couple had separated.

Factually, parties had a business jointly owned and operated during their marriage called FuelLine and after separation both had agreed and via an agreement to bring that business to closure.   Sherman thereafter started a new similar business referred to as AutoBody and the distribution of that property was the subject of the appeal.

It is well established that the trial court is charged by statute with distributing marital property in a manner that is equitable, just and reasonable, after considering all relevant factors.  Generally, the party who claims sole and separate ownership has the burden of establishing that the property is his or her separate property.  Thus, the court assigns each party his or her separate property, then distributes all other property accumulated during the marriage — i.e. marital property.

The trial court had found that AutoBody was marital property because:

•  The funds used by Sherman to begin AutoBody were not his separate property; they were either marital funds reimbursed from his brother and sister-in-law ($14,000), or received from his mother ($40,000) for an interest in the business, and
• Sherman used the art boards and layout from FuelLine to create the first editions of AutoBody as virtual clones of the FuelLine magazine, which prior to dissolution was undoubtedly marital property.

The trial essentially deemed that funds Sherman received from his mother and brother to establish AutoBody constituted “all other property” within the meaning of the Statute.  That is, because the money received from his brother mirrored the amount Sherman had previously given his brother and sister-in-law out of marital funds, the trial court found these funds merely to be a reimbursement of the marital funds and, therefore, not Sherman’s sole and separate property.

An equitable distribution requires the court to consider the current values of the marital property, such that upon distribution, each party’s needs are adequately addressed and the method it chooses must allow the trial court to arrive at a distribution of marital property that, based on the evidence, is equitable, just and reasonable.

Here, the Court of Appeals held that the timing of the transmittal of the fifty-percent interest ($40K) two days before trial was suspect and the trial court needed additional independent and verifiable testimony and methods to assess the current value of the business for an equitable distribution.  Thus the value of the business and the distribution of half or $40K to Barnes was not equitable and that portion of the proceedings were reversed back to the trial court.

The case clearly demonstrates that property acquired after separation and before final divorce — unless strictly funded from sole and separate account — would be deemed as a martial property and subject to an equitable distribution criteria.

Refer to our Washington DC Divorce Lawyer page for more details on this subject.