Maryland Court Interprets Settlement Agreement Dividing Marital Property

In many divorce cases, a couple is able to reach an agreement concerning some of the key contentious issues, such as the division of marital property, alimony, child support, and the like. Of course, the parties are encouraged to find some middle ground on these fundamental matters, since it tends to save time, money, and unnecessary heartache. But even in cases where the parties initially agreed to a settlement that is incorporated in the divorce judgment, there is no guarantee that circumstances won’t arise in the future that will prompt one spouse to seek the court’s involvement. No matter how agreeable a family law case seems, the spouses are strongly encouraged to seek their own counsel, especially when children are involved. An experienced Maryland family law attorney can help protect your financial and logistical rights in a dissolution of marriage case at every step of the way.

In a recent Maryland case stemming from a divorce judgment granted in 2010, Baker v. Baker (Md. Ct. of Special App. 2015), the ex-husband sought to restrict his ex-wife’s entitlement to a “capital-loss carry-forward” resulting from activity in the couple’s jointly held investment accounts. During the original dissolution proceedings, the parties entered into a Voluntary Separation and Property Settlement Agreement (the “Agreement”), which was incorporated into the judgment of divorce. Among other items, the Agreement addressed matters of alimony, child custody and support, and the division of marital property. At issue in this case was one particular clause in the Agreement that allocated the couple’s investment accounts.

Under that provision, the wife relinquished “any interest she might have in any jointly titled investment of bank accounts.” According to the facts, when the parties divorced, they had a capital-loss carry-forward that resulted from losses in their investment accounts. The Internal Revenue Code (the “IRC”) permits taxpayers to use a capital loss to reduce tax liability, and taxpayers may even defer that benefit to reduce such liabilities in future years. After the divorce, the ex-wife used approximately 50% of the capital-loss carry-forward to offset gains that she realized from a sale of property. Her ex-husband filed a court action, claiming that he had the sole right to the carry-forward under the parties’ Agreement. The ex-wife moved for summary judgment, arguing that under the unambiguous language of the Agreement, she did not relinquish her interest in the capital-loss carry-forward, since it was separate and apart from their jointly titled investment accounts.

The trial court found in favor of the ex-husband, concluding that the terms of the Agreement unambiguously allocated the capital-loss carry-forward to him. The ex-wife appealed. The Maryland court of special appeals reversed the decision, holding that the carry-forward is not an ‘interest in’ the jointly titled investment accounts within the meaning of the IRC. According to the Treasury Regulations, when a couple ceases to file joint returns, any capital-loss carry-forward is divided between them in proportion to the extent to which their individual losses gave rise to the carry-forward. But various courts have held that this item is a type of marital property, something the spouses can agree to allocate between them in divorce.

The court agreed with this principle and next turned its attention to whether the Agreement allocated the capital-loss carry-forward between the spouses. The court concluded that the carry-forward was not “an interest in” the investment accounts under the unambiguous language of the Agreement, and, as a matter of law, the ex-wife did not relinquish her interest by agreeing to the terms of the Agreement.

This case illustrates the complicated nature of identifying marital property, including the various legal principles that can come into play when determining entitlement to assets. An experienced family law attorney can efficiently assess your rights under the local state laws applicable to divorce proceedings. Parties anticipating a divorce are encouraged to contact Anthony A. Fatemi, an experienced Maryland family law attorney, for representation and legal guidance. Mr. Fatemi can be reached at (888) 519-2801 or (301) 519-2801.

Related Blog Posts:

Maryland Law Governs Significant Aspects of Divorce

Maryland Court Denied Husband’s Attempt to Set Aside Marital Settlement Agreements

Maryland Court Addresses Allocation of Retirement Benefits in Divorce

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