Dividing Oil and Gas Interests in a Colorado Separation or Dissolution of Marriage
Co-Author: Gregg Greenstein
Introduction
Colorado family law courts are accustomed to dividing typical marital property items such as real estate, furniture, cars, and bank accounts during a legal separation or dissolution of marriage. What happens when the marital estate includes atypical assets such as oil and gas interests that are unfamiliar to the involved parties or the judge? Before delving into specifics on oil and gas interests, a brief overview of the identification and division of marital property is necessary.
Identifying and Dividing Marital Property, Generally.
Like any party-owned asset, the court must first determine if the oil and gas assets are separate or marital property. In Colorado, “marital property” is generally property acquired by either spouse during the marriage through the date the divorce is final, along with any appreciation or growth connected with the asset. “Separate property” is property acquired prior to marriage, along with other exceptions. Marital property also includes the appreciation in value of any separate property that was premarital or acquired during the marriage.
Assuming the oil and gas interests are marital property, the court will divide them, without regard to marital misconduct, in such proportions as the court deems just after considering all relevant factors including:
- (a) The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as homemaker;
- (b) The value of the property set apart to each spouse;
- (c) The economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to the spouse with whom any children reside the majority of the time; and
- (d) Any increases or decreases in the value of the separate property of the spouse during the marriage or the depletion of the separate property for marital purposes.
- “CRS § 14-10-113(1).”
Colorado law provides the above factors for equitable division of marital property, but how do the parties describe and value the oil and gas interests so a judge can accurately and confidently apply the same?
Identifying, Evaluating, and Dividing Oil and Gas Interests.
The first thing a party should consider is hiring a valuation expert to assess the total value of the oil and gas assets. Without a core understanding of the aggregate value, it is difficult to advocate for a particular division of the oil and gas assets. Once the value has been determined, the parties can engage experts to determine if it makes more sense to liquidate the interests and divide the proceeds or divide the underlying property interests entitled to future payment streams. In either instance, it is prudent to retain an oil and gas law expert to review and classify the assets, explain their legal significance to the court, and prepare the documents necessary to effectuate the liquidation or division.
Often, one of the parties is less experienced in the oil and gas industry than the other. In such an instance, it’s vital for the less-experienced party to retain an oil and gas law expert to provide the specialized knowledge necessary to make an equitable division determination. For instance, some oil and gas interests may be “free of cost” while others are classified as “cost bearing” interests. For each party, it’s vital to understand the value and future obligations of each class of interests.
Further, not every oil and gas transaction is created equally. An oil and gas expert can assist with the preparation of the instrument necessary to convey the interests, which includes identifying the proper instrument, defining the interests to-be-conveyed, and negotiating language that protects the party from damages related to future disputes down the road. Lastly, once the court has divided the oil and gas interests and the parties have agreed upon the proper interests, an oil and gas law expert can assist with placing the instruments of record and notifying the necessary oil and gas operators to make payments according to the court’s permanent orders.
Conclusion
Specialized assets like oil and gas interests possess unique characteristics making it more difficult to identify, value, and divide in a Colorado separation or dissolution of marriage. When dealing with oil and gas interests in a Colorado separation or dissolution of marriage case, a party should consider providing the family law court with expert valuation and legal reports to assist in the identification, valuation, and division of assets.
The attorneys at FJGG have vast experience in family law and oil and gas matters, making them an ideal fit for a separation or dissolution of marriage requiring expert oil and gas law services. Please contact Gregg Greenstein or Zachary Grey for more information on equitably dividing oil and gas assets in a Colorado separation or dissolution of marriage.
