Understanding Property Split in Divorce

When you divorce, many of your assets must be divided between you and your spouse, but the way these are divided varies between states. Not all assets are subject to division, and assets you had before your marriage usually cannot be split in your divorce.

Ultimately, your divorce court will split your assets if you and your spouse cannot reach an agreement. Typically, a court can divide only your marital property in your divorce, not your separate property. Marital property is everything you and your spouse acquired during your marriage that does not qualify as separate property. State laws vary, but gifts, inheritances and items acquired before your marriage are generally considered to be separate property. For example, money you inherited while you were married is separate property but the paycheck you earn is not. Estimates of divorce rates vary, but the reality is a great many marriages reach this unfortunate conclusion, and the aftermath is frequently messy, both emotionally and financially. When a couple joins as one, their assets typically combine to form a marital estate, and anything they acquire thereafter becomes joint property. Upon divorce, those assets including real estate, dependent children, income, cars, furniture, stocks, and retirement accounts get divided between the former spouses.

Depending on the state you reside in, there are two ways your assets could be divided:

• Marital property (sometimes call community property, but there is no community property in Utah): Marital assets and debts incurred by either spouse during the marriage are divided 50/50. However, separate property (anything held in only one spouse’s name, including property owned before marriage, given as a gift, or inherited) is not taken into account.

• Equitable distribution: Marital assets (not including separate property) are divided fairly at a judge’s discretion, taking into account each person’s earning potential or income, financial needs, and personal assets. To protect personal assets in either case, couples can set up a prenuptial agreement, which establishes terms for a division of assets in the event of a divorce.

Equitable Distribution Factors

In equitable distribution states, courts use factors established by state laws to make distributions of marital property. These factors may include

• the length of the marriage,

• the earning capacity of each spouse,

• the standard of living the spouses established during the marriage,

• the contributions each spouse made to the marriage,

• support one spouse gave toward the other’s education or job opportunities. The income or property brought into the marriage by each spouse

• The standard of living established during the marriage

• The age and physical/emotional health of each spouse

• The income and earning potential of each spouse

• The financial situation of each spouse when the divorce is finalized

• The contribution of a spouse to the education, training or earning power of the other

• The needs of the custodial parent to maintain the lifestyle for the children

In addition to these, a court can consider any other factors that it feels might be relevant. This makes it very difficult, if not impossible, to predict the outcome. The bottom line here is that, if possible, you want to stay out of court. There’s a good reason why more than 95% of all divorces are ultimately settled out of court. Your state may allow the court to consider additional factors, including spousal misconduct. Separate property is not usually subject to division in equitable distribution states.

Dissipation of Marital Assets

If one spouse causes a loss of marital property during or after the breakdown of the marriage, called a dissipation of marital assets, the court may give the other spouse a larger portion of marital assets since there are fewer marital assets to distribute because of the loss. Courts are unlikely to consider spending that benefits the family as a dissipation of marital assets, but spending marital money on a new love interest or paying off separate debts with marital money may be considered dissipation. In both equitable distribution and community property states, the court can remedy the dissipation by awarding a greater share of property or cash to the innocent spouse. If your business predates the marriage, it will likely have a separate property part to it. What that separate property part is depends on several factors. A few are:

• How long before the marriage the business started?

• What the assets and profitability of the business was before the marriage? For a lot of businesses, profitability may depend in large part on the business’ cash flow.

• What the value of the business was at the time of marriage?

• Whether or not the business has become more valuable, less valuable or has the same value as it did at the time of marriage?

• How much of the value change

Double dipping can be unfair and under some circumstances there is an adjustment that should be made when a spouse is paying spousal support from a business’ profits and being asked to divide the community property part of the business. Characterization and valuation are at the heart of dividing a business but, the type of business, industry, revenue, gross versus net profit, the community versus separate property contributions and portions, the role of goodwill and the future economic forecasts and more all may play a factor into how much of the business is community versus separate property and how much you may have to pay to your wife.

Legal reasons for paying maintenance after divorce

If you’re planning to serve divorce papers on a soon-to-be-ex spouse, it’s important to know why maintenance is even ordered. The court isn’t going to just order one party to pay the other because he cheated or stopped putting in effort after 10 years. In addition, you have to bear in mind that the court often orders division of property as well, which will affect the amount of maintenance that must be paid. There are two reasons maintenance is ordered:

• Child maintenance: One of the biggest decisions the court will be making is which parent gets custody, as well as care and control of the child. Once it is decided who the child will live with, the court can order any or both of the parents to pay maintenance for the child. The parent who has custody, care and control of the child can also receive maintenance from the remaining parent. This maintenance is usually payable only until the child turns either 18 or 21.

• Maintenance for ex-wife: This is the kind of maintenance people tend to find the most interesting, and the most scandalous. The idea is that the court will try to let the ex-wife enjoy the same standard of living as they would have if their marriage hadn’t flopped. This is usually supposed to continue till one of them dies, or the wife remarries. In practice, the actual amount tends to be lower than people imagine.
Many factors are considered when deciding on the amount to be paid, and it is quite difficult to predict beforehand exactly how much one will get. Some of the factors the judge will consider include:

• Financial standing and earning capacity of both parties: A very wealth ex-husband is likely to pay more in maintenance to his ex-wife than a very poor one, all other factors being equal. Conversely, a very wealthy ex-wife with a high paying career is likely to get less than a housewife without higher educational qualifications, all other factors being equal.

• Standard of living enjoyed by both parties during the marriage: If you lived a very modest lifestyle when you were married, don’t expect to transform into Cinderella after finding her glass slipper once you’re divorced.

• Ages of the parties: If the ex-wife is older, the court is more likely to order higher maintenance payments.

• Duration of the marriage: If you’ve only been married for a year, don’t expect to get much, if anything at all, especially if no kids are involved. The longer the marriage, the higher the chances of the ex-wife obtaining a higher share of the matrimonial assets. This is because more often than not, an individual’s contribution (direct or indirect, financial or non-financial) is greater the longer the marriage.

• Contributions made to the family: Generally, the more a party has contributed to the family, the more favorably the court will look upon them. Contributions can include paying for the family home and looking after the children.

Divorce proceedings are based on negotiation, so unless you live in a community property state where assets are split 50-50, there is no guarantee that you’ll get what you deserve in a settlement. If you’re not one of the 24 percent of women responsible for daily financial decisions in a partnership, then you may not be in a strong position to negotiate in your divorce. Dividing property during divorce can be quite difficult, especially if there are significant assets such as houses, rental property, retirement and pension plans, stock options, restricted stock, deferred compensation, brokerage accounts, closely-held businesses, professional practices and licenses, etc. Deciding who should get what can be quite a challenge, even under the most amenable of situations.

But, if your divorce is contentious, then this can be especially complicated. Assets should not necessarily be divided simply based on their current dollar value. You need to understand which assets will be best for your short- and long-term financial security. This is not always easy to discern without a thorough understanding of the asset itself its liquidity, cost basis and any tax implications associated with its sale. States differ in some of the details, but generally speaking, Separate Property includes:

• Any property that was owned by either spouse prior to the marriage;

• An inheritance received by the husband or wife (either before or after the marriage);

• A gift received by the husband or wife from a third party (your mother gave you her diamond ring);

In many states, if your separately owned property increases in value during the marriage, that increase is also considered marital property. However some states will differentiate between active and passive appreciation when deciding if an increase in the value of separate property should be considered marital property.

Active appreciation is appreciation that is due, in part, to the direct or indirect contributions or efforts of the other spouse (e.g. your husband helped you grow your business by giving you ideas and advice; he entertained clients with you; he helped raise the kids and did some household chores, which allowed you to work late, entertain clients, travel to conventions; etc.).

Passive appreciation is appreciation that is due to outside forces such as supply and demand and inflation. For example, a parcel of land increases in value even though you and your husband made no improvements to it. However, if you used marital income and assets to pay the mortgage and taxes on this parcel of land, you might have a very good argument that this property, or at least the increase in value during your marriage, should now be considered marital property.

As you can see, this can get quite complicated and convoluted. Hiring a good divorce financial planner can help you sort this out. A couple is considered to be separated as of the date on which there is no reasonable prospect they will resume cohabitation. The court considers a number of factors in determining this date, if the couple cannot agree on when it is:

• Physical separation, even if they remain in the same home

• Withdrawal by one spouse from matrimonial obligations

• While the absence of a sexual relationship is a factor, it is not on its own determinative

• Changes in how the couple communicates with one another and with others

• Separate meal patterns

• Separation of child rearing responsibilities and time

• Separation of social activities and household responsibilities

Whether a woman was married to her partner or lived with her partner for at least three years or a short period of time if she and her partner have had a child together, she may be eligible for spousal support. There is no limitation period within which she must apply. However, her case will be stronger the sooner her claim is started for a few reasons. Because one of the goals of spousal support is to assist both spouses in becoming as financially independent as possible from the other and to do so as quickly as possible, if a woman waits a number of years before seeking spousal support, the court may take the position that she is able to support herself and so should not receive support. As well, when a claim for support is delayed, even if the woman is successful, she may only receive support from the date her claim is begun or the date of the order rather than receiving retroactive support to the date of separation.