How Are Assets Divided During Divorce?

As a newlywed, you likely never gave a second thought about whether you lived in a community property state or about terms like equitable distribution. When a marriage ends in divorce, however, it usually (and unfortunately) involves tough decisions and difficult discussions — including those concerning the fair division of property once shared during the union.

In an ideal situation, the couple can work together to decide how to split up property, debts and assets. When that’s just not possible because of a dispute or a complex issue regarding the ownership or value of property, both spouses may have to hire attorneys to negotiate on their behalf or even go to court and ask a judge to divide the marital estate (property owned jointly by the couple).

There are typically three factors that play into deciding how to divide up the property: the type of divorce you’re seeking, what kind of property you own and the state where you currently reside.

Types of Divorce

Although most people don’t get the opportunity to thoughtfully decide which type of divorce they would like to have, there are options for those willing to work together.

For example, in an uncontested divorce, both parties come to an agreement on all the terms of the divorce and file the papers with the court. There is usually no formal trial in this scenario. An uncontested divorce can be much less expensive than a contested divorce, saving you time, court costs and legal fees, as well as helping you avoid protracted disputes with your spouse.

Contested divorces are what stereotypically come to mind when we think of divorce. These are cases in which there’s a lot of disagreement over key areas such as property, children and spousal support. Each spouse is represented by an attorney, and a judge oversees the case until settlement. This type of divorce can be long, costly and potentially contentious.

Others types of divorce fall somewhere in the middle. Mediation, arbitration and collaborative options allow the couple to be independently represented by counsel without incurring the full costs of a trial.

The option that will work best for any couple depends on the level of disagreements between the spouses and the willingness to work together toward a resolution.

What kind of property you own

Property division is a big issue during a divorce. One of the most common questions is, “Who gets the house?”
State law will usually dictates the divvying up of your property. It’s based on whether you reside in a separate property state or a community property state:

Separate property belongs only to one spouse, such as something you owned before getting married, gifts or inheritances specifically given to you or the proceeds of a pension that vested before the marriage.

Community property is everything that both of you earned and acquired during your marriage (e.g., the money from your job that you placed into a joint checking account and used to pay bills or debts during your marriage).

Property — like a house — bought with a combination of separate and community funds is generally considered community property.

If the spouse who owned separate property, placed the separate property in joint title with the other spouse, or “commingled” the separate property with marital property, then, the separate property loses its status as separate property, and becomes marital property. Black’s Law Dictionary defines “commingle” as “the putting together of money from several sources into … one fund.” A court is to divide the marital property equitably between the spouses.

Pensions and retirement benefits are marital property if a spouse acquired the benefits during the marriage. If a spouse acquired the benefits from employment that occurred both during the marriage and before the marriage, then, the portion of the benefits that the spouse acquired during the marriage, are divisible marital property, and the portion of the benefits that the spouse acquired during the marriage is separate property. A court is to determine the portion of the benefits that are marital property and divide this portion between the spouses. Military disability benefits are separate property, and may not be divided between spouses. If a military member elects to waive retirement benefits in order to receive disability benefits, the portions of retirement pay that the military member waives, are also separate property and may not be divided between the spouses. However, if a military member chooses to waive retirement benefits in order to receive disability, the court may order the military member to reimburse his spouse for money lost due to the waiver of retirement benefits. Also, property purchased with military disability benefits may be marital property.

Academic degrees and professional licenses are not divisible marital property. However, if a spouse helped support their spouse in obtaining a degree or license, a court may order the degree or license holder to give a cash award to the other spouse.

A personal injury settlement, which compensates for lost wages during the marriage, and for uninsured medical expenses incurred during the marriage, is marital property. However, a personal injury settlement that compensates for future lost wages, future medical expenses, pain and suffering, and mental anguish is separate property.

Disability insurance benefits replacing post-divorce wages, are separate property. A workers’ compensation award that compensates for lost wages during the marriage is marital, but any part of a worker’s compensation award that compensates for wages after the divorce is separate property.

A severance payment, paid to replace future wages earned after a divorce, is separate property.

Social Security benefits are separate property.

If property is marital, what does a court consider in deciding how to divide it?

The law does not require a court to divide marital property equally. Some of the factors that courts consider in how to divide marital property are: The contribution each spouse made to the marital estate. A non-working, or homemaking, spouse is considered to have made a contribution to the marital estate; a court thus may award a large portion of the marital property to a spouse who did not work. The need of each party is not a factor in deciding how to divide marital property. However, a court may consider the need of a custodial parent, in caring for the children.

A court is not to consider marital misconduct (such as adultery and spousal abuse) in dividing property. The purpose of dividing property is to give each party an equitable share, not to punish spouses for wrongdoing.
A court may consider economic fault in awarding marital property. “Economic fault” may include wasting assets, or maintaining a secret bank account for a lover.

How courts actually divide property

In some cases, a court will award an equal share of the property to each spouse. In other cases, a court will award a greater share of the property to one spouse, and order the other spouse to pay money to the other spouse as compensation.

Also, in many cases, a court will order each spouse to pay a portion of the marital debt. If a debt was acquired during the marriage, it is considered a marital debt, even if the name of only one spouse is one the debt.

The state where you currently reside

Courts divide property through one of two ways: community property or equitable distribution. Debts are divided according to the same principles. Here is how property is divided up depending on where you live:

Community property states: In some states, all married property is classified as either community or separate. When you get divorced, community property is generally divided equally between the spouses, while each spouse gets to keep his or her separate property.

Equitable distribution: In all other states, assets and earnings accumulated during marriages are divided equitably (fairly) but not necessarily equally. Some of these states may order one party to use separate property to make the settlement fair to both spouses.

Note that division of property doesn’t necessarily mean everything gets physically divided up equally. Instead, the court may grant each spouse a percentage of the property’s total value.

Dividing up property yourselves

If you and your spouse are going to try to divide your property yourselves, here are some steps to get you started:

List your belongings.

Working together, make a list of all of the items that you own jointly. Of course, you can omit items both of you agree are personal things of insignificant value.

Value the property.

Try to agree on the value of anything worth more than a specific agreed amount, say $100 or $500. If there is a house, a business or anything that’s difficult to value, get an opinion about that from some agreed-upon outside authority.

Decide on the logical owner.

Now go through your main list, item by item, and decide whether there is some good reason to have each piece of property go to one or the other of you. Start with the biggest value items and see how far you can get.

Get the judge’s approval.

If you and your spouse can agree on dividing the property you own together, the court will normally approve whatever agreement you’ve reached. The only exception is when a party who doesn’t have a lawyer seems to have agreed to take a lot less than half of the property.

Navigating the Division of Assets in Divorce

To further complicate the division of assets and debts in a divorce, if you do not have children and you and your spouse own the home together, neither of you has a legal right to kick the other out. You can request the other individual leave, however, you cannot enforce it. If you and your partner do not decide on suitable property distribution, the court will choose for you throughout the divorce proceedings or with the assistance of your attorney.

If your partner alters the locks or security system or otherwise prohibits you from going into the house, you can call the authorities. The police will most likely direct him or her to let you back in. When you both own the house, the only time you can insist your partner leave is if your partner has actually committed domestic violence resulting in a mandated restraining order.

Keeping Assets Separate in Marriage

Some couples prefer to keep their assets separate in marriage, whether by maintaining different homes or separate property or bank accounts. This is less common, but it simplifies divorce proceedings. Separate property is also referred to as non-marital property, meaning that it belongs to only one spouse. Courts usually don’t divide separate property during a divorce, and it stays with the person who acquired it.

Additional assets that are likely to be automatically bequeathed to one spouse over the other consist of the following:
• Injury awards received by that partner
• Pension earnings prior to the marital relationship
• Presents and inheritances offered specifically to that partner
• Privately owned business if it was not operated by both partners
• Residential or commercial property acquired separately

But if residential or commercial property is acquired with a mix of community funds, as long as a partner has the ability to prove that a variety of funds were used to purchase or maintain them, it would be considered marital property. Individual property that was blended together with joint property usually ends up being community property.

Some divorces are complicated scenarios best untangled by a dispute resolution lawyer with experience in the laws of property distribution.

What Items Are Considered Assets in a Divorce?

There is a fairly standard list of items that are considered assets in a divorce that is true in most states. This list includes a home or real estate, bank accounts, retirement accounts, any family businesses. Other items that may be counted as assets include vehicles, life insurance policies, household goods, and more.

When deciding how those assets are divided, it is good to weigh the pros and cons. Do you want a lengthy and expensive court battle?

It is a winning scenario for a separating couple to choose to divide their home and financial obligations themselves (with or without the assistance of a neutral third party like a mediator).

This is usually much less expensive than leaving it to the judge. If a couple cannot agree, they can take their case to the court, which uses state law to divide the residential or commercial property. If children or large estates are involved, it is necessary to take the matter to court.

Regardless, it is a good idea to get a consultation with a divorce attorney to know your rights and responsibilities.

What Are Marital Assets and How Are They Divided?

When discussing your marital property, assets and debts, it is crucial to realize that bank accounts, investments, real estate, and most items of property acquired during the marriage are often included and may be considered marital property. Rather than offering the property to one party, the court may use a property equitable distribution concept and award each spouse a percentage of the overall worth of the sale of the property.

Each partner will get personal effects, possessions, and financial obligations whose worth amounts to his or her portion. It is unlawful for either partner to conceal properties in order to protect them during the divorce process.

Final Considerations Regarding the Divorce

During difficult divorces, people are sometimes pushed to the brink and make inadvisable choices. Whatever you do, do not lie or declare that domestic violence has happened simply to remove your partner from the house, retaliate, or increase your portion of the marital assets upon divorce.

When a judge believes this has occurred, the individual making the accusation might actually be further penalized and be asked to leave their family’s home. It will also likely prejudice the judge against him or her throughout future settlements. If you are a victim, the regional domestic violence hotline is available to help, and your attorney will be able to assist you as well.

Dividing pensions and retirement benefits

There are two ways a court may divide a pension:

1. The Present Value method. A court determines the present value of the pension, awards the pension to the employee spouse, and orders the employee spouse to reimburse the other spouse to compensate for the value of the pension.

2. The Deferred Distribution method. Under the deferred distribution method, the court will sign a Qualified Domestic Relations Order (“QDRO”). A QDRO will direct that a portion of the retirement benefits be paid to the employee spouse, and that the remaining portion of the retirement benefits be paid to the non-employee spouse. You or your attorney will then send the QDRO to the entity that pays the benefits. The payor will then pay a portion of the benefits to the employee spouse, and a portion of the benefits to the non-employee spouse, as the QDRO directs.

When a QDRO is needed, an attorney for one of the parties will draft the QDRO, and submit the QDRO to the judge for his signature. A QDRO is extremely complicated to draft. You should never attempt to draft a QDRO yourself.

Instead, you should hire a QDRO specialist. Many lawyers don’t even draft QDROs themselves – instead, they hire QDRO specialists whenever they need a QDRO drafted. If you are in a divorce case, and you need a QDRO, make sure that your lawyer hires a QDRO specialist to draft a QDRO for you.

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