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Division of Property in Divorce
In divorce, property division can be almost as angst-provoking as deciding who gets custody of the children. And like custody issues, couples can either work it out amongst themselves and their lawyers, or take their chances with the judge.
Property that is considered a product of the marriage (and, therefore, fair game to be split among a divorcing couple) includes wages earned during the marriage, real property (homes and land) bought during the marriage, personal items such as furniture and cars, and even pensions accrued during the marriage.
Divorce property division laws vary from state to state. It is always best to consult with an attorney. In general, however, states use one of two methods: community property and equitable distribution.
There are nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) that consider property acquired during a marriage to be community property. In these states, marital property is split 50-50 between the divorcing couple.
In community property states, "lawmakers believe property should be divided equally because they view marriage as a joint undertaking in which both spouses are presumed to contribute equally to the acquisition and preservation of property," according to the American Bar Association, a professional organization for attorneys.
Alaska actually uses a hybrid of community property. The state allows married couples to "opt in" to having a community property partnership by either a legal agreement or trust.
Generally, in both community property and equitable distribution states, property acquired before the marriage and kept separately from other property obtained during the marriage is not shared in the divorce but retained by the spouse to whom it belongs.
Nearly all the other states have property division laws that use equitable distribution as a method to divvy up the property. Equitable distribution attempts to achieve fairness, which may or may not result in a 50-50 split. "The division of property could be 50-50, 60-40, 70-30 or even all for one spouse and nothing for the other," the ABA writes in a book about divorce.
In coming up with a solution judges will deem fair, they consider many factors, including:
- The length of the marriage
- The work history and job prospects of both spouses
- The physical and mental health of both spouses
- Expenses for the children
- Who earned the property (for example, if a business was run by one of the spouses)
In some states, such as Florida, bad behavior during the marriage can result in a smaller slice of the property pie. This is called economic fault, and it includes situations such as gambling, money spent on an extramarital affair or giving money to relatives against the wishes of the other spouse. Sometimes there is a time limit during which fault can be assigned - such as only considering bad decisions made while the marriage was breaking down. Other states can find fault at any point during the marriage.
The Nuts and Bolts of Divorce Property Division
Judges will usually approve a property division agreement if the couple figures who gets what on their own. If divorcing spouses cannot agree, they should consult with their attorney as to whether it makes any financial sense - based on the value of the property in question - to pay for an expensive trial. This is called a cost-benefit analysis.
To figure out what to divide, divorcing spouses need to take an inventory of their property. It is very important to list all property and not try to hide any assets. Besides the usual places - bank accounts, real estate, jewelry - marital property can be found in pensions, IRAs, stocks and bonds, certificates of deposit, money market account and safety deposit boxes.
If spouses cannot agree as to the value of various property, they should hire a professional appraiser to assist them in determining value. Once the spouses are settled on the property division, the attorneys can write up the property settlement agreement and present it to the court.
If, after the agreement is entered, one of the spouses refuses to abide by it, one of several remedies - depending on state law - can help. Non-receiving spouses can file a contempt proceeding where they ask a judge to hold the other spouse in "contempt of court." The penalties may include a jail term, usually no more than 30 days, a fine or both.
In other states, an injunction is a step that comes before a finding of contempt. In an injunction, the court orders someone to perform a certain act, in this case, dividing the property instructed in the property settlement agreement.
Just like property, debts accrued during the marriage will also be split between divorcing spouses. Again, state laws will dictate how this is done. In general, though, those who will keep a financed piece of property, such as a car or house, also get the debt associated with that property.
Other variables to ponder:
- The spouse who receives more of the property is likely to get more of the debt
- Debt can be paid down by either using a tax refund or selling some property
- If one spouse makes more money, that spouse may get more of the debt
- Whether someone is paying alimony could influence the portion of the debt he or she receives
- Will an increase in rent or insurance premiums make it impossible to take on certain debts
An important point to remember is that creditors will not free anyone from their debt, even if they were recently divorced. If both names are on an account, and the spouse who is responsible for that debt does not or cannot pay, the creditor will go after the other spouse.
It is best to close all joint accounts. Mortgage companies will require the spouse receiving the house to refinance the loan solely under that spouse's name.