- 1. Community Property vs. Equitable Distribution
- 2. What Is Marital Property and How Much Is It Worth?
- 3. Can a Prenuptial Agreement Protect My Assets?
- 4. Property Division: Who Gets the House?
It’s easy for spouses to clash when it comes to who gets what out of the divorce.
These disagreements surround not only child custody and visitation rights but also property division. Giving up your rights to assets is a hard pill to swallow, and often, spouses cannot agree on the best way forward. If you have tried mediation and other alternative dispute resolution methods without success, you may have to litigate this matter.
Courts rely on precedence to divide marital assets. Additionally, they borrow from the division scheme that’s prevalent in the state. Your local court can either use community property or equitable property distribution as its basis, depending on the state.
If you come from a community property state, the court automatically divides your assets in half. Please note that this 50-50 split only applies to assets acquired during the marriage.
In equitable distribution states, the court does not necessarily divide the properties in half but rather considers the fairest outcome. As a result, even assets that may not be seen as the marital property may also be part of the division.
We will explore each of these schemes in detail.
Community Property vs. Equitable Distribution
States view properties differently.
If you come from a community property state, the court assumes that every asset acquired during the marriage belongs to both you and your spouse. As such, during the divorce, a 50-50 split applies, simplifying the process.
However, if you come from an equitable distribution state, the court reviews the assets and determines the fairest outcome in the case. You can still get a 50-50 split, but the outcome could be very different because this exact split is not necessary. In such a divorce, the court focuses on marital assets that are not separate properties. These include:
- Investments made by you and your spouse
- Retirement accounts in your names
- Frequent flier miles
- Cash and bank accounts in your names
- Vehicles and machinery, e.g., SUVs, boats, planes etc.
- Household goods, e.g., furniture, cutlery etc.
- Businesses, e.g., partnerships
For the outcome to be fair, the court will consider various factors before passing a judgment. If you come from an equitable distribution state, being aware of these determinants can help you gauge how much you get to keep after the divorce.
States that divide properties acquired during the marriage on a 50-50 basis are known as community property states. Examples include California, Idaho, Alaska, Louisiana, Arizona, Texas, Wisconsin, Nevada, Puerto Rico, Washington and New Mexico. However, it helps to note that not everything owned by the spouses is divided during the divorce. Instead, the court divides the properties into two: separate property and community property.
Separate property belongs to one spouse, while community property belongs to both spouses. Inherited properties or assets acquired after the divorce are examples of separate property which would not be divided 50-50. Additionally, assets acquired by one spouse during the marriage can still fall under separate property, e.g., gifts. However, there are limitations to this and separate property used as marital property may be subject to 50-50 division.
On the other hand, community marital property refers to real and personal property acquired during the marriage, e.g., pensions, home furnishings, and stock options. States are clear on what constitutes separate and community property to help you understand what applies to you.
Per the law, you keep your separate property while everything else under community property is divided 50-50. Some states allow you to opt-in and use the community property scheme, e.g., Alaska. Others also allow you to dictate which properties will fall under community property, e.g., South Dakota and Tennessee. However, you and your spouse must agree on what falls under community property if you modify your approach. Otherwise, the court will separate the assets as it seems best using the community property scheme.
Equitable Distribution (a.k.a Martial Distribution)
It would be less time-consuming and more cost-effective if couples could agree on how to divide their assets outside the court. However, some couples have a hard time agreeing on who gets what from the divorce. Courts can help you move past this stumbling block by dividing not only your assets but also your debts.
Equitable distribution states divide marital property based on what’s fair to each spouse. Marital property, in this case, refers to real and personal property acquired during the marriage. Examples include accumulated earnings and wages and vehicles.
To ensure that the division is fair, the court considers factors such as:
- The financial stability of each spouse.
- How long the couple has been together and the age of each spouse.
- Whether the spouses contributed to each other’s career or educational progression.
- Whether one of the spouses requires to remain in the marital home or needs the household goods in the home.
- How mentally and physically fit the spouses are and if one depends on the other for support.
- What tax implications will follow the property division.
- Why the couple is undergoing the divorce, i.e., who is at fault?
- Any other factors that can help the court reach a fair judgment.
Having considered all these factors, the court can either use a 50-50 split or come up with another option that seems reasonable to all parties. Please note that property division is separate from spousal and child support. It only relates to the assets and debts.
What Is Marital Property and How Much Is It Worth?
You may have noticed that we have referred to various categories of property using different terms. What differentiates one category from the other?
This property refers to all real and personal property acquired during the marriage by one or both spouses. It includes:
- Accumulated earnings and wages during the marriage.
- Pension earnings during the marriage.
- Furniture, household goods and vehicles acquired during the marriage.
- Stock and business investments during the marriage.
- Real estate acquired during the marriage.
- Debts amassed during the marriage, e.g., car loans, credit card bills, mortgages etc.
The court will consider the date and period of marriage when classifying properties as marital assets and debts.
Not everything you own separately from your spouse becomes marital property during the marriage.
So, for example, if you inherited a house before the marriage, it remains yours and will not be split 50-50 during the divorce. The same goes for any other assets you acquired before the marriage. Also, if you received any gifts or inheritance directed towards you and not your spouse, you get to keep these as separate properties.
However, there is a limit. For example, if you inherited land and built a house on it with your spouse’s money, the land can be seen as marital property. You have to be clear on what belongs to you and what belongs to you and your spouse. Contact your lawyer and work out how you can make the divide clear during the court hearings.
When a court reviews your real and personal property, it will focus on assets earned from the time of marriage to the point of separation. However, some assets continue earning interest even after the date of separation.
Take the example of stocks with dividends.
The earnings, in this case, would not reflect under a marital property. Therefore, the court has a separate category (known as divisible property) for assets and debts accrued from the point of separation to the time of property distribution.
You need to understand the values of assets under a divisible and marital property. At the start of the divorce, both you and your spouse will complete affidavits outlining the assets in your names and their fair market values. You will also list the debts accrued during the marriage.
Fair market value is the price that a willing buyer would pay a willing seller for an asset at a given time, provided they both are not under duress. The court will use this value when dividing the assets. To make sure you get the correct value, consult your lawyer on how best to arrive at the values of assets listed by your spouse.
Can a Prenuptial Agreement Protect My Assets?
Many couples attempt to protect their assets using nuptial agreements, either before (prenuptial) or during (postnuptial) the marriage. These agreements enable you to outline what is separate and marital property. However, the contract may be deemed void if one spouse disputes it. Legal bases for dispute include misrepresentation, duress, fraud and if the document was not signed correctly.
If you do not have a nuptial agreement, you can work with a separation agreement. You and your spouse can handle the property division out of court by outlining what’s separate and marital property. Additionally, the document can also set out spousal and child support agreements. Please note that this document is legally binding, and once you sign it, changing your stand would be hard. Get a lawyer involved to avoid a costly error.
Property Division: Who Gets the House?
In most cases, the spouse who plays a more significant role in raising the children gets to keep the marital home. However, if no children are involved, the situation can take different turns.
First, if one spouse bought the house with separate funds, they can legally keep the house. In this case, the other spouse would have to vacate the home.
Secondly, one spouse can request that the other leave the house. Legally, both spouses have a right to the house. However, if they can agree that one spouse stays in it and the other leaves, this arrangement can work.
Thirdly, if the spouses cannot agree on who keeps the house, the court can come in and decide for them based on the statutory regulations.
You cannot legally ask your spouse to leave home unless you have a court order. However, if your spouse is abusive, you can get a restraining order from the court. Alternatively, you can call a domestic violence hotline if you’re in a dire situation and need immediate help. Please note that you should only do this if your spouse can cause you harm. Otherwise, falsely alleging spousal abuse can hurt your chances of getting a fair deal in property division. If you feel that the relationship has become toxic and you want to take shortcuts, please seek counseling.