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One of the biggest concerns parties having going into a divorce is how the marital property will be divided. As with most issues in a divorce, it is in the best interests of the parties to come to an agreement between themselves as to the division of the marital property. This is because the parties never know when the court will decide that an “equitable” distribution of property mandates awarding one party a disproportionate share of the marital estate.
Asset Division By a Judge
In the event that the parties are unable to reach an agreement regarding the distribution of marital property, the judge will divide up the parties’ assets. Using the sworn financial affidavits provided by the parties, the court will determine which financial affidavits should be awarded to each party. The court is not required to split the marital assets 50/50; instead, the court may divide up the property in whatever way is deemed “equitable.” For example, a wife who worked to put her husband through medical school and then stayed home to care for the parties’ children while her husband became a successful surgeon may be awarded a greater share of the martial property in order to compensate for sacrificing her own career for the sake of the marriage.
Marital and Non-Marital Property
In deciding what property is marital and therefore subject to division, the court must first determine whether the property was acquired during the course of the marriage. Only property accumulated by parties during the marriage is considered marital and therefore subject to equitable division by the court. Property acquired prior to the marriage is considered non-marital, unless it was transmuted into marital property through subsequent actions.
Community and Separate Property
In community property states, all property acquired by the parties during the course of the marriage (with the exception of gifts or inheritances) is considered community property that presumed to be equally owned by both parties, regardless of their contribution to the overall marital estate. Separate property is any property acquired before the marriage. Community property states are not required to make an equitable distribution of property, but rather must split all marital property 50/50 between the parties.
Dividing Up Assets
The easiest method to divide up the marital assets is to allow each party to keep all financial accounts in their individual names (pensions, 401ks, etc) and to divide up all joint accounts (checking, savings, etc.) evenly. If the value of the assets awarded to each party add to up to be roughly even, the court may leave the property division as is. If the value of the assets awarded to each part is not equal, the court will begin moving assets around in order to try to give each party a roughly even share of the marital estate. Other assets are frequently divided up as follows:
- Real property is usually distributed in one of two ways: 1) the fair market value of the property is established and one party buys the other party out; or 2) the property is sold and the parties split the net proceeds equally.
- In distributing stocks, the fair market value of the stock is established as of a certain date (either agreed upon by the parties or determined by the court). Once the value of the stock is determined, the court will divide up the stock equitably between the parties.
- For the purposes of a divorce, pets are considered property and not people. Unless the parties can agree on who should take possession of the pet, the court will award the pet to a party just as it would any other asset. Even though custody is not applicable when it comes to pets, many parties have drawn up pet visitation agreements.
- Marital debt is allocated in the same manner as martial assets when there is no dispute that both parties knew about the debt and that the debt was used for the purpose of maintaining the marital estate. However, where one party is shown to have unreasonably run up debt for extravagant purposes and without the consent of the other party, the party accruing the debt may be held solely liable.
- In most cases, a spouse is entitled to 50 percent of pension or other retirement benefits accrued during the course of the marriage. Depending on the type of retirement plan, the non-participant spouse may get his or her share of the pension in a lump sum or at the time the plan begins paying retirement benefits to the plan participant.
Modification of Property Distribution
Once a property distribution has been memorialized in a marital settlement agreement or divorce judgment ordered by the court, it is very difficult to modify. For example, a property distribution than he or she thinks is fair. Most states have a specified time, usually thirty days, during which a party can file a “Motion to Reconsider” asking the court to modify one or more aspects of the divorce decree. Such motions are extremely difficult to win when the judge has made the property distribution, and even more so when the property distribution was agreed upon by the parties. Some grounds for asking the court to set aside the property distribution are as follows:
- The other party was hiding assets or debts that the other party was unaware of;
- The other party was not honest in his financial disclosures;
- The judge did not understand or consider the nature of the marital estate or the issues at hand in distributing the property;
- The agreed upon property distribution was entered into under duress.
- Looking for Hidden Assets
To some parties to a divorce, hidden assets are of paramount concern. In most jurisdictions, each party must fill out an affidavit disclosing all their assets and income and sign it under penalty of perjury. If you believe your spouse may be hiding assets and know where to look, you’re at an advantage. Many parties believe that there is more income or property than is disclosed, but have no idea what type of property or where such funds would be held. In such cases, hiring a forensic accountant may be in your best interest. Forensic accountants specialize in tracking money from the moment it comes in the door until the moment it is paid out again. If you believe your spouse may be hiding assets, your attorney will most likely advise that you hire a forensic accountant to assist in the discovery process.
Dividing Up the House
In many cases, the marital residence is the most valuable asset in the marital estate. Determining how the marital home is divided up is often the major sticking point in the divorce. In most jurisdictions, a party cannot keep the house unless they can afford to pay the monthly rent or mortgage on their own, without assistance from the other party (other than with child or spousal support). Courts are reluctant to keep a party who no longer lives in the marital residence obligated to pay for it. Accordingly, if one party can afford to maintain the marital residence, and the other party has no interest in keeping the home, the party living in the residence usually buys out the other party. “Buying out” the non-residential party usually entails refinancing the mortgage on the residence in the residential party’s name alone, paying the non-residential party fifty-percent of the equity in the residence, and having the non-residential party quit-claim his interest in the home to the residential party.
Where neither party can afford or desires to keep the marital residence, the home is usually placed on the market, with the parties evenly splitting any profit made on the sale or any additional debt owed on the home. While the fact that children are living in the marital home my move the court to try for a resolution that keeps the children from being uprooted (such as both parties contributing to the mortgage until the children are out of high school), it usually will not cause a court to obligate the parties to continue to maintain the marital residence.
Dividing the Family Business
The division of a family business is much like the division of the marital residence. Once the court determines what interest the parties have in the business (usually a fifty-fifty interest if they started the business together), the parties must attempt to negotiate a resolution. If one party wishes to keep the business and the other does not, the party maintaining the business will have to buy out the other party. As the value of the business is often the subject of dispute, the courts will often order an accountant to perform a “business valuation.” The court will use this business valuation to determine the cost of the buyout. If the parties cannot agree on who should keep the business, the court may award the business to one party or may order that the business be sold and the profit split evenly between the parties.
- The content of this guide is provided for informational purposes only. If you need help with a divorce question, please click here to consult with a Divorce Lawyer in your area.