How To Divide Assets When Getting a Divorce

Understanding how a couple should divide assets when getting a divorce can be one of the most difficult aspects of the divorce process. Deciding to not live together is one thing, fairly splitting your assets, debts, property, etc. can be a much more complex process.

How your assets are divided in a divorce will depend on your state. Some states are community property states and others are equitable distribution states. This can make a major difference in how premarital assets are divided in a divorce. It is important to understand the present-day and future value of your assets before you agree to a settlement agreement.

The division of assets and property is one of the most complex aspects of any divorce. Before moving forward with the divorce process, you should hire a proven divorce lawyer in your area. We can connect you with a local divorce lawyer today.

Learn more about the division of property and assets during a divorce below.

What Is Considered Separate Property?

Understanding the differences between marital property and separate property is essential when filing for divorce. In many cases, the differences are not well understood and can be a source of contention and frustration for spouses.

State laws differ, but generally, separate property will include

Property that was owned before the marriage
Inheritances received before as well as after the marriage
Gifts received from a third party
Personal injury lawsuit payments for pain and suffering

Note that the status of separate property can be changed if it is commingled with marital property. For example, if you add your spouse’s name to a mortgage that was previously in your name, or if you deposit inheritance checks into a joint account, those can be considered marital property.

What Is Considered Marital Property?

Essentially, all other property obtained during your marriage is considered marital property. This is true regardless of which spouse owns the asset and whose name is listed as the owner.

State laws vary greatly depending on whether you live in a community property state or an equitable distribution state. Consult with your divorce lawyer to gain a deeper understanding of your specific situation.

Marital property includes all assets and income acquired by either spouse during the marriage. Examples of marital property include stocks, retirement plans, 401k plans, pension plans, life insurance, privately-owned businesses, real estate properties, cars, club memberships, etc.

In some states, if your separate property increases in value during your marriage, the increase in value can be considered marital property. However, some states take into consideration whether appreciation was active or passive when deciding if it should be marital property.

How Will Asset Appreciation Factor into the Division?

To answer this question, you should understand the difference between active appreciation and passive appreciation. Active appreciation occurs when your spouse directly or indirectly contributes to the appreciation of an asset.

For instance, if one spouse gives the other ideas for growing their business, takes care of child-rearing duties so you can work longer hours, etc. then that can be considered active appreciation.

Passive appreciation is an appreciation that occurs due to outside forces like area property value increases, increases in demand, etc., things that happen without any work from you or your spouse. However, if marital assets were used to pay for land taxes, improvements, mortgages, etc. then the property may be considered marital property.

As you can see, the division of property and assets can be complex. In addition to hiring an experienced divorce lawyer, it can be profitable to hire a proven divorce financial planner. Additionally, you should know whether you live in a community property state or an equitable distribution state. Learn more about the differences between each below.

Community Property State vs. Equitable Distribution State

Most states are equitable distribution states. However, there are currently ten community property states. In a community property state, each spouse is considered 50/50 owners of all marital assets and will retain ownership of their separate property. For equitable distribution states, assets do not have to be split equally. Rather, the family court is more concerned with a fair split of the assets.

What You Need To Know about Community Property States

States that are currently considered community property states include Washington, Louisiana, Idaho, Wisconsin, Texas, New Mexico, California, Arizona, and Nevada. During a divorce in a community property state, community property is typically divided equally between each spouse while they maintain ownership of their separate property.

What You Need To Know about Equitable Distribution States

All the other 41 states in the U.S. are equitable distribution states. One of the major differences in these states is that divorce settlements do not have to be equal, but they should be fair and equitable. When determining how assets will be divided, a family court judge will take into account several factors such as:

How long you have been married
The mental and physical health of each spouse
The standard of living established during the marriage
All contributions made by each spouse to the earning power of the other
Maintaining the current lifestyle of the children
Current income, overall financial situation, and future earning power of each spouse

Furthermore, a family court judge can consider additional factors that are relevant to the divorce. For this reason, the final ruling in a divorce case can be nearly impossible to predict. It is typically more beneficial to settle out of court instead of gambling your assets, properties, and finances with a divorce hearing.

Who Gets To Keep the House?

There is no clear answer to this question. If the ruling is left up to a judge, it will depend on the state where you live as well as the unique circumstances of your case. In community property states, a judge is obligated to split marital assets as evenly as possible. In some cases, judges will award the house to one spouse, but make them pay 50% of the value to the other.

For equitable distribution states, a judge will take into consideration many factors before determining who gets to keep the house. Regardless of the state where you live, it is usually best to reach an agreement with your spouse independently or via some form of alternative dispute resolution such as mediation.

Before you fight to keep your home, make sure you can afford the mortgage payments, upkeep, etc. on your own. It may be in your best interest to speak with a financial advisor and hire a divorce lawyer familiar with property dispute issues.

How Are Debts Divided during a Divorce?

Debts are divided similarly to assets. It mostly will depend on where you live and the judge in your divorce case. In community property states, debts are divided equally. For equitable distribution states, debts can be divided unequally but fairly.

Understanding the difference between marital debt and separate debt is essential. For example, your spouse’s credit card debt before you were married can be considered separate debt, but it can also be construed as marital debt if you benefited from any purchases, your name is on the account, the bills were paid using marital assets, etc.

Before beginning to divide debts, consult with a financially savvy family law lawyer.

Amicably Divide Your Assets or Leave It Up to a Judge

Most divorcing couples prefer to put in the difficult work of reaching an agreement on property division before going to court. If they cannot agree, the costs associated with legal fees, financial evaluations, etc., can become overwhelming. Taking your case to court also strips you of all control and the ability to influence the outcome of how your assets will be divided.

Do I Need a Divorce Lawyer To Help with the Division of Assets?

Many couples can amicably decide on property division issues without the help of an attorney. While this is an ideal situation, it is still recommended that you have a divorce lawyer review drafted agreements to ensure that your rights are protected, you are getting everything you are entitled to, and the proposed distribution of assets is fair to you.

Most divorcing couples need some help when dividing their assets unless they are well-trained in all matters of finance and divorce law. A divorce attorney can be beneficial in many ways to include:

Determining the value of your assets
Understanding what is separate property and what is community property
Fighting for your right to keep your home
Negotiating with your spouse and their legal team
Drafting and reviewing potential agreements
Representing you in mediation and court (if necessary)

While the benefits of hiring a divorce attorney to help you with the division of your assets are clear, it is not always the most affordable route. Most divorce lawyers charge $3k-$5k upfront and an additional $300-$500 per hour. As you can see, the cost of hiring an attorney can be exorbitant, especially if you have many assets or complex finances.

Get Connected with an Unbundled Lawyer Today

With unbundled legal services, you can save thousands of dollars in upfront legal fees by hiring an unbundled attorney who will help you with certain parts of your case, while you save money by taking care of the rest on your own.

Fees for unbundled legal services start as low as $500-$1500. But not all cases are a good fit to be unbundled. If your case is more complex, our network of unbundled attorneys also offers full representation at affordable rates.

Make sure your assets are divided justly by contacting a divorce attorney in your local area, and learn if your case is a good fit to be unbundled today.