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Divorce | Estate Planning

What Assets Are Not Subject to Division in a Divorce?

11 min read
Philip Ahn, Attorney

by Philip Ahn, Attorney

In the event of a divorce case, certain assets may not be subject to division. There are two types of property during a marriage: marital and non-marital. Non-divisible assets include non-marital  property, which is property owned by a spouse prior to the marriage.

These include things such as assets, gifts to either spouse, inheritances received during the marital union, and certain types of compensation such as workers’ compensation awards, personal injury settlements, and pension benefits—additionally, any debt resulting before the marriage is not subject to division.

Weight of Prenuptial Agreements in Property Division

Prenuptial agreements are legally binding contracts between two people entering into a marriage. These agreements outline how to handle properties, debts, and other financial matters safeguarding your assets in a divorce case. No matter what, these agreements take precedence and dictate the division of property. The only time these agreements would not be enforced is if the agreement was signed due to fraud or force. 

Separate Property vs Marital Property 

In most states, if a couple acquires any property during the marriage, it’s considered marital property, regardless of how the asset is titled. For example, if only one spouse appears on the deed of a home bought during the marriage, it is still considered marital property.

Generally, any income earned by either spouse during the marriage is also considered marital property and divided equally between spouses.

Marital property includes:

  • Investments
  • Bank accounts
  • Retirement accounts
  • Pensions
  • Life insurance policies or other assets acquired during the marriage in the name of only one party

In some states, however, separate property is not subject to division in a divorce. Separate property includes any property acquired before marriage and nonmarital property, such as gifts or inheritances received solely by one spouse during the marriage.

In community property states, where the law dictates that all assets are to be divided equally in a divorce, separate property may still be exempt from equitable division.

Converting Separate Property to a Marital Asset

In specific circumstances, separate property may convert to marital property if there is a significant increase in the value of the separate property and both spouses contribute to the appreciation or intentionally combine the separate property with marital property.

Equitable Division of Marital Assets

Divorce proceedings can be complicated and time-consuming, especially regarding the equitable division of marital assets. Equitable division is a process of determining the fair or equitable distribution of assets accumulated during a marriage.

According to the law in nine states, marital property is divided equitably between both parties during a divorce if the spouses’ names are on the marital property, such as bank accounts, car titles, or house deeds. Equitable division is the idea that the court will allocate property based on the fair value of how much each spouse contributed to the earning of that asset. 

The Cost Basis Of Marital Properties In A Divorce Case

The cost concept of marital assets becomes an important consideration during the division of marital property in a divorce case. The cost concept determines how marital assets should be split between the spouses and can affect taxes, capital gains, and other issues.

What are considered assets in a divorce depends on the state you are getting divorced. In equitable distribution states, a court can divide property the spouses acquire during the marital union.

Division of Real Estate Assets During Divorce

Dividing real estate assets during divorce can be one of the process’s most complex and challenging aspects. Each state has its laws regarding the division of real estate assets, so it is crucial for divorcing couples to consult a family law attorney for guidance.

Generally, any real estate assets obtained during the marital union must be divided equitably between the two spouses. 

A court may order the sale of a home and award each spouse their share of the proceeds. In other cases, one spouse may be allowed to keep the home and must pay the other spouse their portion of its value.

Division of Business Assets During Divorce

Dividing business assets can be a complex process. 

Several steps must take place to ensure that both parties get equitable distribution:

  • First, the parties should identify all assets and liabilities associated with the business, including any real estate, equipment, inventory, accounts receivable and payable, and any contracts for services or clients.
  • The parties should determine each asset’s value and liability through professional appraisals or market values.
  • Next, the parties must determine how to divide the assets and liabilities. The most common option is simply dividing the assets and liabilities in half, but this may not be the fairest or most equitable distribution solution in some cases. In other situations, a buyout of one partner’s interest may be more appropriate.

Retirement Assets And Social Security Benefits

The process can be complex and confusing when dividing retirement assets and Social Security benefits during a divorce.

After all, there is a lot at stake, and it’s essential to understand the potential financial implications of each step.

If you have been married for ten years or more, the court may award you a portion of your former spouse’s Social Security benefits in the form of spousal support.

Determining the benefits’ value requires you to provide proof that your ex-spouse is eligible for Social Security. Upon establishing eligibility, both parties can decide how to divide the benefits.

The splitting process can be even more complicated regarding retirement accounts like 401(k)s, pensions, and IRAs.

Filing Qualified Domestic Relations Order (QDRO)

Depending on the type of retirement plan, you and your ex-spouse may need to file a Qualified Domestic Relations Order (QDRO) to ensure equitable distribution. This document also provides that the division of properties happens according to state and federal laws.

In an equitable distribution state, a court may divide assets acquired during the marital union in a “fair and equitable” manner.

Additionally, a court may divide assets owned before the marriage if it is evident that one spouse made a substantial contribution to the increase in value of those properties.

Digital Assets During Marriage Dissolution

The increasing reliance on digital assets as a form of wealth can make it challenging to navigate their division during marriage dissolution.

Understanding these asset classifications under the law is vital to ensure that your digital assets are properly divided and accounted for during a divorce. In general, digital assets come across as marital property.

They should thus be divided equitably during the divorce proceedings, including all digital assets, such as:

  • Bank accounts
  • Investment accounts
  • Online businesses and websites
  • Cryptocurrency
  • Virtual currency
  • Intellectual property
  • Online gaming accounts and other forms of digital wealth

Keeping What is Yours During Divorce: Separate Property Isn’t Shared Between The Parties

When getting a divorce, specific properties are considered separate, and the parties cannot divide them. Separate property includes all properties owned by one spouse prior to the marriage and any nonmarital property gifts or inheritances received during the marriage. Any increase in the value of those properties during the marriage also remains separate property.

Personal property is generally excluded from property division during a divorce, including items inherited from family members and personal property acquired before marriage. However, property jointly owned by spouses may be subject to property division.

In some states, only marital property is subject to divorce, meaning that the spouses in a divorce can divide properties, income, and liabilities acquired during the marriage.

Allocating Properties In A Divorce Or Legal Separation

A separate asset during property division in a divorce or a legal separation is assigned to each spouse, allowing spouses to determine the personal or business ownership and rights to their assets and liabilities.

Some of the most common assets that may be subject to division in a legal separation include:

  • Financial accounts
  • Investments
  • Vehicles

Allocating Debts During Divorce

One of the most challenging parts of a divorce is figuring out how to divide up debts best. It is important to remember that all couples have unique circumstances, and one resolution may not work for all.

A lawyer can help negotiate fair financial terms for both parties and ensure the best possible debt allocation.

One of the most common ways to divide debts is on usage. If one party took out a loan or ran up credit card debt, they would be responsible for paying it off. However, if the debts are joint, such as a mortgage or car loan, both parties may be responsible for paying them off.

In some cases, one spouse may agree to take on all of the debt to spare the other spouse from any additional financial burden, which should be discussed thoroughly with both parties and a lawyer before making a final decision.

It is also essential to consider whether certain assets can pay off debts. Such assets include investments, property, or other forms of income. In some cases, this could help reduce the debt burden on one spouse and provide more financial stability.

Contrary To Popular Belief, The Marital Home Is Not Always Marital Property

It is a common misconception that all property acquired by either spouse during the marriage, including a family home or any real estate owned jointly, is marital property. The marital home is not always marital property.

Depending on the laws of your state, it may be possible to keep the matrimonial home separate from other marital property.

In many states, a family home can be designated as nonmarital if it is in one spouse’s name before the marriage and if one spouse acquires it without assistance from the other spouse.

One Spouse May Get More (Or Fewer) Properties Than The Other During A Divorce Proceeding

A spouse’s contribution matters when dividing property in a divorce. Depending on the state and circumstance, property may be divided fairly between the two spouses, or one spouse may get a larger share of the property.

An unequal division of marital funds from a joint account during divorce can be a source of major conflict for both parties involved. It is wise to seek the guidance of a financial professional to help ensure that properties are fairly divided.

Community Property States

The community property rules in the United States vary from state to state. The community property states include:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

In these states, properties and debts the spouses acquire during the marriage belong to both spouses unless they decide to divide them through a written agreement such as a prenuptial or postnuptial agreement.

Understanding the state’s laws on assets and debts during divorce is essential. Before entering a marital union, a prenuptial agreement is an important property management tool. In the event of a divorce, this agreement will secure your property rights

Understanding The laws’ Impact During Divorce

Understanding the state’s laws on assets and debts during divorce is essential. Divorce laws will dictate how the spouses can divide most assets and debts, including who is responsible for any outstanding debts.

Additionally, there are various ways to divide property and debts. Therefore, you must understand all the potential implications beforehand. A state law determining marital misconduct as a contributing factor in a divorce can vary depending on the state.

Does Child Custody Have Any Impact During Property Division In A Community Property State?

Yes, child custody does have an impact during property division in a community property state. The court may consider the custodial parent’s right to use the family house or access other significant assets, such as retirement accounts.

In addition, child custody may also be taken into consideration when setting up a spousal support order.

Let An Unbundled Divorce Attorney Resolve Your Marital Property

When you’re getting divorced, one of the most important things to figure out is how your marital property division will pan out.

There are many ways to divide marital property, and knowing the right path for you can be tricky. You could try to do it yourself, but that can lead to mistakes that can cost you.

Compared to a regular lawyer, who may charge around $5,000, an unbundled attorney’s starting rates range between $500 and $1,500.

If a full-service attorney is not within your budget or needs a professional to assist with specific activities, Unbundled Legal Services may be the ideal choice.

Whether you need to file divorce paperwork or other documents, these services can provide advantageous access to counsel at a fraction of what traditional representation would cost.

Let an Unbundled Divorce Attorney resolve your marital property division case during the divorce process. An unbundled divorce attorney will help you figure out the best way to divide your property, and they’ll handle all the paperwork and negotiations for you. Do you have a question regarding what are considered assets in a marriage dissolution? If so, Contact an Unbundled Divorce Lawyer to explore your legal options.

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