What You Need to Know About Property Division During Divorce

In most states, property is divided equitably, not equally. In equitable distribution states, property that belongs to both spouses is considered marital property.

In the event the parties are unable to divide marital property among themselves, legal statutes outline the factors the court must take into consideration during the division of property.

However, nine states do not equitably divide property: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, property is considered community property and is usually divided equally between the spouses, though there are exceptions.

What You Need to Know About Property Division During Divorce

Community and Separate Property

Generally speaking, property acquired during a marriage is characterized as community property. However, exceptions to property characterization exist and can include inheritance, student loans, a gift from by a third party to one spouse only, or the award of compensation from a lawsuit.

These items are generally referred to as separate property. Further, spouses can change the characterization of property. If the transfer of ownership is made in good faith and in writing, community property can be transferred to one spouse and considered separate property, one spouse’s separate property can become the property of the other spouse or one’s separate property could be recharacterized as community property.

This formal transfer of property is referred to as transmutation. If you are unsure what is considered community or separate property, or if a transfer of ownership has occurred, you should consult with an experienced divorce mediation attorney to help you when filing or responding to divorce proceedings.

Adding to the complex nature of property characterization is the possibility of reimbursements. In the event community funds are used to improve separate property the other spouse may have the right to reimbursement. For example, if one spouse owns a home prior to the marriage and uses funds earned during the marriage for the maintenance and upkeep of their home, the other spouse could be entitled to reimbursement. However, if the spouse uses funds from their separate property for the maintenance or improvement of that home, the other spouse wouldn’t have any claim

Exceptions to the Rule in Community Property States

The court may order an unequal distribution of property in community property states in certain situations, including:

• When a spouse “wastes assets” either before or during the divorce;
• When one of the spouses has educational debts, and the educational debt only “benefitted” them and not the community;
• When a spouse is charged with a tort and has to pay, and that tort liability was not based on actions that the tortfeasor spouse was performing for the benefit of the community;
• An award of compensation for a personal injury matter, even if the spouse uses it as community property, except when reimbursement is necessary;
• When a spouse fails to disclose assets, abuses the legal discovery process or engages in other financial misappropriations during the divorce; and
• Negative community, when the debts and liabilities are higher than the value of the assets.

Agreeing on Property Distribution

If you and your spouse are able to reach an amicable decision regarding the division of property the agreement can be detailed in a marital settlement agreement, even if it’s not how the court would have divided the property. In fact, if you can reach an agreement without the court, it is advised that parties settle as you are more likely to keep the property you want.

For example, if both spouses have retirement accounts but the wife’s account is significantly larger than the husband’s, the spouses can agree to give the husband extra property so the wife can keep her full retirement account. If such a situation went to court, the court would equitably divide the retirement accounts and other property if necessary.

While forming an agreement without the court’s involvement can be beneficial it is important to note that the implications of awarding assets and debts are far-reaching and can have long term ramifications. Therefore, meeting with a spousal support lawyer prior to signing or submitting any agreement can help you avoid costly mistakes.

Factors Used to Determine Equitable Distribution

If you and your spouse are unable to come to an agreement regarding the distribution of property, the court will review several factors to determine how to distribute the property in a fair and equitable manner. These factors include:

• The value of any separate property;
• Which property is easily liquidated;
• How much separate property each spouse contributed to acquiring marital property;
• How much each spouse contributed to the marriage, including but not limited to; caring for the children, maintenance on the marital home, support of the other spouse, including contributions to the earning power and education of the other spouse;

The current and future earning power of each spouse;

• The current and future financial needs of each spouse;
• The health and age of each spouse; and
• Whether there are prenuptial or premarital agreements.

The distribution of property could be anywhere from 90/10 to an equal split (50/50) depending on the circumstances.

Distribution of Property without Court Intervention

If you prefer to divide the property without the court’s interventions but are unable to agree on all details mediation can help. Mediation, facilitated by an impartial, trained professional, can help the parties resolve their lingering issues while ensuring both parties are aware of their rights. When an agreement is reached during the mediation the details can be incorporated into the final judgment.

If you are able to agree on property division but disagree on other aspects of the divorce, including child custody and spousal support, the court will take a partial settlement agreement into consideration. However, keep in mind that spousal support is usually taken into consideration when the court divides property, especially if the support is permanent in nature.

Before You File for Divorce

Before you file for divorce, unless domestic violence is involved, you may want to try to settle matters such as the division of property, spousal support and custody issues. Due to the complex nature of divorce in California, it’s always recommended to consult with an experienced divorce attorney to ensure you understand your legal rights.

If you and your spouse absolutely cannot get along, or domestic violence is involved, but you both would rather try to come to an agreement, speak to your attorneys about attending mediation. The mediator will be the “messenger” between the parties to help you settle your differences. In many cases, while you need to be in the same office, you don’t need to be in the same room.

Factors to Keep in Mind

There are many factors in determining and distributing property during a divorce. For parties with children, there are additional considerations which must be made, most importantly, what is in the best interests of the minor children. The first thing the court considers in any divorce situation with minor children is whether its decisions are the best for the children.

If you want the house but your spouse spends more time with the children, you might consider trading the house for other assets, allowing the primary custodial parent to have the house for the children’s benefit. This is especially true if moving the other parent and children out of the family home results in a change in schools or school districts.

When you are determining who will keep which assets and liabilities, you should also keep in mind the long-term consequences and financial responsibilities associated with the assets. For instance, if you are keeping assets with an attached liability, such as a home and its accompanying mortgage, are you able to make those payments on your own?

If you are keeping a large asset such as the marital home or a second home, can you afford the maintenance of the home? Also, keep in mind that how you divide property could have tax consequences that need to be taken into consideration.

Being honest with each other about the ability to keep an asset after the divorce and to create the best way to provide for your children should be the top priorities in your mind when dividing property.