Divorce is a serious, life-changing that’s more than just emotionally difficult; it can also be financially complex. Dividing assets is one of the most important parts of any divorce, since it can have a massive impact on the financial stability of both spouses involved. When dealing with divorce asset division, property and debts get distributed between both spouses, making sure each party gets their fair share based on several factors including how long they were married for, how much each spouse contributed, and their predicted financial futures.
When going through a divorce, it’s important to understand which assets will be divided. Assets acquired during the marriage, also known as marital property, will usually be divided between both spouses. That being said, designating which property is marital property and which is separate property (assets acquired before marriage, or through an inheritance) is an incredibly complicated process, and as such, needs careful documentation and legal guidance to be done properly.
When they understand the types of assets involved and the legal guidelines regarding their division, individuals can make sure they’re prepared for the financial consequences of their divorce. Knowledge like this is important for the negotiations that go on during divorce proceedings. This way, they can make sure their settlement is fair and will enable long-term post-divorce financial stability.
Marital vs. Separate Property
As mentioned above, marital property refers to assets acquired by either spouse while the marriage was active. A wide variety of assets can be included, including real estate, income, vehicles, and other property types that both spouses contributed to or benefited from. Courts usually see assets like these as jointly owned and subject to divorce asset division.
Also mentioned above, separate property refers to assets that one spouse owned before getting married or acquired on their own through inheritance or gifts during the marriage. Additionally, if there’s a prenuptial agreement listing assets as separate, those assets also fall into this category. Separate property is usually not subjected to divorce asset division and remains with the original owner post-divorce.
The process of determining which property is marital property and which is separate property is very complicated and will require a lot of evidence. Some of this evidence may include legal documents, receipts, bank statements, and other forms of proof, which are important parts of determining the specific assets’ nature. For example, in states with community property laws, a judge might assume all property acquired while the marriage was in place is marital property unless there’s evidence to the contrary. As a result, anyone wanting to protect their separate assets during a divorce should be keeping detailed records and thorough documentation.
Common Assets Subject to Division
Real Estate
Usually, the family home is one of the most important assets divided in a divorce. There are a few options for dividing a shared home, such as selling the property and splitting the money, one spouse buying out the other, or continuing shared ownership under specific conditions.
Vehicles
Factors like ownership, usage, and necessity are taken into account when dividing vehicles, such as cars, boats, and motorcycles. Usually, the spouse who uses or needs the vehicle the most keeps it, but its value, which can be impacted by any car accidents is taken into account in the overall divorce asset division.
Bank Accounts
Bank accounts opened during the active marriage are usually considered marital property. Regardless of the name is on the account, checking and savings accounts are usually included in the marital property sphere.
Retirement Accounts and Pensions
Retirement accounts like 401(k)s and IRAs, are often split using a Qualified Domestic Relations Order (QDRO). When dividing these, the court takes contributions made during the marriage and future tax implications into account.
Investments (Stocks, Bonds)
The courts will take careful consideration of the value, cost basis, and potential tax consequences of any investment portfolios, including stocks and bonds. To ensure equitable distribution, each spouse might get a portion of the investments.
Health Insurance
After a divorce, health insurance coverage can be maintained via COBRA (Consolidated Omnibus Budget Reconciliation Act) for a limited time. That being said, individuals experiencing a divorce should take continued coverage options for their ex-spouses and any children they may have, and the financial impact these options may have.
Business Interests
If either spouse owns a business, that business’s value and income potential are important assets to be divided. Proceedings may determine business should be sold, one spouse should buy out the other’s interest, or both spouses can agree to keep the business going, co-owning it post-divorce.
Debts and Liabilities
Debts acquired during the marriage, such as mortgages, credit card debt, and loans, will also be divided between the spouses. Dividing debts during a divorce is part of equitable distribution, making sure both spouses share the financial burdens equally. Of course, each spouse’s ability to pay off these debts post-divorce will be taken into account.
Legal Frameworks for Asset Division
Community Property States
Some states have community property laws which require equal ownership and a 50/50 division of assets acquired during marriage. In each of these states, both spouses split all marital assets, down the middle, regardless of how much income they’ve contributed.
There are nine states with these community property laws:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
Equitable Distribution States
On the other hand, other states have equitable distribution laws. These states’ equitable distribution laws require fair but not always equal division of marital property in a divorce. Judges take several factors like the financial situations of both spouses, contributions they make to the marriage, and each spouse’s individual needs. This way, the outcome of divorce asset division is fair without being strictly equal.
Steps to Achieve a Fair Property Settlement
Inventory of Assets
Taking a thorough inventory of all assets and debts is an important first step toward getting a fair property settlement in a divorce proceeding. Everything from real estate properties to vehicles, investments, savings accounts, and liabilities should be documented to build the framework for an equitable distribution of assets.
Valuation of Assets
After the assets are inventoried, their value must be determined. Valuable assets need to be appraised to determine their value in the current market. Having a fair assessment of the value of these assets on hand makes the divorce asset division process between spouses much easier.
Negotiation and Mediation
Negotiating and mediating the divorce asset division outside of court can also make the process, much easier by saving time and reducing legal costs. There are several tips for successful negotiation such as prioritizing interests, maintaining open communication, and considering compromises that benefit both parties.
Legal Documentation
Having thorough legal documentation is important for the property settlement process. If there’s a prenuptial agreement involved, it will dictate asset distribution terms that were agreed upon before the marriage. Meanwhile, financial disclosures let everyone know about each spouse’s financial situation, so better decisions can be made during the divorce proceedings. Documentation like this keeps the divorce asset division process aligned with legal requirements and agreements.
Challenges and Considerations
Of course, experiencing a divorce has a serious impact on both emotional well-being and financial stability. Therefore, it’s important to make level-headed financial decisions while coping with the emotional strain. This delicate balancing act is important for securing a financially stable future.
If there are any children involved, the divorce’s impact on them should also be taken into consideration. Maintaining stability and changing their lives as little as possible is important. The life-changing impact of the divorce process can be reduced by keeping the children supported and maintaining their existing routines.
Navigating Divorce Asset Division
The divorce process is incredibly complex, so navigating it requires serious forethought and planning. That being said, there are several ways for individuals to make the divorce asset division process easier on themselves such as conducting a thorough inventory and valuation of their assets, prioritizing negotiation and mediation outside of court, and ensuring essential legal documentation.
Since the process is so complicated, seeking professional legal and financial advice throughout the process can be a big help. Professionals with experience dealing with these processes offer important guidance, which can make sure individuals’ rights are maintained and that they make informed decisions aligned with their financial situations. This way, the divorce asset division process is made less complicated, stress is reduced, and resolutions can be more equitable and amicable.
