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How Property is Divided in a Divorce

by | Jul 7, 2024 | Business & Asset Valuation, Divorce, Wealth Protection

The beautiful Palm Springs home may be divided by a Midwest divorce court if that court has jurisdiction over both parties

 

The standard for the division of marital property in a divorce is “fairness,” or “what is fair.” Although this is vague, it is generally interpreted to mean a 50/50 division of marital property. The key word there is marital. Property acquired during a marriage is presumed to be marital, even if title to the property (and any debt on the property) is only in one spouse’s name. Likewise, debt incurred during a marriage is presumed to be marital, even if the debt was only incurred by one spouse and/or is only in one spouse’s name.

Property that was owned by a spouse prior to a marriage or that was gifted to or inherited by a spouse is legally their “separate” property and not subject to division unless that spouse (the recipient and owner) did something to give their partner, the other spouse, a legal interest. A common way that separate property becomes marital property is when the spouses become joint owners by moving money into a joint account or converting land into joint tenancy. Once separate property becomes joint, it may be impossible to reverse that transaction, and the property may be divided 50/50 even though it was originally pre-marital or inherited property.

Separate property that remains separate may still have a divisible marital component if it increased in value due to the efforts of either spouse during the marriage. Dividing the marital value of otherwise separate property can be a complex, fact-sensitive issue requiring careful analysis.

Marital assets and debts are counted together. If your house is worth $900,000 and has a mortgage loan against it of $500,000, the marital interest is $400,000 ($900,000 – $500,000). In that scenario, if the only asset is the house and there is also $50,000 in credit card debt, your total marital equity is actually only $350,000, even if the credit card purchases had nothing to do with the house. A common mistake is for people to fixate on their share of one large asset while ignoring other assets and debts that will factor into the overall division of property and debt.

Property may be divided in several ways. For example, if 10 gold coins were purchased during the marriage, one spouse would get 5 and the other would receive the other 5. The judge has the power to require payments in lieu of the physical division of the coins. This means that the judge could give one party all 10 coins and require that spouse to make one or more cash payments to the other spouse for the value of 5 of the coins.

Value may be a non-issue. If each spouse has a 401(k) plan, the marital portion of each may be divided 50/50 without regard to the value of either plan. In the gold coin example above, the price of gold per ounce is irrelevant if each spouse receives 5 coins, but the price becomes highly relevant if one spouse retains all 10 coins and must buy out the other spouse’s interest in 5 of the coins.

A court does not have jurisdiction over property that is in another state. However, a court may order a spouse to sell or transfer their property that is located in another jurisdiction in certain circumstances. A court’s authority over the division of land or property that is in another state varies as follows:

  • If the court had personal jurisdiction over both spouses at the time the petition for divorce was filed and served, then the court may order either spouse to do things such as sell or transfer property as part of the divorce property division authority of the court and the court’s jurisdiction over each person to force them to act
  • If the court only had jurisdiction over one spouse but the other never lived in that state and never entered that state, the court can grant a divorce to the spouse it has jurisdiction over, but it may not enter any orders concerning property in other states since it does not have jurisdiction over that property or the other spouse. This can result in a divorce being granted in one state and a separate property division lawsuit taking place in a different state that has proper jurisdiction

For more tips on property issues, check out Danya Bundy’s published article, “Asset Division in Divorce

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