Dividing Property in A Divorce

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This article covers the two primary methods states use to divide marital property at the time of divorce. We will also cover what is called separate versus community property and how its character can change depending on how the property is being used during the marriage.

Finally, we include examples of different forms of real property interests, different types of personal property, and the types of ownership interests that make up intellectual property rights.

Two Methods States Divide Marital Property

States follow community property laws or they follow the law of equitable distribution. Let’s look at both of them starting with equitable distribution.

Equitable Distribution

Equitable distribution is followed by the majority of states and focuses on principles of equity and fairness. While an equal division is common, it is not automatic like in states that follow community property law. This means that the court divides marital property in a manner it deems just and equitable.

Courts consider a wide range of factors when determining the equitable distribution of property in a divorce. While the specific factors and their weighting can vary by jurisdiction, here are some of the most common:

Economic contributions to the marriage

Income and Earning Potential: The court considers each spouse’s current income, earning capacity, and potential for future earnings. This includes factors like education, skills, work history, and health.

Contributions to Marital Assets: This includes financial contributions such as wages, investments, and inheritance used for marital purposes. It also includes non-financial contributions like homemaking, childcare, and supporting the other spouse’s career.

Dissipation of Assets: If one spouse engaged in reckless spending, the court may consider this when dividing property.

Spousal relationship during the marriage

• Duration of the Marriage: Longer marriages often result in a more equal division of property, reflecting the greater intertwining of lives and finances.
• Health of the Spouses: The court may consider the physical and mental health of each spouse, especially if one spouse has significant health issues that impact their ability to earn a living.
• Age of the Spouses: Age can be relevant to earning potential and the ability to become self-sufficient.
• Marital Misconduct: While some states are “no-fault” divorce states, meaning marital misconduct isn’t considered, others may consider factors like adultery or abuse when dividing property. However, the weight given to marital misconduct varies significantly.

Children and family circumstances

• Custody Arrangements: The custodial parent often requires the marital home or a larger share of the assets to provide a stable environment for the children.
• Child Support Obligations: The court considers child support obligations when determining the overall financial picture for each spouse.
• Needs of the Children: The court prioritizes the needs of the children, ensuring they are adequately provided for after the divorce.

Community Property Laws

States that follow community property laws represent a smaller number and include:

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

The key difference is that community property states presume a 50/50 split of all marital property. This means all assets acquired during the marriage are considered community property and are owned equally by both spouses. Upon divorce, these assets are divided equally.

Legal Tip

Separate Property Remains Separate Under Both Systems: Similar to equitable distribution states, assets owned before the marriage or received as gifts or inheritances during the marriage are considered separate property and are not subject to division

Difference Between Separate and Community Property

Separate Property

Separate Property (non-marital property) is a property that you or your spouse (1) separately owned before the marriage or (2) received individually as a gift or through inheritance during the marriage.

Separate Property remains separate and is not considered part of the marital estate. Therefore, it remains the exclusive property of the spouse that owns it.

Examples of separate properties include:

• Money deposited in your bank accounts before marriage
• Real property you owned before marriage
• Vehicles you owned before marriage

Community Property

The property you or your spouse earned during marriage is generally treated as community property. Community property covers all the possessions and ownership interests a couple acquired during the marriage.

In community property states, the law mandates that marital assets—including both personal property and any income earned during the marriage—be divided equally.

Understanding how to categorize and divide marital property can prevent potential legal complications and ensure a fair distribution.

The net result is that both partners have a 50% joint ownership claim under community property laws. This means property that does not qualify as separate is equally divided between the parties.

Trouble Tip

Shared Debts Also Subject To Divison – Community property also includes all shared debts related to the community property, including liens and encumbrances on the property.

Examples of Community Property

• Any personal or real property purchased during the marriage
• All work income earned by either spouse during the marriage.
• All real or personal property purchased with community funds.
• All assets are placed in a joint bank account during the marriage.

Trouble Tip

Commingling Property can have adverse and unintended consequences. Sometimes, mixing community property with separate property can cause the property to turn into (transmute) community property and therefore divided equally between spouses at the time of divorce.

How Courts Determine Community Property From Separate Property

In general, all separate property will be given to the person who owns it, and all community property will be divided so that each person receives the same net amount. Likewise, the court will divide and assign the debts to each party in a way that makes the net value of the property received less than the debts assigned to both spouses.

Judges divide marital property by assessing contributions made by both spouses during the marriage, including mortgage payments, which can transform otherwise separate property into marital property. This is crucial in understanding what is considered marital property, as ongoing financial contributions can significantly impact the court’s decision.

Property Subject to Division in Divorce

Real Property

Real property includes undeveloped and developed land, vacant lots, plus:

• Commercial Property

• Residential Property

• Condominium Units

• Residential Development

• Agricultural Property

• Easements

• Long Term Leases

• Self Storage Facilities

• Mobile Home Lots

• Timeshare Ownership

• Special Purpose Property

Personal Property

Personal property includes automobiles, clothing, computers, jewelry, furniture, and cash, plus:

• Documents, such as stock certificates, bonds, and certificates of deposit.

• Contracts or agreements, such as pensions, stock options, royalties, and insurance policies, describe intangible personal property.

• Even more intangible assets, such as “goodwill” of a business or professional practice, a license to practice a trade or profession, or even a degree from an educational institution. State law varies significantly regarding this type of property.

• Money one receives due to a personal injury claim is usually considered the injured spouse’s separate property unless otherwise agreed upon.

When dividing property and debts in a divorce, it’s crucial to understand the role of a QDRO (Qualified Domestic Relations Order), which is a legal decree used to distribute retirement benefits and pension plans between spouses. This is particularly important in ensuring that both property and associated debts are fairly divided according to the court’s stipulations.

Intellectual Property

Intellectual property rights come from intellect and imagination and are considered legally protected original works. The law provides the creator of such property an exclusive right over its use for a certain period of time.

Examples of intellectual property include:

• Patents

• Copyrights

• Trade Secrets

Property Rights To Artificial Intelligence

In 2023, ownership of Artificial Intelligence (AI) as a form of intellectual property is proving to be a slippery slope. Under intellectual property, more than one person will claim ownership of an idea or work. When this happens, the court must determine who owns the intellectual property from the evidence presented.

Divorce – Tax Impact

Trouble Tip

Your Marital status will determine your tax filing status. For example, changing filing status from head of household to single can have major implications on your post-divorce tax rates and eligibility for certain tax credits. Divorce can affect deductions and exemptions, such as mortgage interest deductions, property tax deductions, and exemptions for dependents. Understanding how these tax benefits are affected by divorce is crucial for accurate tax and estate planning.

State Divorce Law Summaries

For More Information on Divorce and Division of Property in Your State:

Common Misconceptions About Property Division In Divorce

Misconception: Everything is split 50/50.

Reality: While some jurisdictions have a presumption of a 50/50 split of marital property (often called “community property” states), this isn’t universally true. Many states follow “equitable distribution” rules. “Equitable” doesn’t automatically mean equal; it means fair.

Judges consider a variety of factors like the length of the marriage, each spouse’s contribution (financial and non-financial, including homemaking and childcare), each spouse’s earning potential, and the circumstances surrounding the divorce when determining a fair division. One spouse might receive a larger share if they sacrificed their career for the family or if the other spouse was primarily responsible for the marital breakdown.

Misconception: Pre-marital assets are always protected.

Reality: While pre-marital assets (things owned before the marriage) are generally considered separate property, they can become commingled with marital assets. For example, if someone inherits money and puts it into a joint checking account regularly used for household expenses, it can become difficult to trace and may be considered marital property. Similarly, if pre-marital real estate is used as the family home and mortgage payments are made with marital funds, the other spouse may have a claim to a portion of the increased equity.

Misconception: Gifts and inheritances received during the marriage are always separate property.

Reality: Generally, gifts and inheritances received by one spouse during the marriage are considered separate property. However, similar to pre-marital assets, they can become commingled.

If an inheritance is deposited into a joint account and used for family expenses, it can lose its separate character. Also, the way the gift or inheritance is titled can impact its classification. If a gift is specifically given to both spouses, it might be considered marital property.

Misconception: Debt is assigned to the person whose name is on it.

Reality: Just like assets, debts incurred during the marriage are generally considered marital debts, regardless of whose name is on the account. The court will divide responsibility for marital debts in a way it deems equitable, considering factors similar to those used in asset division. For example, even if only one spouse’s name is on a credit card used for family expenses, the court might assign responsibility for that debt to both spouses.

Misconception: You can hide assets and get away with it.

Reality: Hiding assets during a divorce is illegal and unethical. Courts have various methods for discovering hidden assets, including subpoenas, forensic accounting, and depositions. If a spouse is caught hiding assets, they could face severe penalties, including being held in contempt of court, fines, and even being awarded a smaller share of the marital property. Furthermore, it can damage their credibility with the judge, impacting other aspects of the divorce proceedings.

Sources and References

Cornell Law Institute – Divorce

Towson Alimony Lawyers | Albers & Associates.

Guide to Texas Community Property Divorce – Michael Gonzalez: Attorney At Law.

What does equitable distribution of assets mean?

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