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Deciding Who Gets What

DIVIDING UP ASSETS, PROPERTY, & DEBT

Divorce is one of the most financially traumatic things you can go through.

Money spent on getting mad or getting even is money wasted.

 -Richard Wagner

When you decide to get divorced, emotions run high and you might be thinking more about your heart and the loss of the relationship than about what will happen to the material and physical things involved in your marriage. Yet, sooner or later you will need to decide how property, possessions, and debt will be handled. 

Who gets what is decided mostly on the type of property and the laws of your particular state, but there isn’t always a clear answer to the question of what you will come away with, and what your ex will get. For example, if you own a house, who will get that? Well, it depends on the circumstances. For example, if you have children, then the parent who is doing the majority of raising those children will often be allowed to stay and raise the kids in the family home.

But, if there are no children, then courts vary considerably from state to state on how the house (also known as “the marital home”) will be dealt with. Neither person typically has the legal right to force the other to leave, but they can request it.  Also, if you or your spouse purchased the house with separate funds, then most likely they will be able to keep the house and can legally require the other partner to vacate. If you and your spouse cannot agree, the court will step in and decide based on the rules and property system of your state.

It can be helpful to get a sense of the norms in your state before you consider arguing for sole possession of marital property (the marital home, retirement accounts, etc.) that is legally considered jointly owned. It’s not worth spending energy and money making demands that are unlikely to be granted by a court. 

JULIE’S STORY

“I didn’t expect to have my ex tell our kids that he didn’t like that I was using his money (not ours!) after I left our marriage that had lasted almost four decades. At the time, I was on disability with a pain and fatigue disorder, and I ended up having to couch surf on family and friends’ couches because I couldn’t even rent a room. Meanwhile, he stayed in our comfortable house. I’m not sure if that was funny or just hard!” (Julie)

GETTING PRACTICAL

The classification will vary by state, but there are generally two types of property in a divorce: separate (or non-community) property, and community (or marital) property. Here are some more details on each.

Separate property is generally any property owned by either spouse before the marriage. It can also be an inheritance or gift received from a third party, either before or after the marriage (for example, a cash gift from your mother). Other forms of separate property might include payment received for pain and suffering in a personal injury judgment. Do remember that separate property can lose its separate property status if commingled with marital property. If you deposit that cash gift from your mother into a joint bank account, that money will most likely now be considered marital property.

Community property includes most things acquired after the wedding, and before separation. Community property will also include debts, and items purchased with co-mingled funds, regardless of which spouse owns the property or how the property is titled. If you use that cash from your mother, now in your joint bank account, to purchase a car, then the car becomes community property even though the money originally came as a gift from your mother.

When dividing property, all assets must be divided in a way that is satisfactory to both parties before the divorce is granted. How property is divided varies by state. When property is divided, it doesn’t mean the property is literally, physically split in half; instead, the court will usually establish the total value of the marital estate and grant each spouse a percentage. There are two main ways to divide property in a divorce: community property vs. equitable distribution.

Community property state: Both spouses are considered equal owners of all marital property, resulting in a 50-50 split.

Equitable distribution state: A judge decides what is fair, rather than a 50-50 split. Factors considered by the judge include length of the marriage, income or property brought into the marriage; standard of living established during the marriage; age and physical/emotional health; income and earning potential; financial situation when divorce is finalized; contribution of a spouse to the education, training, or earning power of the other; the needs of the custodial parent for the children. In addition to these, a court can consider other factors, which makes it difficult to predict the outcome.

BE AWARE

Debts are usually divided in a divorce, as well. Community property states treat debt differently than equitable distribution states. With community property, both spouses are responsible for debt even if only one incurred the debt, and even if the other spouse didn’t know about the debt. In equitable distribution states, the court will assign debt responsibility based on the person who incurred the debt. But no matter how the court divides up the debt, the banks still expect you to pay the debts in your name, and the original credit card agreement or loan contract supersedes a divorce decree, at least in the bank’s eyes.

Debts that belong to someone before marriage are often considered premarital debt and after the divorce, the original debtor will continue to be solely responsible for the debt.

REMEMBER

Find out if your state is a Separate property or Community property state, so you can be prepared for the process of dividing up property.

TAKE ACTION

When creating a list of what you own and what you owe, determine what was purchased or borrowed before the marriage, and then during the marriage. Create a paper trail with receipts and documentation to establish these ownership details.

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