Divorce Property and Debt Division

Learn about asset division in divorce, such as the distinction between separate and marital property, what goes to the home, and how to avoid going to court.

One major difficulty that will arise after the dissolution of your marriage is sharing your possessions. Understanding the fundamental legal standards will help you make educated choices as you go through the divorce process, whether you intend to handle it yourself or employ a lawyer.

Divorce Asset Division: Property Agreements vs. Going to Trial
How Do State Laws Affect Property and Debt Division in Divorce?
What Is the Definition of an Equalization Payment?
How Is Your Divorce House Divided?
Can You Divorce Without Dividing Your Property?
How to Reach a Divorce Property Settlement
What about your debts?

Divorce Asset Division: Property Agreements vs. Going to Trial

When it comes to divorce and property, you may believe that the most essential issue is who gets what. Of course, at the end of the day, that is the bottom line. However, the first consideration is whether you and your spouse can agree on how to divide assets and debts rather than letting a court decide. This is because the expense of divorce skyrockets when you go to trial.

We’ll go through how to draft a divorce property settlement in further detail below, including how to obtain assistance if you’re having difficulties agreeing with your husband and what happens once you’ve signed an agreement. For the time being, you should know that as long as you and your spouse agree, you are free to divide your property anyway you see fit—regardless of how a court might rule under your state’s rules. However, if your arrangement seems unjust, the court may refuse to accept it—a crucial step before finalizing your divorce.

How Do State Laws Affect Property and Debt Division in Divorce?

Even if you intend to avoid a trial by negotiating a property settlement, you need grasp the fundamental legal laws governing property split. When you’re negotiating with your husband, keep those guidelines in mind since they’ll control a judge’s ruling on the problem if it comes to that.

Property split regulations in divorce are dependent on state law, and there are some substantial disparities across states. However, the main concepts are consistent throughout the United States.

What Is the Distinction Between Marital and Separate Property?

Only your marital property will be shared in divorce in most (but not all) states, while you and your spouse will maintain your separate property. But how can you distinguish between marital and separate assets?

In general, marital property comprises any money or other assets earned or gained by either spouse during the marriage, unless they both signed a formal agreement (such as a prenuptial agreement) to keep part or all of that property separate.

Separate property often consists of:

Property held by one spouse before to marriage, inherited property or gifts to one spouse, and a portion of certain personal injury awards.

There are some distinctions in how states define separate and marital property. For example, in certain jurisdictions, the law on property “acquired during the marriage” does not apply after divorce. That is, if a marriage divorces, each spouse’s wages become independent property, even though they are still legally married.

When couples mix (“commingle”) separate and marital finances in a bank account, or when they use money from a joint account to make modifications or mortgage payments on a residence that one spouse owned before they married, the line between separate and marital property may become difficult. However, in a few jurisdictions, judges are allowed to consider all of a couple’s assets and obligations (both separate and married) in the property distribution.

Property Division in Divorce on an Equitable Basis

When dividing marital property in a divorce, most states use the “equitable division” rule. Essentially, this implies that a couple’s marital assets and obligations will be divided in a manner that the court deems equitable (fair) given the facts of the case. It does not always imply that the property will be divided evenly.

Although the court will ultimately decide what is fair in your case, state statutes give guidance. Typical criteria that judges must examine include:

the couple’s debts and other liabilities whether one spouse contributed to the other’s education or dropped out of the workforce to care for their children the tax consequences of the property division whether one spouse wasted marital assets and whether it makes sense for one spouse to keep certain property, such as a business or the family home (more on that below).

Asset Distribution in Community Property States

The community property laws are used in nine states in the United States to determine the ownership of a married couple’s assets and debts:

Arizona
California
Idaho
Nevada is in Louisiana.
State of New Mexico
Texas, Washington, and Wisconsin are among the states.

In certain states, both spouses own all marital (or communal) property jointly. Historically, these states’ laws assumed that community property should be split equally between the couples. However, some of these states have moved away from the equal division criterion. Texas and Arizona, for example, just require a fair allocation of communal property. While both California and Nevada require an equal split of marital property, Nevada offers an exemption where the court finds a compelling cause for an uneven but equitable allocation of marital property. (Arizona Revised Statute 25-318; California Family Code 2550; Nevada Revised Statute 125.150; Texas Fam. Code 7.001 (2022).)

A few equitable division jurisdictions, including as Florida, Kentucky, and Tennessee, enable spouses to opt into the community property system or designate certain assets as community property, frequently via the creation of a special trust.

What Is the Definition of an Equalization Payment?

Of course, when we discuss property distribution in divorce, we don’t mean physically dividing each item between the couples. Typically, courts will allocate each spouse a proportion of the entire worth of the couple’s marital property (also known as the marital or communal estate), less their debts. The court will next divide assets and debts such that each spouse’s portion of the estate equals the prescribed percentage. When negotiating a property settlement agreement, most couples go through a similar procedure.

But what if a couple owns one piece of property, such as a home, that is worth significantly more than the sum of their other assets? We’ll go through many approaches to dealing with a home in a divorce farther down. However, this issue might arise when a couple has two valued assets that do not balance one other out (such as retirement funds), and there are insufficient additional assets to make up the gap. One option is for the spouse who receives the more valued asset to make an equalization or equalizing payment to the other spouse. (Despite its name, this kind of payment may also be employed in states where property distribution is not always equal.)

The funds for an equalizing payment must obviously originate from the paying spouse’s independent property, marital property split, or a mix of the two. When that spouse lacks the necessary funds, the court may mandate future installment payments. However, if you’re thinking about a settlement agreement with this sort of structure, be aware of the possible hazards and consult with an experienced divorce lawyer beforehand.

How Is Your Divorce House Divided?

If you and your spouse own a home together, it might be your most significant marital asset. Because of this, as well as the emotional attachment to the family home, particularly for children, dealing with the house is typically the most difficult aspect of property distribution. It’s not only a matter of who gets the home after a divorce, how the other spouse is reimbursed for their half of the equity, and if you should move out while the divorce is pending. Decisions over the family residence are also inextricably related to other divorce problems such as child custody, child support, and alimony.

There are numerous approaches to dealing with what will happen to your residence following divorce, including:

Purchasing your spouse. If you want to retain the home, you’ll normally need to refinance the mortgage loan to raise the funds to buy out your spouse and transfer ownership to you. Of course, depending on interest rates and your credit score, this may not always be achievable.
The home is being sold. If you can’t afford a buyout or another alternative, or if neither of you wants to remain in the family home, you may sell it and divide the money after you divorce.
Sale postponed. If it is financially feasible, you and your ex may continue to co-own your home after the divorce for a length of time. When one parent has primary physical custody of children who need the stability of remaining in the family home, you may choose this option, or a court may mandate it. When the present real estate market is especially poor, it may also make sense. Again, if you’re thinking about include this arrangement in your settlement, you should consult with a family law expert about the dangers and how to manage them in your agreement.

If the home is independent property of one spouse, that spouse will normally retain it. However, if marital money were used for mortgage payments, renovations, and repairs, the other spouse may be entitled to a portion of the growth in the value of the property during the marriage.

Can You Divorce Without Dividing Your Property?

Final divorce judgments must, in general, contain instructions dividing the couple’s marital property and assigning liability for marital debts. However, under some restricted situations, you may be able to get a “status-only” divorce, which means that the court may issue a divorce judgment that officially terminates your marriage but does not contain directions on the allocation of your marital property or obligations. As an example:

Your state’s legislation may expressly authorize courts to award status-only divorces. When one of the spouses wants it, a court in California may schedule a separate hearing (often referred to as a “bifurcated trial”) solely for the purpose of awarding a status-only dissolution of the marriage. The court must reserve the legal power (“jurisdiction”) to settle all other divorce problems later. (Family Code 2337 (2022).) Other states may permit this kind of divided trial if both spouses agree.
In rare cases, you may be able to get a divorce in your state even if the court lacks authority to make property distribution orders, such as when your spouse and the property are both in another state. In such case, you would apply for divorce in your home state, but then file a separate court action in the other state to get orders distributing your marital assets.

Even if your state allows you to divorce without dividing property, this might result in unanticipated tax and financial implications. However, there may be methods to avoid these results, and a status-only divorce would enable you and your ex to go on with your separate lives (and maybe new marriages) while you strive to address any property problems. If you are contemplating this alternative, you should consult with an expert divorce lawyer in your state.

How to Reach a Divorce Property Settlement

If you and your spouse haven’t been married long and just have a little quantity of personal property, deciding how to divide it between the two of you may not be difficult. However, if you just cannot agree, or if you hold complex or significant assets jointly, you will almost certainly want assistance.

Obtaining Assistance With a Property Agreement

There are three primary forms of property settlement assistance:

Mediation. You and your spouse will meet with a qualified, impartial expert who will help you through the process of establishing a settlement agreement during divorce mediation. If you haven’t reached a final settlement agreement before filing for divorce, several states will compel you to engage in mediation at some time throughout the process. Whether you go through mediation before or after your divorce, the mediator will usually generate a written document that contains any agreements struck throughout the process.
Divorce through the internet. When you utilize an online divorce service, you’ll usually get a full settlement agreement based on your responses to an online questionnaire. These services almost typically require an uncontested divorce, which means that you and your spouse have reached an agreement on all matters before filing your divorce papers. However, even if you believe you are in agreement, the questionnaire may alert you to any issues or judgments you may have missed. (In certain areas, you may also be able to access divorce settlement agreement forms on the websites of state or county courts.)
Getting a lawyer. There may be instances when you will need the assistance of a lawyer to negotiate and create a settlement agreement. Even so, there are several choices for the attorney’s involvement. You might have your divorce handled entirely by an attorney (known as “full-scope” representation). Alternatively, if you and your spouse have reached an agreement on the concerns, you may be able to employ a lawyer on a consulting basis to assist in the drafting of the settlement instrument or to examine the agreement that you or a mediator produced.

Getting Ready for a Property Division

Whether you hire a property settlement attorney or work up an agreement on your own, you must first take the following steps:

Make a detailed inventory of your assets. It is critical to be truthful, clear, and comprehensive. If your spouse discovers that you failed to declare an asset during your divorce, the court may reopen your case to reassess the property allocation. You may also face further fines since it is prohibited to conceal assets in order to avoid property division.
Consider your property’s worth. When determining the worth of any item, you will often begin with the fair market value (what you could sell it for on the open market today, not what you paid for it). This information is often available online, but you may need to engage an appraiser for certain assets, particularly your home.
Determine which assets are marital and which are not. If you argue that whatever you obtained during your marriage is separate property, you must provide documentation about the source of the item or the cash used to purchase it.

Obtaining Court Approval for Your Real Estate Settlement Agreement

Your signed, written settlement agreement must be submitted to the court for approval. If you’re going for an uncontested divorce, you’ll usually submit the agreement with all of the other divorce documents you’ll need to get the process started. Otherwise, you will submit the agreement prior to your final divorce hearing. The court may interview you to ensure that you understand the terms of the agreement and that you signed it willingly, without being forced or coerced. Although your state’s legislation may provide precise guidelines for approving property settlements, courts often accept these agreements unless they are plainly unjust.

What about your debts?

If you had joint debt during your marriage, such as a mortgage, vehicle payment, or tax debt, you’ll most likely have to divide the burden for paying it after you divorce. However, if you have a credit card in your name exclusively and have never used it for the two of you—for example, for groceries, household costs, or trips together—you may be entirely liable for any debt that you owe.

When distributing marital debts in divorce, there’s one thing you should keep in mind. Even if your divorce agreement or judgment allocates a debt to one spouse, the contract you have with your creditors remains unchanged. Assume your divorce decree mandates your spouse to pay down a joint credit card. If your ex fails to make payments, the credit card company may and will pursue you for payment. You must pay it unless you want to damage your credit score, and then go back to court and ask the judge to force your ex to refund you.