Danielle and her husband had a lot of stuff. She had her stuff, and he had his stuff, but they also had a lot of stuff together. Their decision to divorce had been hard, but they each had a lot of friends, and she knew they’d both be in new relationships in a hurry. And they each had good jobs and careers, so Danielle knew they wouldn’t be fighting over alimony. They also didn’t have much in savings, just each their own retirement accounts, which weren’t even that big. The one thing Danielle could see them fighting about was dividing their stuff. And she didn’t look forward to that fight.

Property

The division of marital property is a big deal in some divorces. For younger couples with fewer assets, divorce is often almost entirely about the children. Property division is an afterthought, if it’s a thought at all. If the young couple has no children, their concerns might focus a little on vehicles, furniture, school loans, and credit-card balances. But those relatively modest property interests can have a way of sorting themselves out. Property division begins to get more complex, though, with the purchase of a home. Dividing things can get significantly more challenging once the couple builds a business or professional practice, accumulates substantial retirement or brokerage accounts, or acquires a second home or income properties. As the amount of property, measured in value and variety, increases, the challenge of dividing property in a divorce increases.

Division

A divorce proceeding must generally divide property, assigning it to one spouse or the other in the judgment of divorce. Parties can retain joint property after a divorce. They sometimes do, especially if the property is a business they built together in which they each intend to remain active. Divorcing spouses sometimes also retain the marital home for a time after divorce, addressed in the next chapter. Retaining joint property interests after the divorce tends to keep the former spouses interacting to some degree. That post-divorce interaction can be either healthy or unhealthy. Most divorcing spouses prefer to make a clean break of it. Hence the necessity for a property division.

Procedure

The way in which parties divide property in a divorce begins with negotiation. Divorcing spouses may begin to discuss property division as soon as they agree on divorce. If they separate before filing for divorce, their separation may address many, most, or all of the property-division issues. On the other hand, separation may leave significant property-division issues yet to resolve, particularly over business interests, brokerage and retirement accounts, and the marital home. And some parties don’t discuss property division until after navigating the divorce filing. Even when they do begin to discuss and negotiate a property division, they may make only a little progress, even with a mediator’s help, leaving the court to resolve the larger issues. The judge will then hear testimony and examine exhibits at the divorce trial or a special hearing, to resolve property-division issues with a ruling, order, and judgment. Better to agree if possible. Court-ordered property divisions can be clumsy, failing to sensitively address personal interests and sentiments that a negotiated agreement could have better resolved.

Percentage

With one big caveat addressed below, the general rule for a division of marital property is an equal division. The big caveat has to do with dividing only marital property, not property that a spouse holds separately on one basis or another. But for a moment setting aside that question of what constitutes marital property, the division of marital property is generally an equal division. If you prefer to think in terms of percentages, we’re talking about fifty-fifty. Even if one spouse was solely a homemaker and the other spouse did all the heavy lifting when it came to working and earning money to purchase property or fund accounts, divorce usually involves an equal division of marital property. The law presumes that the homemaking of one spouse enabled the other spouse to work a job, build a business, or otherwise earn the household income. That said, divorce is an equitable proceeding, meaning that judges may depart from rigid rules and formulas where justice and the circumstances dictate such departures. So you won’t necessarily see a perfect split of property in your divorce proceeding. An equal division, though, is the common starting point, and judges will generally work toward that goal, ensuring fair and equitable treatment.

Departures

Departures from an equal division of property typically need some justification. Judges may find justifications in any material circumstance. One potential ground on which a judge may give one party more property than the other party is the relative earning capacity of each party. The spouse who can quickly replace divided property with new property out of the party’s substantial earnings may not need or deserve an equal division. The parties’ relative needs for property to support them may be another ground for departing from an equal division. The spouse who has no earning capacity may need more property for support. Fault is another potential ground for departure from an equal property division. The spouse whose affairs or abuse cause a sudden rupture in the marriage may not deserve an equal property division, while the innocent spouse may need a more-than-equal distribution because of the other spouse’s harm and disruption of the marriage.

Allocations

Saying that the division of property is generally an equal division doesn’t necessarily say who gets what assets. Allocating assets appropriately between the parties can be a significant chore and create significant conflicts in a divorce, even if the value of the division is a perfect fifty-fifty. A boat and a vehicle may have exactly equal value. But one spouse or the other, or both, may far prefer and may have far greater need for the vehicle than the boat, even if in theory they could sell the boat and buy a vehicle of equal value. By contrast, bank, brokerage, and retirement accounts are generally fungible. You simply divide the funds within them. Yet on the other hand, business assets can be hard or impossible to divide without destroying or diminishing the business’s value. So, one spouse may receive the business asset, while the other spouse receives more personal or real property, or more from accounts, to balance out the division. Allocations, not the equal division that the law tends to presume, may be your bigger property-division issue.

Valuation

Saying that the division of property is generally equal assumes that the parties can arrive at reasonably reliable valuations of the property they must divide. Accounts are easy to value: look at their balances. Real properties can also be reasonably easy to value: look at their sales comparables. Personal property can also be reasonably easy to value: look at their resale or replacement markets. Businesses, though, can be notoriously difficult to value. Earnings multiples is one common business valuation method, while asset liquidation value is a very different method often arriving at a very different, and generally far lower, value. Yet even within the earnings-multiples method, business appraisers can differ greatly in their valuations. If one appraiser uses a five-times-earnings multiple while the other uses a ten-times-earnings multiple, one appraisal will double the other appraisal. And calculating average earnings, as they go up and down from year to year for various reasons, can be another huge variable. If you and your spouse have substantial assets of uncertain value, particularly business assets, your attorney should have skilled forensic accountants and appraisers to retain to help you put a fair market value on assets. Only with fair valuations can you reach a fair division.

Marital

Not all property that you and your spouse own and control necessarily counts toward your property division in a divorce proceeding. The laws defining what constitutes marital property, subject to division in a divorce, differ from state to state. Most states are common-law states, meaning that when it comes to dividing property, how the spouses title and hold the property, whether as a married couple or separately as individuals, can determine or influence what constitutes marital property subject to division in divorce. Other states are community property states, meaning that they presume that property a married couple acquires during the marriage is marital property subject to division in divorce. But common-law states can also blur the line to include as marital property any property acquired during the marriage with marital funds, no matter in whose name the spouses title the property. Get the advice and representation of a skilled attorney to help you properly classify your property as marital or separate property.

Separate

Some property can clearly be separate property rather than marital property, based on how the spouse acquires it. State laws generally regard separate property that a spouse brings into the marriage and keeps separate, as separate property not divisible in divorce. Thus, if you owned a business before you married and continued to run that business on your own during the marriage without your new spouse’s contribution, that business may be separate property not subject to division. State laws also generally regard inherited property as separate property. A spouse inheriting property from a parent or grandparent receives that property not because of the marriage or the marriage’s earnings but, if anything, in spite of it. If the inheriting spouse holds inherited property separately, then the court may not consider the property to be divisible marital property. The same can be true for gifts to one spouse or the other, whether from a family member or other source. If the spouse receives and holds the gift as separate property, it may remain separate property not subject to division in a divorce. That all may be true, too, whether the separate, inherited, or gifted property is real property, personal property, or cash. If received and held separately, it may remain separate property, no matter its form or appreciation.

Commingling

Commingling separate property, or mixing it up with marital property and treating it as marital property, can change the status of separate property to marital property. Commingling can take several forms, depending on the nature of the separate property. If the separate property is cash, depositing the cash into a marital account out of which the parties pay marital expenses may constitute commingling, turning the cash from separate to marital property. If instead the separate property is real property, maintaining and improving the real property with marital funds, and residing in it together or otherwise using it as a marital asset, may turn it from separate to marital property. If instead the separate property involves personal items, sharing those items between the spouses or deploying them to accomplish marital purposes may constitute commingling, turning them into marital assets divisible in divorce. Commingling is a delicate term of art, difficult to apply in any particular circumstance. But keep separate property separate, if you wish to avoid losing half of it in a divorce. Get skilled attorney representation to properly classify property of substantial value.

Debt

Debt can also be either marital property or separate property, depending on when, how, and for what purpose it arises, and how the laws of your state treat property in a divorce.  Debt that a spouse brings into the marriage or incurs during the marriage to acquire, maintain, or improve separate property may remain a separate debt of that spouse after divorce. Education loans are an example, when the spouses complete the education for which they borrowed before marriage. But other debts that a married couple accumulate during the marriage, such as mortgage debt on the marital home or for improvements to the marital home, consumer loans to buy furniture, or commercial loans for vehicles, can be marital debts to divide in the divorce. Many married couples have negative net worth, when balancing all assets against all debt. For those couples, a property division in divorce is more a matter of assigning relative responsibilities to pay marital debt rather than assigning relative rights to receive marital property.

Creditors

Keep in mind as to debts, too, that even if the spouses allocate certain debts to one another in a divorce judgment, the contractual obligation they assumed with their creditors does not change. A divorce judgment only allocates responsibilities between the divorcing spouses. A divorce judgment does not change the responsibility of either party or both parties to a lender. If the spouse whom the divorce judgment calls upon to repay a loan to which both spouses initially committed fails to pay, the creditor may pursue the other spouse for payment, notwithstanding the divorce judgment’s allocation. That spouse must then seek court enforcement of the divorce judgment by whatever means the court allows. The effect can be to leave the more financially responsible party paying debt the other party should pay under the divorce judgment, until the paying party can force the other party to pay through court orders for wage garnishments and the like.

Cards

Credit-card debt can thus be a significant issue in divorces with few assets to divide. Credit-card debt can certainly accumulate during a marriage. But credit-card debt can accelerate during a separation and pending divorce. Spouses planning for separation and divorce are often wise to immediately contact their credit-card companies to take themselves off of joint cards, so that new obligations on those cards that the other spouse incurs during the separation and divorce remain the obligation of the incurring spouse. In other words, don’t let your spouse run up charges on a joint credit card during separation and divorce, or you may end up repaying the credit-card company, even if the court allocates those debts to your spouse in the divorce judgment.

Vehicles

Divorcing couples can often handle vehicle debt equitably and conveniently by conveying the vehicle and its debt to the spouse usually driving the vehicle and therefore most needing the vehicle. In effect, each spouse may receive their vehicle and its secured debt in the divorce judgment. In making that vehicle-and-debt allocation, the parties may need to consider the relative vehicle values, net of debt, and make adjustments with other property to equalize those values if the vehicle values, net of debt, differ. For example, if one spouse gets a nearly paid-for vehicle of considerable value, and the other spouse gets a vehicle the value of which is less than the considerable remaining vehicle loan debt, then the spouse with the vehicle of considerably greater value may need to give the other spouse more of a savings account or other asset to make up the difference.

Degrees

Courts in some states, depending on their state law, may consider certain college and graduate degrees having considerable earning value to be marital assets, when the spouse earned the degree during the marriage, and the other spouse worked to enable the spouse to earn the degree with the expectation of enjoying the degree’s considerable return in the marriage. The equity of treating a degree as a marital asset can increase if the other spouse sacrifices their own education to support the other spouse’s education, and cares for children or otherwise keeps the home to enable the other spouse’s studies. Professional degrees qualifying the graduate for licensure in a high-income profession can most-readily qualify as a marital asset under these circumstances. For example, if you put your spouse through dental or medical school by working hard while forgoing your own graduate education, and while caring for the children and home, your spouse’s degree may be a marital asset. Treating a degree as a marital asset may afford the non-degree-earning spouse a claim for part of the degree’s earnings, even if the spouse does not necessarily need spousal support. Get the representation of a skilled attorney to help you evaluate this important issue.

Pets

The law generally considers pets to be personal property in a divorce proceeding. That is, if the parties cannot agree on who gets the couple’s pets, the divorce court may use the above principles to determine whether a pet is marital or separate property, and to allocate the pet or pets accordingly. Of course, divorcing spouses are far better to work out among themselves who gets which pet, if at all possible. Fierce divorce-court disputes over pets point out just how personal and emotional divorce can get, not only over child custody for obvious reasons, but also over dividing personal property, for far less obvious reasons. Divorcing spouses have even been known to reach pet visitation agreements, formalized in divorce judgments. Pets are not children. The law treats them instead as property. But your divorce court may recognize a special accommodation you and your spouse reach over how to maintain pet relationships.

Sentiments

The forgoing discussion of pets suggests one last property-division discussion point, having to do with sentimental property. Some personal property has little or no market value but great sentimental value. Divorcing spouses generally give one another those sentimental items, without trying to count their sentimental value against the equal property division. For example, an otherwise-worthless old piece of costume jewelry handed down from generation to generation, with stories of the role that it played in marriages or other family events, can have great value to the spouse of that family and no value to the other spouse. In that instance, the spouse valuing the item sentimentally should ordinarily receive it, without any adjustment as to other items. Portraits of family members, old sports or fishing equipment handed down, and items hand-crafted by family members can all hold sentimental value. If certain items hold sentimental value for both spouses equally, then try to split those items between the two of you. Recognize sentiments without attempting valuation, if at all possible. It can be a small way to make the big process a lot easier.

Key Points

• Divorcing spouses must divide marital property in the proceeding.

• Spouses acquire marital property during the marriage.

• Spouses keep separate and inherited property unless commingled.

• An equal division, fifty-fifty, is a starting point, modified by equity.

• Judges can depart from an equal division on grounds like need.

• Parties negotiate property division unless requiring a court hearing.

• Real, personal, and business property may require specific allocation.

• Proper valuation of allocated business property can be a big issue.

• The parties and court must also allocate debt between the parties.

• Creditors retain contractual rights to pursue either debtor.

• Cancel joint credit cards to avoid debt obligations during divorce.

• Vehicle debt usually goes with the allocated vehicle, with adjustments.

• Valuable degrees earned during the marriage may be marital property.

• Courts treat pets as marital property, not like children.

• Allocate sentimental property to the party valuing it sentimentally. 

Read Chapter 15.