How Are Property and Debt Divided During Divorce?

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Dividing family property during divorce can be difficult, especially if there are significant assets such as retirement and pension plans, homes, closely-held family businesses, rental property, brokerage accounts, deferred compensation, etc.

Deciding who should get what at the end of the marriage can be quite tricky even if the involved parties are still in good terms. Things can get even worse when the divorce is contested.

And it is not just about property.  You also need to find a way of dividing debt. In fact, dividing debt during divorce is sometimes more significant than dividing property, especially if the divorcing spouses don’t have many assets.

Today, we will discuss how the division of property and debt happens during divorce and establish who is entitled to what. Read on to find out everything you need to know.

What Is Marital Property?

Before we discuss how property division occurs, it is crucial to understand what we are talking about.  If you are married, your property can be classified into two broad categories; marital property and separate property.

Marital property refers to the property you or your spouse got during the marriage. For instance, if you bought land together and there is a title deed, it doesn’t matter whose name is on it, but that is considered marital property unless it was an inheritance or a gift.

Basically, if something is marital property, it is owned by both of you and will be divided if you divorce.

Other examples of marital/family property include earnings accumulated during a marriage, stock options earned during the marriage, fraction of a pension fund earned during the marriage, family business investments, etc.

What Is Separate Property?

If one of the spouses owned property before marriage, then that property is referred to as separate property. If one spouse gets inheritance or a gift during the marriage, the inherited/gifted property is considered separate property.

Also, if one of you owns separate property and it appreciates on its own, the increase in value is still considered separate property.

For instance, if a husband owned a rental property before the marriage, and the house appreciates in value throughout the marriage, the increase in the property’s value is his separate property.

In most cases, spouses keep their separate property in case of divorce. However, the property can still be divided if the other spouse contributed to getting, improving, or growing it or if the other person’s share of marital property doesn’t meet their needs.

Separate property can also become marital property if placed in a joint bank account or regularly used as marital property. For instance, if you decide to transfer your inherited money to a joint bank account with your partner, the money will automatically become marital property.

Property Division

Whatever you get in divorce will largely depend on whether you reside in a “community property” state or “equitable distribution” state.

In “community property” states, marriage is usually considered a 50-50 partnership between a wife and husband. Therefore, all marital property is deemed to be owned one-half by each spouse wand will be divided evenly during a divorce.

Community property states include; Nevada, New Mexico, Alaska, Louisiana, Texas, Wisconsin, Washington, the territory of Puerto Rico, California, Idaho, and Texas.

The remaining states fall under the “equitable distribution” jurisdiction in which marital property is usually divided in an “equitable,” “justifiable” and “reasonable” manner. In this case, “equitable” doesn’t necessarily mean “equal.”

Equitable property division is designed to make the process of property division less acrimonious and fairer by relying on a wide range of factors to establish who gets what after the separation. Some of the critical factors that a court may consider during the equitable division of property include:

  • Duration of the marriage.
  • Child custody and care provisions.
  • Needs of each spouse.
  • The standard of living of each spouse during the marriage.
  • Each spouse’s chances of acquiring future income and assets.
  • The disparity of earning capacities between the spouses.

PS: property acquired with a combination of separate and marital funds is part of both separate and marital property so long as one party can prove that some separate funds were used to acquire the property. Separate property mixed with marital property automatically becomes marital property.

Debt Division

Just like property, debts are classified into two categories, namely; separate debt and marital debt.  In this case, separate debt refers to financial obligations that arose before the marriage, and this will generally continue to be the sole responsibility of the person who initially incurred them.

If spouses use marital funds (such as money saved in a joint bank account) to pay for one spouse’s separate debt, the other spouse can seek reimbursement during the divorce. Whether or not the argument succeeds will depend on the circumstances surrounding that specific case and your state’s divorce laws.

Community property states divide marital debt as evenly as possible between the divorcing parties. However, in cases where marital property isn’t enough to cover the entire amount of marital debt, the law permits the judge to ignore the equal division rule and divide the couple’s debts based on which spouse is better placed financially to pay off the debts.

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In equitable distribution states, both parties are responsible for the marital debt, but the judge will determine how best to divide the debt based on a wide range of factors. In some circumstances, a judge might consider debt incurred during the marriage as separate debt belonging to one spouse.

For instance, if one spouse engages in extramarital affairs and accrues substantial credit card debt, the divorce laws in most states allow the judge to hold the unfaithful partner responsible for the debts.

An Attorney Can Help You

If you are struggling with divorce and don’t know how to approach the issue of property/debt division, you need to find a divorce attorney to help you with your case. An attorney will evaluate the circumstances surrounding your divorce and advise you accordingly.

He/she will also fight for your rights and ensure you get what is rightfully yours. Contact us today and let us help you find an experienced divorce attorney today.

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