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How Do Assets Get Divided In Divorce?

Stephanie Darrell

How Do Assets Get Divided In Divorce?

Family Law
| 5 min
7 Min

Emotionally, divorce is a difficult process for anyone to go through. But beyond the emotional toll, there are also practical challenges involved that a couple needs to make decisions about, for instance how to divide their shared assets and debts.

Even in circumstances where the separation is mutual and the couple is on good terms, agreeing on who should get what can be hard. Property division is difficult, especially when the couple has accumulated significant and larger assets, such as houses, savings, pensions, rental property, businesses, and stock options. 

Several factors affect property division in a divorce, including the kind of property you own, the type of divorce you want, and the state you currently reside in. It is important to understand these factors if you want to understand how assets get divided in a divorce.

  1. Type of Property

The types of property you own largely determines how assets will be divided in a divorce. While different states may use different names to classify property, it is generally classified as either separate or marital property. Knowing the differences between the two types of property is critical for asset division.

Separate property refers to any property that either of the spouses owned before marriage, including inheritance, third party gifts, and compensation for personal injury. Consequently, the separate property belongs to one spouse and is not subject to division during divorce. However, separate property can lose its status if mixed up with the marital property and vice versa.

For example, a husband's inheritance may lose its separate property status if he deposits it into a bank account he jointly holds with his wife. In such a case, the inheritance will be considered marital property and will likely be subject to division during divorce.

Marital property refers to any property acquired during marriage regardless of its title or who owns the property. This includes all income and assets acquired by either the husband or wife during the marriage, including retirement and pension plans, real estate, cars, life insurance, bank accounts, and stock options. Marital property is subject to division during divorce.

  1. The State Where You Currently Live

Since the law differs from state to state, the classification of property will vary based on the state you reside in. Divorce courts divide property either through community property or equitable distribution methods. Consequently, there are community property states and equitable distribution states.

In community property states, all marital property, including assets and debt, is divided equally (50-50) between the divorcing spouses. However, each spouse gets to keep their separate property. There are nine community property states, including California, Washington, Idaho, Arizona, Wisconsin, Louisiana, Nevada, New Mexico, and Texas.

The remaining states are all equitable distribution states where marital property is divided equitably or fairly, but the division does not need to be equal. In some equitable distribution states, the court may order one spouse to use separate property to make the divorce settlement equitable or fair.

Since what is equitable may vary, the courts take into account several factors when dividing assets, including how long the couple has been married, the age and general wellbeing of each spouse, the standard of living established in marriage, income and earning potential of each party, the need by the custodial parent to maintain the current lifestyle for the children among other factors. 

  1. Type of Divorce

The type of divorce you are seeking, whether contested or uncontested, makes a difference in how assets are divided. Depending on prevailing state laws, an uncontested divorce allows a couple to agree on asset division without the need for a formal court hearing. Unlike a contested divorce, there are no protracted disputes. The process also saves a lot of time and is less expensive. 

Couples are also more likely to make concessions when dividing assets in an uncontested divorce. Generally, the divorcing couple is in control of the asset division process.

Conclusion

To understand how assets are divided in a divorce, you need to understand the type of property you own, whether it is marital or separate. You also need to understand whether you live in a community property state or an equitable distribution state. Additionally, you have to understand whether your divorce is contested or uncontested.

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