Property division is a key element of divorce, and one that triggers the greatest conflicts and arguments. Splitting assets is simpler if the divorce is not contentious, i.e. the couple is willing to work together and reach a fair agreement. The situation can further complicate if the couple has one or more children, and the marital estate is large. It is not easy to decide who gets what, or determine who deserves the first pick on a particular subject. Situations like these lead to divorce litigation, and both parties are required to hire a legal representative. In addition, asset division laws during divorce differ from state to state, so it is in your best interests to consult New York Divorce Attorney, especially if you hope to settle out of court.
Community Property vs. Equitable Distribution
Depending upon the state you live in, asset division during divorce will occur on the basis of community property or equitable distribution. Currently, nine states in the U.S follow community property standards: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin. In these states, the assets of the couple are either categorized as ‘community’ or ‘separate’. Community property includes all assets and earnings acquired during the marriage; this includes joint money accounts, income from jobs, and co-owned/mortgaged real estate.
Separate property refers to gifts, inheritance, and legal awards (such as a personal injury settlement) received by an individual before and after the marriage. This can also include pensions, or businesses that were founded before the marriage. A business can become community property if it flourished after the marriage, or the other spouse participated in it. Separate property will also be considered community property if it is combined with marital assets. For example, if marital assets are invested in a separate business, or you add the name of your spouse in the title of a separate property.
In community property states, the separate assets are retained by the individual after divorce and community assets are equally divided between both parties. In other states, community property is distributed between both parties equitably, but not always equally. At times, one spouse may have to compensate the other by giving a portion of separate assets as well. Several assets, such as 401K accounts and life insurance that are under one spouse’s name shall become community property if obtained during marriage.
Factors affecting Asset Division during Divorce
Fair division of assets does not necessarily mean splitting them in half by their current dollar value. Both parties should consider short term and long term implications, and incentives. The liquidity, value of appreciation, and applicable tax are a few factors to contemplate. If the couple co-owns a house and has children, the court is likely to award it to the parent who is the primary caregiver of children. If there are no children involved, the case may become tricky. The easiest solution is to sell the house and split the money. If one spouse wants to keep the house, he/she may have to compensate the other through a lump sum payment or installments.
One spouse cannot stop the other from living in the house until the deed is transferred to their name or the court has issued equivalent orders. The court may consider the following dynamics to exercise equitable asset division:
- Individual finances of both parties
- Age and health of each spouse
- Needs of custodial parent and children
- Earning potential of each spouse
- Length of marriage