What You Should Know About Splitting Assets In A Divorce

Divorce is already a stressful experience – understanding the ins and outs of the legal process and how it will impact your finances may not be the first thing on your mind while you’re going through it. One of the most challenging parts can be splitting the assets of the couple. We have some tips to help you navigate through these financial decisions with relative ease.

Types of Property

There are several different ways of classifying assets — here are a few of the most common:

Real Property

Real property is considered to be land, buildings that sit on land and the rights to enjoy land and buildings. For most divorces, this will refer to the family's primary residence, though there may be other real estate such as a vacation home and/or investment properties.

Personal Property

Personal property is property that is not attached to any real property like land. It will include automobiles, clothing, furniture and other items that are owned by either spouse in a marriage.

Separate Property

Separate property generally refers to property or assets that were owned by one spouse before the marriage occurred. This might refer to a car that was purchased and owned by one spouse before the marriage, or an inheritance that was received by one spouse previous to the wedding. While often separate property is not considered in the divorce splitting assets process, that can change depending on how the property is used in the marriage and/or state law.

Community Property

Community property is roughly the opposite of separate property. Whereas separate property is property that is brought by one partner into the marriage, community property is property that is owned and used by both spouses. Community property generally refers to anything and everything that either spouse earned during the course of the marriage and any property purchased with those earnings.

Different States Have Different Laws

The way dividing assets in divorce works will generally depend on state laws, but there are two main ways that states choose to split assets in a divorce:

Equitable Distribution Vs. Community Property States

In community property states, all community property is divided equally, but other states practice equitable distribution, in which property is divided equitably but not always equally. Currently there are nine states that divide community property equally:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Additionally, a handful of other states (Alaska, South Dakota, Tennessee, Kentucky and Florida) allow spouses to choose a community property framework if they meet certain criteria.

How To Divide Different Assets

During a divorce, all assets must be accounted for and listed, including both physical items and financial assets. If the divorcing parties can’t come to an agreement on a specific asset, the judge will ultimately make the decision as to who gets which property and under what conditions.

Homes And Property

It is typical for one of the largest assets that is split in a divorce to be the family home, though there is sometimes other real property, like vacation property, land or other real estate. In a divorce, it is common for homes and property to be divided in one of three ways:

• The property is given to one of the spouses, and they buy out the other spouse's interest
• The property is given to one of the spouse, and the other spouse is compensated by receiving a bigger share of some of the other property
• The property is sold, and the proceeds are split between the spouses.

If one of the spouses keeps any property, it is common for it to be valued to determine how it fits into the overall disposition of the property. The two parties may agree on a value or it may be determined by a third party, such as an appraiser.

Vehicles

Cars, boats, recreation vehicles and other types of vehicles are often split in the same way. Either the vehicles are sold and the proceeds divided, or the vehicles are given to one of the spouses and the other spouse is compensated with other types of property.

Accounts

Any securities, bank accounts or jointly held investments are also split in a divorce. Even an IRA (where the "I" stands for Individual) may be considered community property and its value subject to being divided between spouses.

Benefits

Retirement benefits and pension earnings can also be split during the divorce process. While it is common for these types of benefits to be split in a divorce, it's also common for it to be negotiated that each spouse keeps their own retirement benefits, especially if they are of a similar value. There are also rules for an ex-spouse claiming Social Security benefits, if they are unmarried, age 62 or older and the marriage lasted at least 10 years.

Household items

Household items such as jewelry, televisions, appliances, collections (such as music albums, baseball cards) are also considered property that is subject to a split in a divorce. Again, this property may be equally divided, granted to one spouse or the other or sold with the proceeds divided.

Factors That Can Impact Asset Division

A number of factors can play a role in dividing assets in divorce. Here are a few of the most common factors:

• Age and health of both partners: If one partner is significantly older or in poorer health, this can impact how assets are divided in a divorce.
• Debts and liabilities: Just like assets are split during a divorce, debts and liabilities are also generally divided between the spouses as part of a divorce settlement.
• Career and/or staying home to raise children: If one parent stayed home during the marriage to raise children, they may have a lower income or no income at all. This is often compensated for during the splitting of assets during divorce proceedings.
• Tax consequences of property division: Selling a home or other valuable asset may come with tax consequences that neither party wants. In such cases, the spouses may choose to divide their assets in a way that does not trigger a taxable event.
• Children:  Often, property such as the family's primary residence, is granted to the custodial parent.

The Bottom Line: Splitting Assets Doesn’t Have To Be Difficult

Divorce is often very stressful for all parties involved, even if it is amicable. As part of the divorce agreement, spouses must agree on how assets should be split. This includes both separate property that a spouse might have brought into the marriage as well as community property that is considered property jointly owned by both spouses. Even if you are on cordial terms with your soon to be ex-spouse, it can make sense to get legal representation and be diligent in assessing all assets before splitting them.

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