How Are Assets Divided in a Divorce?
Divorce can be complicated, and particularly so when it comes to the splitting of assets. The property you once shared as a unit must now be fairly and evenly divided between both of you.
When you’ve both decided on divorce, it’s important to assess your situation rationally. Both of you should feel comfortable and confident in the process of dividing assets. There are divorce laws in place to ensure both parties don’t feel taken advantage of when assets are split. Understanding how these laws work is a helpful way to ensure a smooth transition.
State Differences in Division of Assets
State law determines the way assets are divided in a divorce. In most cases, the property is divided evenly between both spouses. However, the area of family law that is pertinent to a divorce or separation can vary by state and depending on the relationship.
Community Property or Equitable Distribution?
There are generally two different approaches that can be taken when it comes to asset distribution in a divorce: community property or equitable distribution. The type of asset distribution you must adhere to depends on the state you live in.
If your state imposes community property asset distribution, the assets you and your spouse owned together are considered community property. When you get a divorce, these assets are divided evenly between both of you. However, you keep the property that you owned individually and your spouse keeps the property they owned individually.
For example, if you bought a home together, you would both split the equity on the home. However, if you bought a piece of art on your own, you would retain ownership. If you bought most of your property and assets separately, community property division is beneficial for you. However, if you contributed more to the purchase of shared assets, you’ll lose out in this division since you’ll only retain half of it.
States that practice community property asset division include the following:
- New Mexico
In Alaska, you may decide to divide community property evenly if both parties agree.
If you live in a state that enforces equitable distribution, your shared assets are divided fairly between you and your ex-spouse but not necessarily evenly. Depending on your investment in shared assets or property, you may be awarded a percentage of ownership.
For example, if you both own a car together but your spouse has been the one making most of the car payments, your spouse may maintain ownership of the vehicle. If you contributed to car payments, you may be awarded a percentage of the car’s value but not necessarily half of its value.
If you contributed greatly to the purchase of shared assets, this type of asset division may be beneficial for you since you’ll retain that ownership. However, if you didn’t make many financial contributions, you may lose out on these assets in this type of division.
States that approach asset division with equitable distribution include the following:
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
What Should I Do During a Divorce?
When you and your spouse decide to divorce, your goal as a unit should be to split assets fairly on your own; this results in what is called an “uncontested divorce.” If you can’t do this, you’ll need to get the court involved to complete a contested divorce, which can get not only complicated, but also expensive.
In a contested divorce, you and your spouse hire lawyers and complete court proceedings, so you’ll pay court fees and attorney fees. If you have children, you’ll need a child custody law expert to help with the divorce. A child support lawyer may also need to be involved to help settle child support payments and scheduling.
A contested divorce costs an average of $15,000 per person in the U.S and can take between four and 11 months to complete. However, by implementing the following steps, you may be more successful at avoiding a contested divorce and dividing assets fairly without going to court.
Create an Inventory of Your Assets
When you both agree to divorce, your first order of business is to make a list of your assets together. Do this with both parties present in a rational and amicable way. Your list should include all big and small assets that you both take ownership in, such as the house, furniture, or record collection.
Decide which items can be given to which party and which ones may need to be divided. A list of items that you both create together help ensure (and prove) you agree on asset ownership and how these items should be distributed.
Negotiate a Property Division Agreement
Using your list, you’ll begin to see which assets or properties you both take ownership in. Work together and with the assistance of your attorneys to divide this property evenly and fairly between both parties.
If you and your ex-spouse can amicably agree on how to divide assets and property without going to court, you can complete a simple and uncontested divorce. This allows you to avoid filing for a contested divorce, which is time-consuming and expensive.
How to Handle Major Assets
Major assets, including retirement benefits, houses, vehicles, or a family-owned business, can be hard to divide without a dispute. When dealing with a family-owned business in a divorce, Forbes concludes, “Ultimately, each party must decide their intentions for their ongoing involvement in the business, as well as the best way to divide the business financially.”
With these major assets, both parties have a few options. They can amicably agree to sell the major assets and split the profit. One spouse can buy out the other spouse for complete ownership of the major asset. Alternatively, both spouses may maintain ownership and create a new agreement that outlines their responsibilities and rights when dealing with the asset.
Resources to Simplify the Division of Assets During Your Divorce
When separating from a spouse, it’s crucial to involve a divorce lawyer to manage your division of property. The resources listed below are also helpful as you attempt to simplify the process of asset division.
Divorce Property Division Checklist
When listing the property and assets involved in your divorce, consider the following:
- The income you and your spouse earned in the past year.
- The appraised value of your home, car, and other property.
- A list of your vehicles and their appraised values.
- The value of your home’s furnishings.
- The appraised values of artwork or other valuable household items.
- Intellectual or patented works you own together and their values.
Divorce Finances Spreadsheet
Create a detailed divorce finances spreadsheet so you both can see and calculate your income, assets, and expenses together. This allows you to understand how your financial situation will be impacted by the divorce and to create a strategy for dealing with these finances amongst your split.
While a divorce may feel overwhelming, the division of assets and property can be simple if you and your spouse take the right steps. By staying organized, rational, and enlisting a divorce lawyer to assist, you can divide your assets in a way that allows both parties to feel that they were treated fairly.