How Property is Divided in a Divorce
The Standard for Division Starts at 50-50
The standard for the division of marital property in a divorce is “fairness,” or “what is fair.” Although this is vague, it is generally interpreted to mean a 50/50 division of marital property. The key word there is marital. Property acquired during a marriage is presumed to be marital, even if title to the property (and any debt on the property) is only in one spouse’s name. Likewise, debt incurred during a marriage is presumed to be marital, even if the debt was only incurred by one spouse and/or is only in one spouse’s name.
Marital Property versus Separate Property
Property that was owned by a spouse prior to a marriage or that was gifted to or inherited by a spouse is legally their “separate” property and not subject to division unless that spouse (the recipient and owner) did something to give their partner, the other spouse, a legal interest. A common way that separate property becomes marital property is when the spouses become joint owners by moving money into a joint account or converting land into joint tenancy. Once separate property becomes joint, it may be impossible to reverse that transaction, and the property may be divided 50/50 even though it was originally pre-marital or inherited property.
Separate property that remains separate may still have a divisible marital component if it increased in value due to the efforts of either spouse during the marriage. Dividing the marital value of otherwise separate property can be a complex, fact-sensitive issue requiring careful analysis.
Marital Equity is a Net Concept
Marital assets and debts are counted together. If your house is worth $900,000 and has a mortgage loan against it of $500,000, the marital interest is $400,000 ($900,000 – $500,000). In that scenario, if the only asset is the house and there is also $50,000 in credit card debt, your total marital equity is actually only $350,000, even if the credit card purchases had nothing to do with the house.
Each Situation is Highly Fact-Sensitive
A common mistake is for people to fixate on their share of one large asset while ignoring other assets and debts that will factor into the overall division of property and debt. In many cases, we are asked, “Who gets the house?” The answer depends on a number of factors, including:
Can either afford the house payment by themselves? In some cases, the monthly mortgage payment is high enough that it requires the income of two people to pay it, so after separate, the house needs to be sold because neither spouse can pay for it by themselves
Can either afford to pay the home equity to the other side? Even if one side keeps the house, the other side is entitled to their share of the marital equity in the home. In some cases, there are other assets that can be used to offset their equity claim, but in other cases the home equity is the largest asset. This means the person wanting to keep the house must have cash on hand or cash from a family member to pay the other spouse their 1/2 of the equity, or refinance it and pay cash from the refinance proceeds to the other spouse. Sometimes the concept of refinancing the home increases the mortgage payment to the extent that the spouse wanting to keep the house will actually not be able to afford it after the refinance process
Is there anything unique about the home that makes it more desirable or meaningful for one of the spouses? If the home was built on or near one of the spouse’s families, such as their parents, they may have a strong reason and incentive to want to remain there. We have seen situations where one of the spouses had physical handicaps and the marital home was custom-built with accommodations to meet their needs. That spouse may have a stronger claim to retain the home, again, provided that the other spouse can obtain their share of the equity in it
There are other potential factors to consider. For example, if both spouses can afford the house and both want possession of the house, the judge may find it is easier to simply order it to be sold, meaning neither spouse will retain the house simply because they cannot agree to a different outcome. We see frequent scenarios where one spouse wants to keep the marital home, yet they claim that because of the mortgage expense, they cannot pay their other obligations such as child support or spousal support. A court will not approve such a claim and will order the home sold. Keeping an expensive home will not be accepted as a reason to not comply with support obligations.
Room for Creativity
Property may be divided in several ways. For example, if 10 gold coins were purchased during the marriage, one spouse would get 5 and the other would receive the other 5. The judge has the power to require payments in lieu of the physical division of the coins. This means that the judge could give one party all 10 coins and require that spouse to make one or more cash payments to the other spouse for the value of 5 of the coins.
Value may be a non-issue. If each spouse has a 401(k) plan, the marital portion of each may be divided 50/50 without regard to the value of either plan. In the gold coin example above, the price of gold per ounce is irrelevant if each spouse receives 5 coins, but the price becomes highly relevant if one spouse retains all 10 coins and must buy out the other spouse’s interest in 5 of the coins.
The Court’s Power
A court does not have jurisdiction over property that is in another state. However, a court may order a spouse to sell or transfer their property that is located in another jurisdiction in certain circumstances. A court’s authority over the division of land or property that is in another state varies as follows:
If the court had personal jurisdiction over both spouses at the time the petition for divorce was filed and served, then the court may order either spouse to do things such as sell or transfer property as part of the divorce property division authority of the court and the court’s jurisdiction over each person to force them to act
If the court only had jurisdiction over one spouse but the other never lived in that state and never entered that state, the court can grant a divorce to the spouse it has jurisdiction over, but it may not enter any orders concerning property in other states since it does not have jurisdiction over that property or the other spouse. This can result in a divorce being granted in one state and a separate property division lawsuit taking place in a different state that has proper jurisdiction.
