Chapter 10 Yours, Mine, and Uncle Sam's: Dividing Property

• Library: Nolo's Essential Guide to Divorce (Nolo) (2020 Ed.)

CHAPTER 10 Yours, Mine, and Uncle Sam's: Dividing Property

You're in Control

How Judges Divide Property

Community Property States: Equal Division

Noncommunity Property States: Equitable Division

What to Do With the House

Sell

Negotiate a Buyout

Continue to Co-Own the House

If You're in Financial Crisis

Dividing Your Other Assets

Household Items

Assets With Fluctuating Values

Assets You Could Easily Overlook

Stock Options

Deferred Compensation and Paid Time Off

Pets

Genetic Material

What to Do With a Family Business

Day-to-Day Operations

How Much Is the Business Worth?

Long-Term Plans

Dividing Debt

What's Marital and What's Separate

Handling Joint Debts

Handling Separate Debts

If You Can't Pay Your Debts

Tax Consequences of How You Divide Property

Transfers of Deferred Benefits

Your House and Capital Gains Tax

Retirement Benefits

Defined Benefit (Pension) Plans

Defined Contribution Plans

Military Benefits

Social Security

Money Now and Later

Dividing your property, just like everything else in your divorce, can be done the hard way or the easy way. And again, the easy way—working it out with your spouse instead of duking it out in court—is the recommended course. Try to remember that your stuff is only stuff. Some of it may have sentimental value, but it's a good idea to avoid fighting even over that. Trying to "win" the financial part of your divorce will cost you much more, in the long run, than putting your energy into figuring out what is fair and workable for everyone.

You're in Control

Before looking at the nitty-gritty of how the law views property division, remind yourself that you can divide your property however you want to, if you and your spouse can agree. You are in total control of the property division—all you need is the court's approval once you've made the decisions and written them up properly. And the judge will approve any reasonable division of property the two of you come up with.

You have the same options when it comes to negotiating your property division that you have when it comes to making decisions about your children. You can:

• work with your spouse directly
• work with your spouse through mediation or a collaborative process
• negotiate through attorneys, or
• fight it out using lawyers who represent you in a contested case, and let a judge or an arbitrator decide.

This chapter tells you how a judge might divide your property if you went to trial. You can use it to help you figure out what seems fair in your own divorce. But you and your spouse might well agree on something quite different, because you factor in things that are personal, not legal. For example, maybe your only valuable asset is your home. If you're the primary caretaker of the children and you and your spouse want it to stay that way, your spouse might agree to a buyout figure that's less than half the value of the house, so that you can stay there with the kids. This would be perfectly acceptable to a judge reviewing your settlement agreement.

Negotiating a property settlement is not easy, but don't sell yourself short just to get it over with. Take the time you need, get as much help and advice as you want, and consider all your alternatives before making decisions.

RESOURCE

If you don't know where to begin negotiating. Especially if you have a wide variety of assets and a long marriage where spousal support is likely to be an issue, an expert called a divorce financial analyst can be a big help. A divorce financial analyst can sit down with you, as well as your spouse or your lawyer, and help you consider all the different possible scenarios for dividing your property, advising you about the pros and cons of each. Chapter 16 has more.

How Judges Divide Property

How a judge would divide your property depends on where you live. For purposes of property division at divorce, there are two kinds of states: community property and noncommunity property states.

TIP

Spousal support is a whole other ballgame. Spousal support is a separate issue from property division, and it's dealt with in Chapter 11. Property division can affect support, however. Property is divided before support is set, and a spouse who gets a large share of the property might not also be awarded spousal support.

Community Property States: Equal Division

Only nine states use community property rules, which provide that most property acquired during a marriage belongs to both spouses unless a couple agrees otherwise.

Community Property States
Alaska*	Louisiana	Texas
Arizona	Nevada	Washington
California	New Mexico	Wisconsin
Idaho

* In Alaska, you have community property only if you and your spouse signed an agreement creating community property rights.

The theory of community property is that during the marriage, property is owned equally, and at divorce it must be divided equally unless the parties agree otherwise or special circumstances exist. However, the practice doesn't always follow the theory completely.

Only California, Louisiana, and New Mexico always divide property equally. In Idaho, Nevada, and Wisconsin, judges start with a presumption that property should be divided equally—but a spouse who wants a different outcome can argue for one and may be able to convince the judge.

In Arizona, New Mexico, Texas, and Washington, courts are required to give each spouse a "fair" share of the community property. In those states, fair usually means equal or something close to it—otherwise, there wouldn't be much meaning to the concept of community property.

Equal division doesn't mean that every single asset has to be split in half—that's just not practical (or desirable, usually). The court just makes sure that when everything is totaled up each spouse ends up with property of equal value.

Just because community property is distributed more or less equally to the spouses, it doesn't mean there won't be any arguments about who gets what. It does mean that the biggest fights are usually about whether certain items are community or separate property, and about the value of certain items of property.

If You Moved From a Noncommunity Property State What do you do if you got married and acquired a bunch of property in a noncommunity property state, and then moved to a community property state, where you're now getting divorced?
Property that you and your spouse bought in your old state and still own is called "quasi-community property." At divorce, it is treated just like community property. For example, if you purchased a car in a noncommunity property state with joint funds, but put title in only one spouse's name, that spouse would own the car as separate property at divorce in that state. But if you moved to California with the car and then divorced, the car would be considered quasi-community property, and its value would be divided equally at divorce.

Noncommunity Property States: Equitable Division

In noncommunity property states, while you're married you own the income you earn separately. If you have property in your name, you also own it and have the right to manage it during the marriage, even if both of you paid for it or were given it. But at divorce, judges do not simply give property to each spouse based on whose name is on the property's title. To do so could lead to obviously unfair results in some circumstances. For example, say a couple decides that the wife will stay home to raise their children, and the husband deposits his paycheck into a bank account that is in his name only. If he were allowed to keep all that money at divorce, the wife's contribution to the family would be completely ignored.

Equitable distribution is intended to ensure that a spouse whose name isn't on the title still gets a fair share of the couple's property. It rests on the premise that each spouse contributes to the marriage and to the acquisition of property and income, even property and income that only one spouse earned or that has only one spouse's name on it.

The Basic Rule

The judge's job is to divide your property "equitably"—meaning in a fair way, but not necessarily equally. Equitable division may mean that one of you might be awarded property in lieu of support—especially if you were married for a long time. Instead of ordering long-term spousal support, judges sometimes prefer to award property that will serve the same purpose—giving the dependent spouse a standard of living comparable to that of the marriage, but without requiring ongoing ties between the former spouses.

In a few equitable distribution states (listed below), the judge starts with a presumption that assets should be divided equally. Then the judge hears arguments from both spouses about why an unequal division would be more appropriate. For example, one spouse might assert a much greater financial need than the other. The custodial parent might ask to keep the house, even though it's worth more than the rest of the assets together, because it's in the children's best interest to stay in the family home.

States That Begin With a Presumption of Equal Division of Assets
Arkansas	North Carolina	Oregon
Florida	North Dakota	West Virginia
Indiana	Ohio	Wisconsin
New Hampshire

In states that don't start with a presumption of equal division, state law usually says that the division should be "equitable" and "just." The judge will use the factors described below to reach a result that meets that standard.

Factors a Court Considers in Dividing Property

The judge in your divorce case, if you and your spouse can't divide your property yourself, will consider a number of factors to determine a fair division of property. Each state has its own set of factors but also gives judges the freedom to consider anything that seems relevant to your situation.

If both you and your spouse own roughly equal assets and have roughly equal earning capacity, it's easy. But if...