Marriage Defenders

With Justice for ALL (quote from the pledge of allegience U.S.A.)

This is an informational website offering support not legal advise

Issue - Dividing Property

How is property divided in a separation or divorce? If the couple has no prenuptial agreement, it depends on the laws of each state. Three basic systems govern how property is divided in a divorce.

They are known as: title community property equitable distribution Community Property States: Arizona California Idaho Louisiana Mississippi Nevada New Mexico Texas Washington Wisconsin

Equitable Distribution States: The remaining 40 states and the District of Columbia.

Important note: If you are married and acquire property in an equitable distribution state, your property could be converted if you move to a community property state.

The title system of distribution is not used anymore, because it is considered unfair. Under this system, each asset is divided based on whose name it is held in. Traditionally, since the husband was almost always the breadwinner, all assets such as cars, bank accounts, stocks, bonds, and even houses were bought by him and held in his name. Thus, he would end up with most of the assets in a divorce.

The unfairness of this system has led to its replacement in most states by equitable distribution. Here, the basic idea is that the property acquired during a marriage is jointly owned by both spouses. But equitable distribution does not necessarily mean equal distribution, and ownership does not automatically split fifty-fifty between the two. At the time of the divorce, a judge must decide how the property should be distributed. The distribution must be fair and just (equitable) and the judge must consider several factors, including:

the length of the marriage

the age and health of the parties

their respective ability to earn in the future

any responsibility to minor children

any other circumstances that are particular to their marriage

Forty states and the District of Columbia divide property in this manner. The specific details vary from state to state, but the general concept is the same. While equitable distribution is the system used in the majority of states, there are ten community property states. The idea of community property is that everything a husband and wife acquire once they are married is owned equally (fifty-fifty) by both of them, regardless of who provided the money to purchase the asset or whose name the asset is held in. If the couple divorces, their property is divided evenly under this system.

What about property each spouse owned before the marriage? In most equitable distribution and community property systems, that property remains separate and does not get split during the divorce. The same is true of any personal gifts or inheritances a spouse receives during the marriage. However, if you don't keep your personal assets separate, they may be converted into marital property. Then your spouse may be entitled to a share. For example, if you receive a $10,000 inheritance and keep it in your own personal account, then that is your separate property. However, if you deposit the money into the joint account you share with your spouse, then it would probably be considered marital property. (Note: the state of Connecticut is one exception to the standard. There the law does not make a distinction for property acquired prior to the marriage.)

You can sometimes convert a separate asset into joint property even if you don't commingle it with marital property. For example, say you inherit 10,000 shares of IBM stock from your parents during the marriage, and you keep those shares in your name only, and you never do anything with that stock. It remains yours, and if you get divorced your spouse will not get any of it.

But perhaps you decide that this is your big opportunity to start playing in the stock market, and you begin to devote several hours a week to trading, buying and selling shares, and reviewing financial and business journals. You do well and the value of that inheritance has increased by $50,000 due to your own efforts. Even if you keep this money in a separate account in your name and you never use any of the money to benefit your family, the $50,000 increase in the value of your stock portfolio, which resulted from your personal effort (as opposed to any appreciation in its value earned while it sat there), may be considered marital property that can be distributed.

In another example, say that several years before your marriage you bought a house. It's in your name, and is considered a non-marital asset. After your marriage, you continue to live in the house and pay the mortgage from your employment income, which is considered a marital asset. Thus you are mixing a marital asset with a non-marital asset. In some states, that mixture will cause your house to become marital property that can be divided between the parties. In other states, the part of the house that you had paid for before the marriage will remain a non-marital asset, while the other part will be a marital asset that can be divided between you and your spouse.

When you and your spouse are both owners of a property (such as the house you live in), then part of the value is yours and part of the value is your spouse's. Therefore, if you want to keep the house for yourself, you will have to trade off certain other assets in order to equal the balance.

What if the house was owned by one spouse before the marriage? Things that you owned prior to the marriage do remain separate property. However, in an Equitable Distribution state, it may not be fair to exclude your spouse from sharing in the value of the house, especially if your spouse has helped pay the mortgage or has made improvements in the house. Also, if you bought the house specifically in contemplation of the marriage and the title just never got transferred into joint names, a court will usually find that it was intended to be a marital asset and will probably give your spouse a fair share.

How does a couple identify their assets? The easiest assets (items of value) to identify are the tangible things that you own. These include:

your home

furniture, including lamps and rugs

appliances

works of art

vehicles, including cars, bicycles, boats, and snowmobiles

money (cash in the bank) stocks, bonds, and other investments pensions and retirement accounts

personally-owned businesses and partnerships.

There are also assets that do not have a physical existence. These are known as intangible assets.

An example of an intangible asset would be the patent on an invention or something known as "celebrity goodwill," which is a person's ability to sell his or her image. (This typically applies to famous people, like Michael Jordan, who can make a lot of money because of their notoriety.)

Usually one of the most significant assets to divide is your real property. Real property is essentially land and all the things that are attached to it. If you own your own home, you own real property. Anything that is not real property is personal property and personal property is anything that isn't nailed down, dug into or built onto the land. Thus, your house is part of your real property, but your dining room set is not.

(Note to those who own cooperative apartments: They are generally considered personal property.)

Would a professional degree be considered an asset? Sometimes. Most states don't consider professional degrees and licenses as marital property, although if you have supported your spouse and put him or her through school, you may be entitled to some form of reimbursement that will give you back the investment that you made in your spouse's future. However, some states, such as New York, do consider a professional license an asset, and in New York a spouse will be entitled to a share of its value.

While it can be difficult to place a value on the license, these states will typically evaluate the expected lifetime earnings potential of the license holder to make the calculation.

What about life insurance and pension plans? A life insurance plan is an asset to which the parties have contributed during the marriage, but it is an asset which, again, is difficult to value because it will not be received until the insured person dies. Typically, there are two kinds of life insurance policies: term insurance that pays death benefits and has no present value, and a policy with a cash surrender value. A state may consider the cash surrender value of any life insurance policy to be marital property that can be divided (your policy will state whether it has a cash surrender value).

A pension plan is also an asset of the marriage. Depending on the law in your state, even if you are not vested in your pension and cannot collect from it or borrow against it for many years, the court may still consider it an asset of the marriage.

Is one spouse entitled to a share of the business of the other spouse? Yes. If your spouse owns his or her own business, you are entitled to some share in the value of that business, although it is unlikely that you will get a piece of the business itself. If the business existed prior to the marriage, you will only be entitled to share in the increase in the value of the business since the marriage. If the business was set up during the marriage, you will be entitled to share in the entire value of the business.

How is the value determined? It's an extremely complex procedure that usually requires the help of an expert whose services will probably cost several thousand dollars. Don't expect that you will receive pieces of machinery or inventory, or that you will be given a controlling share of the stocks of the corporation. Instead, since it is really your spouse's business (and presumably he or she wants to run it without your input) you probably will receive a cash buyout or the equivalent amount in marital assets. Even if you want a piece of the business, it is unlikely that a judge would give it to you, since that would be very disruptive to the flow of the business.

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