Property Division in Divorce

Two Systems of Property Division

The United States uses two different systems for dividing marital property:

Community Property (9 States)

States: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin

• Property acquired during marriage is owned equally (50/50) by both spouses
• Each spouse's separate property remains theirs
• Debts acquired during marriage are also divided equally
• Generally results in a 50/50 split of marital assets

Equitable Distribution (41 States + DC)

All other states

• Property is divided fairly, but not necessarily equally
• Courts consider multiple factors to determine a fair division
• Division might be 60/40, 70/30, or any other ratio deemed fair
• More judicial discretion in the outcome

Marital vs. Separate Property

Marital Property (Subject to Division)

• Income earned during the marriage
• Property purchased during the marriage
• Retirement accounts earned during the marriage
• Businesses started or grown during the marriage
• Vehicles, furniture, and other items acquired during marriage

Separate Property (Not Subject to Division)

• Property owned before the marriage
• Inheritances received by one spouse
• Gifts given specifically to one spouse
• Personal injury awards (in most states)
• Property kept separate by agreement (prenup)

Factors in Equitable Distribution

In equitable distribution states, courts consider factors including:

• Length of the marriage
• Age and health of each spouse
• Income and earning potential of each spouse
• Standard of living during the marriage
• Contributions to the marriage (including homemaking)
• Economic circumstances of each spouse
• Any prenuptial or postnuptial agreements
• Tax consequences of division
• Future financial needs
• Contribution to the other spouse's education or career

Common Assets to Divide

Real Estate

• Marital home - often the largest asset
• Options: sell and split proceeds, one spouse buys out the other, or continue co-ownership
• Consider mortgage, equity, and tax implications

Retirement Accounts

• 401(k), IRA, pension plans
• Only the portion earned during marriage is marital property
• Requires a Qualified Domestic Relations Order (QDRO) to divide without tax penalty

Business Interests

• May require professional valuation
• Consider whether business was started before or during marriage
• Options: buyout, ongoing payments, or selling the business

Investments and Bank Accounts

• Stocks, bonds, mutual funds
• Savings and checking accounts
• Cryptocurrency and digital assets

Personal Property

• Vehicles, furniture, art, jewelry
• Electronics, collections, memorabilia
• Often divided by agreement rather than court order

Dividing Debt

Debts incurred during marriage are also divided:

• Mortgages and home equity loans
• Credit card debt
• Auto loans
• Student loans (treatment varies by state)
• Medical bills
• Business debts

Hidden Assets

Be aware of potential hidden assets:

• Unreported income or cash
• Overpaying the IRS for a future refund
• Deferred compensation or bonuses
• Art, antiques, or collectibles undervalued
• Money "loaned" to friends or family
• Cryptocurrency wallets
• Stock options or restricted stock

If you suspect hidden assets, a forensic accountant can help investigate.

Protecting Your Interests

1. Gather documentation

   Collect financial records, tax returns, account statements, and property documents.

2. Know what you have

   Make an inventory of all assets and debts, with values and documentation.

3. Understand true value

   Get professional appraisals for significant assets like real estate and businesses.

4. Consider tax implications

   Not all assets are equal after taxes. A $100,000 retirement account may be worth less than $100,000 in cash.

5. Think long-term

   Consider your future needs, not just immediate desires.