When you begin to think about separating from your spouse, you will need to consider very carefully how your property will be divided. During the course of your marriage, however short it might have been, the two of you have likely accumulated some amount of stuff: both the obvious, tangible stuff—such as a house, cars, a CD collection, china, pets, waterskis—and less visible property, such as savings accounts, life insurance policies, retirement plans, stock market investments, or business ownership. All of this stuff will need to be split up or shared; what was one household will have to become two. How well you weather that transition to your separate household may be a function of how carefully you think through and plan for the division of your marital property.
Each state has its own laws defining the concept of marital property, but generally speaking, things that were bought or accumulated during the marriage using funds earned during the marriage are considered marital property and will be divided. As we pointed out earlier, this can vary from state to state, so you may need to consult a local attorney to get more specific information regarding things like inheritances, gifts, or things/money that were acquired prior to the marriage. Regardless, when a marriage ends, you will need to think through all the assets and debts that you and your partner hold (here’s how you conduct an inventory ), and develop a strategy for splitting it all up.
The process used to divide property can vary pretty dramatically from case to case, but generally speaking, there are two basic elements: you can physically divide the stuff (“I’ll take the couch, you get the chairs”), or you can agree on the monetary value of the items at issue, sell them, and split the proceeds. However, we need to reiterate: the earlier in your separation you and your spouse can reach an agreement, the less the entire divorce process will cost you, both financially and emotionally.
It will be enormously helpful—if you haven’t already done so—for you to make an inventory of all of your marital property; your attorney should ask you to do so, if you don’t bring such a list to your first meeting. Now, for some couples, that list is pretty short and simple, everyone is in agreement, and property distribution can be taken care of with a minimum of bickering. But in most cases, even if you are both fairly amicable, you will want an attorney to confirm that the division of assets is equitable. In truly bitter break-ups, a judge will need to make the final decision about how the property is to be distributed.
First off, if you own a home, you will need to divide it. This will most likely necessitate a real estate appraisal (one of those professional services we talked about in the article “Divorce and Finances”). Once you know what your home is worth, you have a choice: you can sell it, and divide the proceeds, or one of you can purchase the home from the other (this is sometimes a particularly attractive option if there are children involved who would benefit from the continuity of staying in familiar surroundings). Selling a home can take time; so don’t expect this particular piece of your settlement to be wrapped up quickly. Be patient, and expect a certain amount of uncertainty in your life for a while.
Business ownership can complicate property division even more. In some marriages, one partner owns a business outright, or with partners outside the marriage, while the other spouse has nothing to do with the business. In other situations, a couple owns a business together. In either case, the wisest plan is to hire a business appraiser, and rely on that person’s assessment of how the business should be valued and divided. Now, some couples are so embittered by the time they get to this stage in the process that they can’t even manage to hire the appraiser without acrimony: it sometimes becomes necessary for each spouse to hire his or her own appraiser, then allow their attorneys to work together to reconcile the two valuations. Understand that you may walk away from such a situation feeling that you didn’t get what you wanted, and that this feeling is normal—such is the nature of compromise. It’s usually worth the compromise to be able to get the property divided so that you can move on with your life.
One question that we often hear is whether or not a professional license constitutes marital property. The answer, in most states, is, no. Most states do not divide the value of the degree. Generally speaking, even if you put your spouse through medical school, that medical degree itself cannot be divided. The resultant medical practice, of course, is a business, and will need to be valued and dealt with accordingly, as per the above paragraph.
Retirement plans are yet another asset that gets divided at the end of a marriage. For the most part, we are using the word divided loosely here: in the case of a retirement plan, what usually happens is the cash value of the plan goes on the marital balance sheet, and the assets are allocated in such a way that each party gets an equal portion. In other words, if the house is worth $100,000 and the 401k is worth the same amount, one of you might take the house, while the other gets the 401k.
Sometimes, however, retirement plans are literally divided. They’re split in half. Most plans are subject to special taxation laws that complicate their division. The process of dividing these plans requires submitting a special document to the court for signature. This QDRO facilitates either (1) direct payments from the plan to the nonemployee spouse or (2) the creation of a separate retirement account for the nonemployee spouse. The QDRO is essential in order to avoid incurring taxes on the division of the plan.
Stock options are an important and valuable asset in many families. They are often worth a great deal of money. The division of the options may require cooperation from the employer as well as special documentation. Generally, however, these assets are divided in a manner similar to other investments.
Inheritances can complicate matters. If one spouse has received a significant inheritance, most states (not all) will treat that as separate property—depending what was done with the money. Some states have exceptions: in North Carolina, for instance, inherited money remains the property of the spouse who received it, unless it’s used to purchase jointly titled real estate, at which point it becomes marital property. Of course, the paper trail becomes significant here: if you inherited $10,000 from Grandma, and you want to have that much added to your side of the ledger, you’ll need to document that the money was spent in such a way that it doesn’t get caught up in any of the potential exceptions. And again, those exceptions vary from state to state: check with your attorney.
And while we’re on the subject of dividing property, we need to point out that marital debt (including unpaid taxes) will be divided just like marital assets. Some states will recognize an exception to that rule, for debt incurred that was not for the benefit of the marriage (services of a prostitute, for instance), but those exceptions are few and difficult to prove. Even if one spouse incurs significant debt without the knowledge of the other, that debt is generally considered marital property, and thus both parties are on the hook for it.
