How Property and Debt Are Divided in a Divorce: FAQ

How Property and Debt Are Divided in a Divorce: FAQ

If you’re thinking about getting a divorce or in the middle of one, it’s natural to want to learn more about how your property and debt will be divided. Over the course of a marriage, a couple usually accumulates a lot of property, from houses and cars to retirement accounts and inheritances. How do courts decide who will own this property? How do you know what to expect? And what happens with debt you’ve accumulated during the marriage?

The first thing to realize is that divorce is a legal relationship governed by state law. You can obtain a lot of general information on the Internet, but when it comes right down to it, the best way to know what to expect is to consult with a lawyer licensed in your state. With that said, knowing a little about the issues that are likely to come up can aid you in those discussions.

There are three basic issues when it comes to property and debt division: whether there is a valid prenuptial agreement, what property and debt exists, and how property and debt should be divided.

1. Do you have a prenup?

A threshold issue when it comes to property and debt division is whether the parties to the marriage have a valid prenuptial agreement (also known as an “antenuptial agreement” or just a “prenup”). If a prenup exists, it will be followed as long as it meets state law requirements. Here are a few typical challenges to prenuptial agreements:

  • One of the spouses did not make a full and fair disclosure of assets owned and debts owed.
  • One of the spouses did not have an opportunity to consult with an independent lawyer before signing the agreement.
  • One of the spouses did not sign the agreement voluntarily but rather was coerced into signing it.
  • The agreement is so one-sided as to be unfair and should therefore not be enforced.

If a court finds that a prenuptial agreement does not meet the requirements of applicable state law, all or part of it may be invalidated. If you are getting a divorce or thinking about it and you have a prenuptial agreement, you should contact an attorney licensed in your state right away.

2. How do you know which property and debt gets divided?

In every divorce, it is important that all property and debt be identified and classified according to state law. The divorce process requires that the spouses make full disclosures to each other of all property they own and debts they owe. This includes assets of every kind, like these:

  • All real property, such as the marital home, summer homes, vacant land, and timeshares;
  • Tangible personal property, such as cars, jewelry, tools, computers, and machines; and
  • Intangible personal property, such as stocks, bonds, copyrights, mutual funds, interests in retirement plans, and interests in businesses.

The couple must also identify all debts they owe, including mortgages, car loans, and personal and student loans. Even non-traditional debts must be identified, such as gambling debts and criminal fines.

How do you know which property and debt gets divided?

3. How do you decide whether property and debt are marital or separate?

In most states, after property and debt is identified, it is classified under state law as belonging to one spouse (separate) or both spouses (marital). This is where it gets tricky, often requiring the assistance of a lawyer licensed in the relevant state. That’s because different states have different systems of ownership when it comes to marriage, and the way property or debt is titled is often not dispositive of ownership. In other words, just because a car is titled in a husband’s name does not necessarily mean that the husband is the only owner of the car. Similarly, just because a debt is in a wife’s name does not mean that both spouses are not on the proverbial hook.

Speaking very generally, property and debt accumulated before marriage or after the date a couple separates is usually considered separate, as is property inherited by one spouse during the marriage. However, if property is titled in the names of both spouses or is commingled (mixed) with marital property, both spouses usually have an ownership interest. However, this determination is very state- and fact-specific, so it’s critical that you consult with a lawyer licensed in your state if you have questions about your situation.

4. How is the value of property and debt established?

After all assets and debts have been identified and classified, they must be valued. This is very easy for some property, such as bank accounts, which have a specific value assigned to them. However, valuation can be very complex when it comes to other types of assets, such as business interests, professional degrees, and art. Because the value of assets is so important, the parties will often hire experts to assign a value to them. And when the experts don’t agree, the judge decides.

Establishing the value of many debts is straightforward. However, it is sometimes necessary to hire an expert to value debts, as well.

5. How are marital property and debt divided?

Where you live plays a large part in how marital property and debt are distributed if you divorce. Two major systems are used in the U.S.: “equitable distribution” and “community property.” And even within those two categories, there are significant variations in state law.

How are marital property and debt divided?

To divide property classified as belonging to both spouses, a majority of states use “equitable distribution,” a term that is usually defined to mean “fair” or “reasonable.” The considerations depend on state law but often include factors like these:

  • How long the couple was married;
  • Each spouse’s income and ability to earn income;
  • Each spouse’s age and health;
  • The separate property holdings and financial condition of each spouse after the marriage;
  • The standard of living established for the couple and their children during the marriage.

A minority of states use what is called “community property” law to divide marital property. Again, state laws vary, but generally speaking, in these states, each spouse has the right to one-half of marital property.

Although the couple may agree on how marital property should be divided, the judge has the final say.

When it comes to debt, separate debt is assigned to that spouse. Marital debts are often assigned to the spouse who receives the corresponding asset. For example, if a couple has two cars and each receives one of those cars in the divorce, each spouse may also be assigned the balance of any outstanding car loan for the vehicle he or she receives.

6. What happens to property that can’t be physically halved?

How does a court “divide” things that cannot be physically split in half? Courts usually add up the value of all of the marital property, then tally the value of property assigned to each spouse to determine if the state’s standard is met. A judge may also require or approve the sale of marital property so that the proceeds may be divided between the parties or assign marital debt to balance out a lopsided property result.

If you’re facing a divorce and need advice, it’s imperative that you contact a lawyer who is licensed in your state. Divorce laws differ greatly from state to state, and only a licensed attorney can provide you with legal advice where you live.

Other Frequently Asked Questions Include:

1. What is the difference between marital and non-marital debt?

Debt acquired prior to the marriage is considered non-marital debt. Marital debt is debt acquired during the marriage. For example, an auto loan for a vehicle purchased by one spouse prior to marriage and used exclusively by him during the marriage would not be considered marital debt, while an auto loan for a purchase made during the marriage would be considered marital debt.  When a married couple divorces, marital debt is treated as a jointly held debt while non-marital debt is the responsibility of the spouse who holds the debt.

2. How does one spouse take over liability on a mortgage from the other spouse?

A divorcing couple will often agree to allow one spouse to remain in the marital home, however in order for this to work, the spouse is no longer living in the home    Although you and your spouse may decide between yourselves that they will no longer be responsible for the mortgage, that agreement doesn’t affect the lender. In other words, the mortgage lender can still come after your spouse for repayment unless and until you refinance in your name alone. Once the home is refinanced the spouse who will no longer remain in the home would execute a quitclaim deed to transfer their interest in the property to the other party.

3. How much freedom does a divorcing couple have when settling issues regarding property and debt?

If both parties are comfortable with the arrangement and they are fully aware of the consequences of the agreement, a couple is free to settle issues related to property and debt division in any way they find acceptable.

4. If my spouse has a credit card used exclusively for his or her personal expenses and it was not used to pay for household or shared expenses will I be forced to pay it off when we divorce?

No, generally credit card debt incurred by one spouse to pay for personal expenses (non-household) will not be included in a division of marital debt.

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