Once a divorce is filed, the division of marital assets will eventually have to be addressed. These assets might include bank accounts, stocks, bonds, real estate, 401Ks, IRAs (or other retirement programs), tax refunds, boats, and more.
However, how complex this division of assets is depends upon the assets acquired during and before marriage.
Additionally, some states make a distinction between pre-marital assets and those acquired during the marriage. In most cases, however, all assets—and some property increases—are considered martial property.
Following is a guide to understanding how property is divided during a divorce.
Whether it’s a car, a house, or clothes, you bring property into a marriage which, prior to the marriage, is considered separate property.
However, what is separate before the marriage can eventually become marital property. If you merge (or “comingle”) any property by adding your spouse’s name, or deposit any funds from an inheritance into a joint account, it’s possible that it might be ruled as martial property.
Generally speaking, any property that is acquired during the course of the marriage is considered marital property, but there are exceptions.
Additionally, how martial property is divided will depend on whether you reside in a community property state or an equitable distribution state.
In a community property state such as California or Arizona, assets are usually divided evenly (50/50), even if the assets were separate property.
In equitable distribution states, the emphasis doesn’t rest on a fair and equitable division of the assets. Instead, the judge will make a decision based on the standard of living established during the course of the marriage, the length of the marriage, the financial needs of the custodial parent (if children are involved), income earning potential, and other factors.
If your property value has increased, this could also impact the division of marital assets.
Additionally, long-term and short-term valued assets are usually weighed.
Liquid assets such as bank accounts, investments, and cash tend to be the easiest property to divide. Assets can be broken down into two types: long-term value and short-term value.
Examples of long-term value assets are stocks, bonds, equipment, or other capital assets.
A short-term value asset is any item that carries a fast return, such as a life insurance policy, mutual funds, or some certificates of deposits. These items can be quickly turned into cash, which can easily be divided.
Liquidity, cost basis (the original value of an asset for tax purposes), and tax implications come into play as well (tax returns are usually considered liquid).
Another consideration is active or passive appreciation of property.
An active appreciation is best described as an asset that increases in value due to outside forces, such as marketing, or building a business on the property.
Conversely, a passive appreciation increases in value with no external help, and usually is not subject to marital division.
If you own a business, it may be necessary to hire a business valuation analyst, whose job it is to provide a quality analysis of the property’s active and passive appreciation.
Occasionally, the process may be complicated due to the vested interests in other co-owners or managers.
Dividing marital assets is a necessary part of the divorce process. Although your state has its own laws regarding the division of assets, many individuals have been able to work with their spouse to find an equitable solution to fairly deal with asset distribution. In fact, 95 percent of divorces actually settled out of court, which means that many couples are able to come to an agreement about their division of property.
If a divorce settlement is in your best interests, it’s possible to create a post-marital agreement, which you can work out with your spouse. Consult with a family law attorney to ensure that your interests are protected.
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