Understanding How Assets Get Divided In Divorce

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Understanding How Assets Get Divided In Divorce
Even the most friendly divorce can get messy, particularly when it comes to splitting finances.

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All other property that is acquired during the marriage is usually considered marital property regardless of which spouse owns the property or how the property is titled. Most people don’t understand this. I’ve had many clients tell me that they were not entitled to a specific asset, because it was titled in their husband’s name – such as his 401K. This is not true! This is worth repeating because it is that important. All property that is acquired during the marriage is usually considered marital property regardless of which spouse owns the property or how that property is titled.

(State laws vary greatly, especially between Community Property & Equitable Distribution States, so please consult with your attorney).

Marital property consists of all income and assets acquired by either spouse during the marriage including, but not limited to: Pension Plans; 401Ks, IRAs and other Retirement Plans; Deferred Compensation; Stock Options; Restricted Stocks and other equity; Bonuses; Commissions; Country Club memberships; Annuities; Life Insurance (especially those with cash values); Brokerage accounts - mutual funds, stocks, bonds, etc; Bank Accounts - Checking, Savings, Christmas Club, CDs, etc; Closely-held businesses; Professional Practices and licenses; Real Estate; Limited Partnerships; Cars, boats, etc; Art, antiques; Tax refunds.

In many states, if your separately owned property increases in value during the marriage, that increase is also considered marital property. However some states will differentiate between active and passive appreciation when deciding if an increase in the value of separate property should be considered marital property.

So what's the difference?

Active appreciation is appreciation that is due, in part, to the direct or indirect contributions or efforts of the other spouse (e.g. your husband helped you grow your business by giving you ideas and advice; he entertained clients with you; he helped raise the kids and did some household chores, which allowed you to work late, entertain clients, travel to conventions; etc.).

Passive appreciation is appreciation that is due to outside forces such as supply and demand and inflation. For example, a parcel of land increases in value even though you and your husband made no improvements to it. However, if you used marital income and/or assets to pay the mortgage and/or taxes on this parcel of land, you might have a very good argument that this property, or at least the increase in value during your marriage, should now be considered marital property. As you can see, this can get quite complicated and convoluted. Hiring a good divorce financial planner can help you sort this out.

It is also very important for you to know if you reside in a Community Property State or an Equitable Distribution State. There are nine Community Property States - Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Community Property states consider both spouses as equal owners of all marital property (a 50-50 split is the rule). Keep reading...

This article was originally published at . Reprinted with permission.
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