When a couple decides to divorce, one of the issues that will have to be addressed is the division of their property and debt. Generally, the court will resolve this in one of two ways: equitable distribution or community/separate property. Let’s have a look at both.
Equitable distribution is considered to be a fair (but not always equal) distribution of all the marital property and assets. Typically, the spouse with the higher income will receive a larger portion of the distribution based on the assumption that they contribution more financially to the union. Equitable distributions are used in all states except community property states.
Property is categorized in one of two ways: community property or separate property. Separate property consists of property and assets that were acquired prior to the marriage as well as inheritances, personal injury awards and workers compensation, even if it was received during the marriage. Separate property is not subject to distribution and stays with its original owner. Community property is any property and assets that were acquired during the marriage (with the few exceptions noted above) and is divided equally between the two parties. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and Puerto Rico are all community property states.
Debts are treated in much the same manner as property. However, it is not uncommon for the court to order the higher-earning spouse to pay for certain debts that should theoretically be the responsibility of the lesser-earning spouse. For example, the court may order that the lesser-earning spouse can live in the marital home however; the higher-earning spouse must continue to pay the mortgage.
In some states, a no-fault divorce is allowed and property distribution is not affected by individual actions of the parties. However, many states also allow an “at-fault divorce” where both sides are allowed to present evidence that would place “blame” on the other spouse. In the case of at-fault divorces, the property distribution can be affected by the behavior and actions of the spouses. For example, if it is proven that one of the spouses had an extramarital affair, that spouse may receive a lesser portion of the marital property.
One way to ensure that both parties receive a favorable distribution is to create a prenuptial agreement prior to the marriage. Assuming that the agreement doesn’t overly benefit one spouse more than the other, the court will typically grant the property distribution as outlined in the prenup.
Alimony and child support are addressed separately from the distribution of property and assets. If all of these issues are easily agreed upon, you may be able to use a do-it-yourself divorce form. However, most need the assistance of an attorney.
For more on divorce and property distribution, check out these books on divorce and money (book review) and protecting your financial security when getting a divorce (book review).