Half; the Four Letter Word in Divorce

Posted: 8 September, 2021

Dividing the Money, Assets, and Business

Some states follow community property rules and other states follow equitable distribution rules for divvying up assets during a divorce. However, regardless of the state’s rules, the math typically equals out to half.

Fighting the “half” is not productive. Instead you need to familiarize yourself with what needs to be split in half.  The courts cannot half your separate property to your spouse. Figuring out which property is separate is the magic of a good divorce lawyer.

Separate Property or Community Property

Separate property is “separate” and not part of the half being divides. It consists of things like property that a spouse purchased before the marriage, inheritance of once spouse and gifts during the marriage given as separate property. However, if you have separate property and use monies earning during the union to maintain it, it then is considered community property. Also, when you deposit monies given as an inheritance into a joint bank account, it is considered community property.

Community property is equally divided by the courts between the spouses during a divorce. This includes real estate, 401Ks, pensions, businesses and debts. Equal distribution means that the court looks at several things to ensure each spouse receives equal liabilities and assets. Consideration can be given in situations where a spouse doesn’t work, there has been a lengthy marriage, or the earning of one spouse is significantly greater than the other. Community property states may give deference to these issues as well.

Dividing 401K or IRA

In community property states, retirement accounts, such as 401Ks and IRAs are usually divided equally between spouses during a divorce. In an equal distribution state, the judge hearing the case will rule on what is fair or equitable but not necessarily equal. Keep in mind that spouses have the right to make agreements about who will receive assets like IRAs and 401Ks. It’s not uncommon for trade-offs to be made during a divorce. For example, one spouse may request to keep the whole 401K in exchange for another asset. If you should decide to do this, it’s important to have a divorce lawyer draft a marital settlement agreement.

Dividing a Business

Both spouses have ownership rights in divorce. Whether it’s a retail business, medical practice or restaurant, there probably community property interests. The professional business is the typical case we see the most problems with. A professional business is when one spouse is in business as a doctor, account, or lawyer.
There is value in the business which should be divided.

There are basically three methods of dealing with a business when there is a divorce: Co-ownership, selling the business, or buying out the other spouse’s interest. With co-ownership, both partners continue to own the business after the divorce. It’s important to note that this method only works well if both spouses have a level of trust in the other’s management skills or a solid working relationship. If not, it can be a recipe for disaster.

There are pros and cons to selling the business and dividing the profits. On the upside, spouses can avoid financial ties to each other and use the proceeds to launch their own business venture. The downside is that many businesses take time to sell. It can take months and even year to get it sold.

Buying out the other spouse’s interest is when one spouse keeps the business and pays for the other spouse’s interest. This works well when the buying spouse has enough liquid assets or cash for the transaction. In addition, other assets can be used to offset the purchase, such as securities, IRAs and the equity in a home.

Who Gets the House?

You may want to keep the house because of kids or having an emotional attachment. However, you need to think about what’s actually best in the long run. Not all spouses can maintain the same lifestyle after a divorce. No matter how attached you are to your home, and it’s critical to know whether or not you can afford to keep it. There’s a mortgage, maintenance and property taxes to think of. And if you don’t have the funds, serious financial trouble can loom on the horizon.

Is there equity in the home? If not then you are not fighting for an asset, you are fighting for a debt. Another important thing to consider is whose name is on the mortgage. The title is who owns the home, can title can be change freely. The mortgage is the obligation, or debt of the home. We have never seen a mortgage company change the name or release one spouse from the obligation. Changing a mortgage requires a refinance, which requires credit approval.

In a community property state, judges are bound to ensure that community property gets divided as evenly as possible. If you purchased a home together and it has $100,000 in equity, one spouse may get the home but have to buy out the other spouse for his or her $50,000 share. The judge may even order that the home be sold.  Even if the home is in your name only, you are not permitted to sell it without court approval or your spouse’s consent.

Dividing Debt

Debt is treated just like an asset. It must be divided. The wrinkle is that the debt holders are not obligated to a divorce decree. So, if you take the debt of a credit card with his name, the credit card can still go after your spouse if you miss the payments. We typically look for the named debtors to take the debt. Sometimes this takes creative lawyering to accomplish.

A good divorce attorney can educate you on your state’s rules pertaining to the dividing up of assets in the event of a divorce. This legal professional can also render good advice on how to handle community property and separate property during a divorce. If you try to go it alone, you may give up something that you’re legally entitled to.

Contact RIGHT Divorce Lawyers to discuss how to divide your assets and debts. Call (702) 914-0400.


author avatar
Stacy Rocheleau, Esq.