Dividing Money and Property
When a couple separates, they must decide how to divide the property that they have accumulated during their marriage. This includes not just money and personal property but items like stocks, business interests, real estate, and debt.
One of the most difficult items to divide is the family home. If one spouse owns the home as separate property—perhaps because that spouse inherited the house, purchased it before the marriage, or had title to the house in his or her name only—that spouse may ask the other spouse to leave. If the two spouses have joint title to the home or the home is otherwise considered marital property, but one spouse provides primary care for couple’s children after the divorce, that spouse usually stays in the family home. Spouses without children who have joint title to their family home can decide who gets to stay there in whatever way seems fair to them. Or they can ask a court to decide for them.
If possible, it is often the most favorable outcome for everyone to divide your property on your own without resorting to the assistance of a court. You never know for sure how a court will divide your property, and legal proceedings can get contentious, so negotiating with your spouse usually gives you a better chance to reach a mutually acceptable agreement that reduces future conflict. When discussing this issue, each spouse should make sure to let the other know of any hidden types of property so that they can be fairly divided. Concealing property of value from a spouse can lead to serious negative legal consequences when discovered.
One way to begin to divide your property is to list all your items of value. You and your spouse should try to estimate the value of each item. Starting with the most valuable items, go down the list and decide which of you should have each item. You do not need to divide the list exactly evenly, but you should avoid a starkly imbalanced split. Sometimes using a neutral third party, such as a mediator, helps to minimize tension during this process.
One reason to divide property in a relatively balanced manner is that a judge will need to approve your agreement so that it can be enforced. If one spouse receives dramatically less value than the other spouse, the judge may be reluctant to approve the agreement without investigating the details. Each spouse may retain a lawyer to ensure that the property was divided fairly. A judge may be more inclined to approve an agreement without further investigation if each spouse has retained a lawyer.
Unfortunately, not all couples are able to reach a mutually agreeable property division arrangement. In such an instance, the court will apply the state’s property division rules in splitting the assets from the marriage. The two main systems of property division upon divorce are equitable distribution and community property.
Equitable division is by far the more common system of property division, used in about 40 of the 50 states. Under an equitable distribution rule, a court will split all assets, earnings, personal property, and debts between the spouses in a division that is fair (in the eyes of the judge) but not necessarily equal. Rather than awarding each item to a spouse as a whole, the court may order the sale of a certain item and then split the proceeds of the sale fairly between the spouses. Sometimes, but not usually, the court may order a spouse to give separate property to the other spouse in compensation for an unequal distribution of their marital property.
Community property is an alternative system of dividing property. Although only about 10 states and Puerto Rico follow the community property system, it is the method of property division in some of the nation’s most populous states, such as California and Texas. Before dividing the property, the court will decide whether each item should be classified as community property or as the separate property of one spouse. Then, everything that is classified as community property is divided equally between the spouses, while each spouse keeps all of his or her separate property.
So what is community property? The answer to this question varies according to the state and even the individual situation, but here are some general principles. Community property typically includes everything that either spouse earned during the marriage and all property that was acquired with those earnings. It also usually includes the debts that either spouse incurred during the marriage, unless those debts were somehow attached only to the separate property of one spouse (for example, an education that began before the marriage and that was financed by the student spouse’s separate property).
By contrast, separate property includes anything that one of the spouses earned or acquired before marriage, as well as gifts and inheritances that a spouse received individually. Certain types of assets, such as those awarded as a result of a civil lawsuit, may be classified either as separate or community property, depending on the particular state, when the lawsuit was filed, and other individual circumstances. A business that one spouse owned before the marriage usually remains separate property, although some states have complex rules in this area.
You might wonder what happens if you buy something with a mixture of what you earned during marriage and what you earned before marriage. This tends to be classified as community property, unless you can trace its acquisition to funds from your separate property. Mixing separate property with community property (“commingling”) often turns the separate property into community property, but individual circumstances can affect that outcome.
Also, read the Division of Property FAQ.