How Are Assets Divided During Divorce?

May 1, 2024 | By Roy M. Doppelt
How Are Assets Divided During Divorce?
High Asset Divorce

Divorce can be an inherently difficult and emotionally charged process, and one of the most significant aspects is the division of assets. When a couple decides to end their marriage, they must determine how to divide their property, finances, and possessions.

Significant assets can make this process incredibly challenging.

You need the guidance and support of a skilled divorce attorney when determining how to divide assets during a divorce.

Schedule A Free Consultation

Understanding Marital Property

Before diving into the details of asset division, you should understand the concept of marital property. Marital property refers to any assets or debts acquired during a marriage. It includes income earned, real estate, vehicles, investments, retirement accounts, and debts like mortgages and loans.

On the other hand, separate property refers to assets owned individually by each spouse before the marriage or acquired through inheritance or gifts during the marriage. Separate property is typically not subject to division during divorce proceedings.

However, separate property can sometimes commingle with marital property, which can complicate the division process—for example, if one spouse received an inheritance and combined that with money earned from their salary to buy a vacation home.

Equitable Distribution vs. Community Property

When it comes to dividing assets during a divorce, there are two main approaches followed by different states: equitable distribution and community property.

Equitable Distribution

Equitable Distribution

The majority of states in the U.S. follow the principle of equitable distribution. 

Under this approach, the court aims to divide marital assets fairly between the spouses based on the length of the marriage, the financial situation of each party, and the contributions made by each spouse during the marriage.

However, equitable distribution does not necessarily mean an equal 50/50 split.

To determine each case’s fair and equitable distribution, the court considers:

  • Income and earning potential of each spouse: The court assesses both parties’ financial situation and capacity to earn future income.
  • Contributions to the marriage: The contributions made by each spouse during the marriage, both financially and non-financially, are considered in asset division. It includes child-rearing, homemaking, and supporting the other spouse’s career or education.
  • Standard of living established during the marriage: The court strives to maintain a similar standard of living for each spouse after the divorce. It may influence the distribution of assets to ensure that both parties can maintain a reasonable lifestyle.
  • Debts and liabilities: In addition to assets, debts and liabilities are also considered during the division process. The court may assign responsibility for specific debts to one spouse or divide them between both parties.
  • Child custody and support: If there are children involved, their well-being becomes a significant consideration. When dividing assets, the court may consider the custody arrangement, child support obligations, and the children’s financial needs.
  • The length of the marriage: A longer marriage may require a more complex asset division and may entitle one or both spouses to more assets.
  • Contributions made by each spouse toward acquiring assets: Did one spouse make large purchases and acquire expensive or many assets towards the marriage?
  • The age and health of each spouse: An older or ailing spouse may be unable to provide for themselves in the future, and a younger or healthier spouse can not.
  • The presence of any prenuptial or postnuptial agreements: If these agreements are in order and were legally executed, the family court judge will typically follow them.
  • Tax implications: The tax consequences of different asset division scenarios are also analyzed. This includes examining the tax implications of selling certain assets or transferring them between spouses.

Another important factor considered in asset division is the value of the assets. You must determine the fair market value of each asset to ensure an equitable distribution.

Assets such as the family home, vehicles, investments, and retirement accounts may need to be accurately appraised to determine their value. A professional appraiser can objectively assess each asset to ensure a fair division.

You need an experienced divorce lawyer who can present your case effectively and protect your rights and interests during the asset division process.

Community Property

On the other hand, a few states, such as California, Texas, and Arizona, follow the community property approach.

According to community property laws, all assets and debts acquired during the marriage are considered equally owned by both spouses, regardless of the contributions made by each party.

In community property states, the court generally divides the community property equally between the spouses in a divorce.

Unfortunately, community property laws can be complicated, and exceptions exist. For example, assets acquired before the marriage or through inheritance or gifts are typically considered separate property and may not be subject to division.

Community Property Exemptions

Community Property

Community property exemptions refer to certain assets excluded from the division process and considered separate property. These exemptions can vary depending on the jurisdiction and applicable laws, so ask a knowledgeable divorce attorney to explain what they mean in your divorce case.

One typical example of a community property exemption is assets acquired before marriage. In most jurisdictions, assets owned by an individual before marriage are considered separate property and not subject to division. It can include properties, investments, businesses, or other assets acquired before marriage.

Another important exemption to consider is assets received as a gift or inheritance during the marriage. In many jurisdictions, gifts or inheritances received by one spouse during the marriage are considered separate property and are not subject to division.

This means that if you received a significant gift or inheritance during your marriage, that asset may be excluded from the division process.

Additionally, certain personal injury awards or settlements obtained by one spouse may be exempt from division. These awards are often separate property and are not subject to division between the spouses.

However, the specific rules regarding personal injury awards can vary depending on the jurisdiction, so consulting an attorney is important to understand how it applies to your situation.

Each divorce case is unique, and the factors in asset division will vary depending on the specific circumstances. By retaining an attorney experienced in divorce matters, you can gain a clear understanding of the community property exemptions that may apply in your case.

They will explain the applicable laws and help you identify and protect your assets. With their guidance, you can uphold your rights and you receive a fair and equitable division of assets during your divorce.

What Is an Equalization Payment?

An equalization payment is a financial adjustment made between spouses to ensure both parties are left with an equal share of the family’s net worth. They most often occur in community property states.

Couples often accumulate assets such as property, investments, and savings during a marriage. This marital property is subject to division during a divorce.

However, not all assets are divided equally. In many cases, one spouse may have contributed more to the accumulation of assets than the other. This is where the concept of an equalization payment comes into play.

An equalization payment is calculated by determining each spouse’s net worth at the date of separation. Net worth includes the value of assets owned by each spouse minus any debts or liabilities.

The spouse with the higher net worth must pay the spouse with the lower net worth, equalizing their respective shares.

An equalization payment aims to ensure that both spouses are left with an equitable share of the assets acquired during the marriage. It recognizes the contributions made by each spouse to the family’s financial well-being, regardless of their earning capacity.

An equalization payment does not necessarily mean an equal division of each asset. Instead, it aims to achieve fairness by equalizing each spouse’s net worth. This means that one spouse may keep certain assets, such as a family home, while the other receives a payment to balance the scales.

The division of assets can significantly affect your financial future.

A qualified divorce lawyer can fully explain your rights and options. An attorney experienced in divorce proceedings can assess your unique situation, advocate for your best interests, and ensure that you receive a fair share of the marital assets through the calculation of an equalization payment.

How Can You Divide Your House in Divorce?

How Can You Divide Your House in Divorce

One of the most significant aspects to consider when going through a divorce is the division of assets, particularly your house. But how exactly is your house divided during a divorce?

Several options are available when it comes to dividing the family home.

One common approach is selling the house and dividing the proceeds between the spouses., especially if both parties agree to sell and have no emotional attachment to the property.

However, suppose one spouse wishes to keep the house. In that case, they may buy out the other spouse’s share by refinancing the mortgage or using other financial arrangements.

Another option is to continue owning the house jointly after the divorce. This arrangement may work for couples who have children and want to maintain stability for them. However, it requires careful consideration and an explicit agreement on responsibilities like mortgage payments, property maintenance, and taxes.

Always work out these details with the help of an experienced divorce attorney.

Ultimately, reaching a fair and mutually agreeable division of the family home isn’t easy, especially because so many emotions can be attached to it.

The division of your house during a divorce depends on the laws of your jurisdiction and your unique circumstances. Whether you choose to sell the house, buy out the other spouse’s share, or continue owning it jointly, seek professional legal advice during this process.

Deciding what happens to the family home often requires negotiation, compromise, and a thorough understanding of your rights and options. That’s why you need a knowledgeable divorce attorney.

An attorney can review your specific circumstances, explain the applicable laws in your jurisdiction, and advocate for your best interests throughout the process.

Family Business Division in Divorce

One particular aspect that can complicate matters is the division of a family business. When a couple owns a business together, it adds a layer of complexity to the divorce proceedings.

First, you must determine its value accurately. This involves analyzing the financial statements and records and considering the potential for future growth. An experienced attorney can work with financial experts to ensure a fair business valuation, considering factors such as revenue, assets, and market conditions.

Once the business’s value is established, the next step is to decide how to divide the business assets. Depending on the situation, several options are available. One possibility is for one spouse to buy out the other’s share of the business. In this case, an attorney can negotiate a fair price and ensure both parties are satisfied with the terms.

Another option is to continue running the business together, even after the divorce. While this may not be ideal for all couples, it can be a viable solution in some cases. An attorney can help draft a detailed agreement that outlines each party’s rights and responsibilities and the mechanisms for resolving disputes.

Whether your state follows the principle of equitable distribution or community property, the court considers various factors to determine a fair division of marital property.

A skilled divorce lawyer during this process can provide reliable guidance, protect your rights, and ensure that you receive your legal share of assets from your marriage.

If you are currently going through a divorce or considering one, contact a reputable and experienced family law attorney. Failing to do so can result in a less-than-favorable outcome. Once your divorce concludes, the parties cannot usually change the asset division.

Roy M. Doppelt Author Image

Roy M. Doppelt

For nearly 30 years, San Diego family law attorney Roy M. Doppelt, Esq. has been providing clients in Southern California with comprehensive legal services. He is currently an active member of the California and San Diego Bar Associations, and he is admitted to practice law in both California and Illinois state courts, as well as the Federal District Court for the Southern District of California.

Author's Bio