Taking Inventory of Your Marriage in Divorce

Your marriage is coming to an end. You look around and suddenly realize how do you go about deciding who gets what? Who gets the antique silver your mother-in law gave you on your wedding day? Who gets the stock in Apple? The furniture? Credit card debts? How do you divvy up the accumulated belongings of years of marriage?

Division of property is a fundamental part of the divorce process. Divorcing couples are best off making their own asset and debt inventories and jointly deciding on how property should be divided. There are a number of methods of deciding who gets what fairly and some involve reasonable compromise.

However, if the divorcing couple cannot agree on how property is to be divided, the courts will ultimately impose an agreement on that couple, at the couples' expense. For this reason, you need to understand what your state divorce laws dictate. Within the context of law, you will still need to be prepared to make educated financial decisions about what is in your best interests.

States generally take two approaches that specify which properties will be eligible and who is entitled to what: community property and non-community property (referred often to as equitable division of property). 

Community property states: In states that use the community property approach, all property acquired during the marriage is either community property or the separate property of one spouse. All property that came into existence during the marriage, with only limited exceptions, is shared equally between the spouses, regardless of how the property was acquired, the parties’ individual contributions to the acquisition of the property, how the property was used by the parties or how the property may be titled.
 
Non-community property states: The non-community property, marital property or equitable distribution approach, can vary a great deal from the community property approach. And, while the majority of the states use the non-community property approach, the application of this approach can, and does, vary from state to state. This variability is based on several measures that a court employs.

In all states, there will be a timeframe with two operative dates used in determining what property is to be divided. Generally, the first date, usually the date of the marriage, is the point after acquired property, unless excluded, will be considered marital. The second date will be the date after which acquired property will no longer be considered marital property.  

Once the time frame on the acquisition of property is determined, property must be identified as marital or non-marital. The marital estate includes any assets or debts that the parties own at the time of the divorce, any income earned by either party, and any property acquired by the use of these funds during the marriage (almost always). Each spouse is deemed to have an equal interest in marital assets or debts. This is true no matter how property is titled or held and no matter which spouse's job paid for the asset or which party incurred the debt. Non-marital property is what each spouse owned before the marriage, and is considered to be "separate." For the property to remain separate the spouse must keep it apart from marital or community property; that is, he/she would keep it entirely in his/her name. Once the separate property has been commingled (mixed) with marital or community property, it becomes part of the marital property.

Ultimately, once the property is classified as marital or non-marital, each spouse is awarded a percentage and the property actually has to be divided. Typically, this process is known as equitable distribution. The division of property could be 50/50, 60/40, 70/30, or even all for one spouse and nothing for the other (although that would be very unusual). Under equitable distribution, courts consider a variety of factors and need not weigh the factors equally. That permits more flexibility and more attention to the financial situation of both spouses after the divorce. However, it also makes the resolution of property issues less predictable.

When analyzing the property division, it is almost always a good idea to award an asset to a party who also is the debtor on that particular asset. For example, if one party is driving a Jetta car and he/she is named on the loan or lease for that vehicle, he or she should be awarded that vehicle subject to the loan so that there is no confusion on the part of any party as to who will service that particular debt.

Property division means you have strategic financial decisions to make. It is essential that you take your time to understand each and every asset and liability because property division is a one shot deal in divorce. Once the Court signs a Divorce Decree, which gives an award of property to both sides, it is final. Except for extremely rare circumstances (fraud, duress or legal error), it can never be changed.

What do you need to understand about the property division process? You have the opportunity to plan for your financial future and reformulate financial goals if you know what you should be asking for and will be receiving from a settlement. With the help of the expertise of a divorce financial planner, you may be able to pick and choose certain assets or debts, ask for cash in lieu of an existing asset, pay off debts before the divorce is final, or postpone the sale of an asset until future date.

A divorce financial planner is trained in the interdisciplinary context of your state’s divorce laws and financial planning. A divorce financial planner assists you and your attorney to make appropriate financial decisions based on thorough analysis and long-term projections.

A divorce financial planner will help you to understand the basic character of property:

• Is it liquid or illiquid? What are your immediate and long-term needs?  
• What is the cost basis of the asset? What is the real value of the asset net of taxes?
• Is it a nonretirement or retirement account? 
• How is it invested? What penalties or fees are incurred if you reallocate or liquidate investments?
• Is it a deferred asset (like restricted stock or stock options) contingent on your ex-spouse’s performance or employment? 
• Can the asset be transferred into your name? If not, how will your claim to it be protected?  
• Can you afford to maintain the asset (like a house)? 
• Does the asset seem risky or too complex for you? Is it marketable or saleable?
• Is there a business to appraise? When determining the business's worth, will you be paid out over time, take a share in it, etc.?
• What debts are in joint names or yours alone?
• Are you able to pay off debts prior to the final divorce?
• Will you have to refinance debts and can you qualify?
• Are any personal assets be used as collateral for commercial loans?
• Will you have any restrictions selling any assets if debt is attached to it?

Lastly, you are responsible for the logistics of taking your share of the division of property and for how you will transfer or receive them. You may need assistance from a divorce financial planner or legal professional to:

• Open new accounts
• Transfer ownership of contracts (for example, life insurance or annuity)
• Have an attorney prepare a Qualified Domestic Relations Order (QDRO) to secure a qualified retirement plan [401(k), pension]
• Quit claim a deed or property title to your ex-spouse
• Become knowledgeable of vesting protocols for exercising your rights to nontransferable assets (stock options or stock rights)
• Close out joint credit cards and other joint debts
• Open/Transfer liabilities into your own individual name 
• Terminate trusts and update estate plans

In summary, as you consider your divorce settlement, you may be tempted to sign to get it over with. Or, alternatively you may expend huge emotional energy and legal fees fighting for sentimental tokens lacking genuine worth. Your goal is to arrive at a fair and equitable settlement that is exactly what you think it is — without hidden costs, hidden taxes, or foolish mistakes. A divorce financial planner is an expert who will help you organize, analyze and negotiate for a well thought out financial result. The division of marital property is just one piece of the whole equation of divorce; however, it is a onetime decision that may affect you for a very long time.

Additional Resources:

• What Divorce Planning Insights Should You Know About Support Obligations?

FPA member Lili Vasileff, CFP^®, CDFA™, is the President of the Association of Divorce Financial Planners, the largest national not for profit organization of divorce financial planners and allied divorce professionals, and President of her own private practice called Divorce and Money Matters, LLC. She is a nationally recognized expert in financial planning for divorce as a practitioner, writer, author and speaker. She supports divorcing clients in mediation, collaborative divorce and litigation. Starting more than 17 years ago, Lili was a pioneer in this field arising from her own experience as a divorced mother of two children and based on her passion to promote financial justice in the divorce process