How Assets Are Divided in Divorce

The most common questions asked—and answered—so you can better understand which assets will be best for your financial security

Jeffrey A. Landers, CDFA™ • Divorce Financial Strategist™ and founder of Bedrock Divorce Advisors, LLC

Take some time to list all your property, and you’ll quickly realize how many different types of assets you own. There’s your home, your retirement and pension plans, rental and/or vacation properties, your stock portfolio, deferred compensation, a business or professional practice, bank and brokerage accounts . .  . and probably much more, too!  As you can imagine, dividing these assets during divorce can be quite challenging, even when the circumstances are amicable. If your divorce is contentious, the situation can, unfortunately, become even more complicated.

So, how do you begin? My advice is to start with the basics. Once you understand the terminology and the specific laws that apply in your state, you’ll be better able to discern which assets will be best for your short- and long-term financial security. And, to he lp get you started, here are the answers to some of the most common questions I’m asked about the division of assets in divorce.

What's the difference between separate and marital property?

In my experience, this is an area poorly understood by most people—and yet, it’s one of the most critical concepts to grasp. To put it in very basic terms: Before you can divide your assets, you need to know which ones you own separately (by yourself) and which ones you own together with your husband.

Though states may differ in some of the finer details, separate property generally includes:

  • Any property that was owned by either spouse prior to the marriage
  • An inheritance received directly by the husband or wife (either before or after the marriage)
  • A gift received directly by the husband or wife from a third party (your mother gave you her diamond ring)
  • Payment received for the pain and suffering portion in a personal injury judgment

Please note: Separate property can lose its separate status if you commingle it with marital property. For example, if you re-title your separately owned condo by adding your husband as a co-owner or if you deposit the separately owned inheritance from your parents into a joint bank account with him, then that property will most likely be considered marital property.

By definition, all other property that is acquired during the marriage is usually considered marital property, regardless of which spouse owns the property or how the property is titled. Examples of marital property include, but are not limited to:

  • Pension Plans, 401Ks, IRAs and other Retirement Plans
  • Deferred Compensation, Stock Options, Restricted Stocks and other equity
  • Bonuses, Commissions
  • Country Club memberships, Annuities
  • Life Insurance (especially those with cash values)
  • Brokerage accounts – mutual funds, stocks, bonds, etc.
  • Bank Accounts – Checking, Savings, Christmas Club, CDs, etc.
  • Closely-held businesses, Professional Practices and in some states, professional licenses
  • Real Estate
  • Limited Partnerships
  • Cars, boats, etc.
  • Art, antiques
  • Tax refunds

Does where I live make a difference in how my assets will be divided?

Yes, it does. First, you need to know if you reside in a Community Property State or an Equitable Distribution State.

The nine Community Property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. If you live in one of these states, both spouses are typically considered equal owners of all marital property (a 50-50 split is usually the rule).

The remaining 41 states are Equitable Distribution states. Settlements in Equitable Distribution States do not need to be equal, but they should be fair and equitable.

Remember: Just like assets, debts, too, must be divided in divorce. Where you live will also affect how your debt is divided. Community Property and Equitable Distribution states treat debt very differently.

What factors are considered for equitable distribution?

In Equitable Distribution states, numerous factors are taken into account when dividing assets. These factors include:

First Published March 20, 2012

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