Understanding How Assets Get Divided in a Divorce

Understanding how assets get divided in a divorce

Divorce is messy. Chances are you and your spouse live in the same house and have built a portfolio together. Now you have to divide the wealth you’ve accumulated. This is a complicated situation that requires the assistance of lawyers and financial advisors.

Here are four things you should understand as you begin to divide assets.

  1. Equitably does not necessarily mean equally.

When you and your spouse are unable to agree on items that have been acquired during your marriage, the courts will step in and divide them equitably (fairly). That does not necessarily mean equally, although in many cases, a court will divide assets 50-50.

It’s important to know, though, that a court may award a more significant portion to one spouse.
According to Justia, a court will arrive at its conclusion by evaluating the following:

  • the financial condition and earning power of each spouse,
  • the value of each spouse’s separate property (business, business interests, retirement plans, 401k plans, stocks, bonds, etc.),
  • the degree to which each spouse contributed to the acquisition of the marital property,
  • the degree to which each spouse contributed to the education and earning power of the other spouse,
  • future financial needs and liabilities of each spouse,
  • the ages and overall health of each spouse,
  • the liquidity of marital property,
  • premarital or prenuptial agreements,
  • spousal maintenance,
  • and alimony obligations.

However, when it comes to property that is in the name of both spouses, a 50-50 split is the standard if you live in one of the following states: California, Texas, Arizona, Idaho, Louisiana, New Mexico, Nevada, Wisconsin, or Washington.

  1. Separate property doesn’t get divided.

You still own whatever property you brought into the marriage. If you received an inheritance during your marriage, the inheritance is still yours. Any gifts you received also remain yours.

However, if you’ve added your spouse’s name onto any of these items, a court will likely consider them to be marital property. If you deposit your inheritance or financial gifts into a joint bank account, they will likely be divided equitably between the two of you.

  1. The sooner you get an asset valuation, the better.

Choose a date to sit down with your financial advisor and review all your assets — savings and checking accounts, fixed income like bonds and certificates of deposit, equity like stocks and mutual funds, and property value — and derive a figure based on those assets.

By choosing a date and determining a figure, you can mediate assets with your spouse based on a fixed monetary figure. Hopefully, your spouse is willing to agree on this figure, even with assets that fluctuate in price (like stocks and mutual funds), as it makes everything much easier.

  1. Splitting assets based on dollar value is not always the best way to go.

The process of splitting assets in a shared portfolio is complex. Splitting assets based on dollar value isn’t necessarily the most financially prudent way to act.

If you divide stocks and mutual funds solely by current dollar value, you aren’t accounting for projections in growth in the short- and long-term. As a result, you might end up with a portfolio that doesn’t properly balance risk and return. Consult a financial advisor to make sure your portfolio remains balanced.

In divorce, things become complicated quickly. Understanding how assets are divided will help as you seek to divide property equitably.

Contact McLean today to get a clearer picture of your financial assets.

 

 

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