Dividing Debt and Property in Divorce
When it comes to divorce, dividing assets and debt can be difficult. Who is entitled to what property? Who has to pay debts accumulated during the marriage? These are common questions that couples ask when faced with divorce. It is important to note that couples can answer these questions by themselves. Couples are entitled to dividing property and debts out of court, if this is possible. However, if the case goes to court, a judge will divide these assets and debts for you.
Dividing Assets Yourself
If you and your spouse face a fairly amicable divorce, and you think that you can sort through your property, assets, and debt on your own, this is a good idea. Keeping the negotiation out of court will save you time and money. In addition, you will have more power over what you keep. This happens because you can make decisions between you and your spouse. If you take your case to court, a judge will make the final decision, which can be a gamble.
You can settle your divorce outside of court with the help of a third party, such as a mediator. Mediators are meant to help a couple compromise on what they want and don’t want in the divorce. After listening to what both spouses want, a mediator will propose an agreement for splitting assets and debt.
If the agreement is pleasing to both parties, they can sign the agreement and it will go into effect. However, if an agreement cannot be reached out of court, there are state laws that dictate how property and debt is to be divided in a divorce. The divorce can go to court, and a judge will follow these rules in order to distribute the property fairly.
State Distribution Laws
Different states follow different rules. The states of Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin all follow community property laws. This means that all property is divided into marital (communal) property that is owned equally by both parties, or separate property, that is only owned by one spouse. In divorce, the marital property is divided equally, and separate property is given to the spouse is belongs to. This division includes shared debts and separate debts.
All other states, like Connecticut divorce courts, use equitable distribution laws. Equitable distribution divides all assets, property, and debt that is accumulated during the marriage in an equitable way. This is a fair division, but it isn’t necessarily equal for both parties. Equitable distribution takes into account each spouse’s individual financial situation and earning capacity. This happens in order to divide the property in relation to these factors. Sometimes, a judge will order that one spouse gets separate property so that the settlement is fair for both parties.
There are two different types of property (and debt, for that matter) that I have briefly touched on already. These types are called marital and separate property. Determining who keeps what will hinge on how the property is defined. Marital property is all of the property that you and your spouse acquired over the course of your marriage. For example, if you and your spouse purchased a house during your marriage, it is considered marital property. If you have a bank account, regardless of the name it is held in, it is marital property. If you bought a fishing boat during the marriage, it is marital property.
The examples could go on and on. But, the bottom line is that anything purchased over the course of your marriage belongs to you and your spouse. This means that marital property isn’t necessarily property with both you and your spouse’s names on it. Instead, it is property purchased over the course of your marriage.
On the other hand, there is separate property. This refers to assets or debt that you had before you were married. For example, if you bought a car before your marriage took place, that car is your personal property. It belongs to you. In the divorce it would be difficult for your spouse to make a claim to it. But, some separate property can become marital property. This can happen if your spouse contributes to the property. For example, if you bought a home before you were married, but you and your spouse renovated it together, they have some claim to the equity and possibly more. Property is tricky and you need to seek advice to see what is protected and what isn’t.
Another example of an asset that could have begun as separate and is now marital is a 401k plan. You may need to determine how much was in the account at the time the marriage took place. This can determine what type of property it is. It is in your best interest to take an inventory of your assets and debt. Then, determine what is marital property and what could be considered separate property.
If you have joint loans or joint tax returns, the debt will be divided between the two of you. Just as with property and asset division, these joint debts accumulated over the course of your marriage will be considered marital debts. On the other hand, debt that you have from before the marriage took place is your responsibility alone, just as your spouse’s separate debt is his or her responsibility. In the state of Connecticut, debt is divided just as property and assets are – through the equitable distribution laws.
Again, several factors are looked at when determining who is responsible for what debt. The court will consider the occupation of the parties, who created the debt, what the debt was created for, and other factors. Here is the official statute concerning the division of property: 46b-81.(Formerly Sec. 46-51).
Assignment of property and transfer of title.
(a) At the time of entering a decree annulling or dissolving a marriage or for legal separation pursuant to a complaint under section 46b-45, the Superior Court may assign to either spouse all or any part of the estate of the other spouse. The court may pass title to real property to either party or to a third person or may order the sale of such real property, without any act by either spouse, when in the judgment of the court it is the proper mode to carry the decree into effect.
(b) A conveyance made pursuant to the decree shall vest title in the purchaser, and shall bind all persons entitled to life estates and remainder interests in the same manner as a sale ordered by the court pursuant to the provisions of section 52-500. When the decree is recorded on the land records in the town where the real property is situated, it shall effect the transfer of the title of such real property as if it were a deed of the party or parties.
(c) In fixing the nature and value of the property, if any, to be assigned, the court, after considering all the evidence presented by each party, shall consider the length of the marriage, the causes for the annulment, dissolution of the marriage or legal separation, the age, health, station, occupation, amount and sources of income, earning capacity, vocational skills, education, employability, estate, liabilities and needs of each of the parties and the opportunity of each for future acquisition of capital assets and income.
The House in Divorce
How will My House be Divided?
Figuring out who gets to keep major assets in divorce can be a struggle. Arguably your biggest asset is your home and property. So, who gets this in divorce? Consider a few different circumstances to figure this out.
The division of major assets such as your house will depend on if it is considered individual or communal property. For example, if you bought a home before you got married with your individual funds, the house would be considered your individual property. Likewise, if the home you live in was given to you alone as inheritance, the house is your individual property. If you and your spouse bought your home together over the course of your marriage, and both of your names are on the title deed and the mortgage, the house will be considered communal or marital property.
House as Marital Property
In most cases, marital property will be split 50/50. Since you both put money into the house, you are both entitled to the property. If only your name is on the title deed, but you bought the house over the course of your marriage and you and your spouse lived in the home as a marital residence, this gives your spouse some claim to the home.
This does not mean that your spouse is entitled to the money from selling the house. But, it does mean that you cannot force your spouse out of the house or sell the home without telling your spouse, so long as you are still legally married. Once you are divorced, you will be able to do with the house what you want. As you can see, your individual circumstances will determine who is entitled to keep the house in divorce.
In some cases, even if the house is marital property, you might be able to divide this asset in a way that allows you to get more money than your spouse.
What is a Home Appraisal?
Major changes are upon you if you are getting a divorce and selling your home. If you are selling your home for a fresh start, this process can’t go fast enough. One thing to do before selling your home is get an appraisal on it. For everything you need to know about appraisals, read on.
An appraisal is an estimate made of your property’s market value. An appraisal is done by an appraiser. The figure that the appraiser comes up with is based on sale prices for similar houses in your area. It is also based on the condition that your property is in. An appraiser will determine the market value of your property based on:
- Income approach: The income approach isn’t generally used for residential properties, but it is still worthwhile to understand. The income approach works by determining the net income of the property and using this to estimate the property’s value.
- Comparison approach: The comparison approach takes into consideration what properties that are similar to yours have sold for. Obviously, your house will differ in some ways from the houses and properties taken into account during the comparison. But, the appraiser takes these differences into consideration.
- Cost approach: This approach makes an estimation of the improvements that have been made on the property. This estimation is added to the value of the property to determine the full value.
The lender will hire an appraiser and use their estimations to decide on a loan that is appropriate. The lender does this so that they can have an unbiased estimation of the property’s value. This happens before deciding to make a loan. You can have your house appraised by an appraiser that you hire. But a lender probably won’t use your appraiser’s estimates. They will want to have their own appraisal done.
Preparing for the Appraisal
There aren’t too many ways that you can prepare for an appraisal. The only thing that you can really do is make sure that if you’re having maintenance done on your property, it is complete by the time the appraiser comes. Informing the appraiser of renovations and home improvements that you have made can help to increase the market value decided on. Providing assistance to the appraiser is also a good idea. Touring the property with them will give you the chance to explain the features of the property (both good and bad). It will also answer any questions that the appraiser might have.
Getting an appraisal on your home is a basic part of selling it. If you and your ex-spouse are still on good terms, you can work together. This will benefit both of you in the long run.
What to do with the House in Divorce
Keeping the House
In this time of confusion, it might seem like too much to have to go through this difficult process AND sell the house. Here are some pros and cons of staying in your marital home.
- Security: In the midst of all this change, it will be comforting to at least remain in the same house.
- Routine for the kids: You’re not the only one who has to adjust to divorce. Maintaining a stable home life and routine for your kids is always a good idea. Staying in your house can help with that.
- Standard of living: You’re accustomed to a certain standard of living, and you have a right to that standard even after divorce. Remaining in your house could help you maintain that standard.
- What does your spouse think? Will your spouse let you keep the house? Or will he or she fight you tooth and nail for it? It might not be worth it to draw out yet another issue.
- Costs: After you get a divorce, you might not be able to afford to pay rent or make mortgage payments – at least not right away.
- Memories: Divorce means a fresh start. Getting that might be difficult if you live in a house filled with memories from your marriage.
Alternatives to Keeping the House
If you decide that living in the marital residence is not the right choice for you, you have two other options. You can sell the home, or give the house title/mortgage to your ex. If your ex wants to continue living in the marital residence, he or she can buy you out. You’ll get your share of the home equity and you can hand over the house title and mortgage to your ex. Or, the two of you can sell the house and split the profits.
Home Equity and Divorce
It is important to have an understanding of your home equity whether you are getting a divorce or not. However, if you are getting a divorce, you probably realize that you and your spouse are going to have to split your assets. Yes, this includes splitting your home equity. Splitting up assets can be a difficult process for you and your spouse. It is important to keep in mind that dividing home equity will depend on a lot of different variables. Each case is truly unique depending on what factors you brought to your marriage and buying your house.
The House is Marital Property
This is probably the simplest case of splitting home equity. If you and your spouse bought the home together, for example, using a joint account, it will be considered communal or marital property. In this case, you and your spouse will split the home equity equally. For example, if the home equity is $80,000, you will each get $40,000. Dividing home equity will depend on a lot of different variables.
Each case is truly unique depending on what factors you brought to your marriage and buying your house. Keep in mind that even if the house is marital property the couple can agree to split the equity unequally. For example, if you want $50,000 out of the $80,000, you may have it so long as your spouse is willing to give it to you. You and your spouse must sign a written agreement. This splits the equity unequally if it is something that you both want.
The House is Separate Property
If only one spouse bought the house, and the purchase of the home had nothing to do with the marriage, the house will probably be considered separate property. This might be the case if:
- The house was bought by one party before the marriage.
- The house was bought by one party after the marriage.
- You got the house as a gift/inheritance given to one spouse.
Your Name is Not on the House Title
If your name isn’t on the house title (or deed), you will not be entitled to the house itself upon divorce. However, a good divorce lawyer could still make sure that you are entitled to at least some of the home equity in some circumstances. For example, if you did not pay for the home and your name is not on the deed, but the house was purchased during your marriage and it was you and your spouse’s main marital home, it might be considered communal property. This gives you some entitlement to what the property is worth. But again, actually getting some of the home equity will depend on your personal situation – it isn’t guaranteed.
Calculating Home Equity
Calculating your home equity is simple. You just need to use a basic formula to determine how much equity is in your home. All you really need to know in order to determine your home equity is 1) the market value of your home and 2) the outstanding mortgages and/or liens on your home. Just subtract the outstanding mortgage/liens from the market value, and you’ve got your home equity.
So, for example, if the market price of your home is $250,000 and you have $100,000 left on your mortgage, your home equity is $150,000. But, home equity does fluctuate depending on changes in market prices, the value of your home, and the terms of your specific mortgage. Your home equity today is probably not the same as it was last year. And it’s probably not the same as it will be 5 years from now. To determine your home equity, subtract your outstanding mortgage/liens from the market value.
Increasing Home Equity
There are a few ways to increase your home equity. These include:
- Paying off your mortgage. This is the simplest way to increase your home equity. Obviously, the less money you’re subtracting from the market value of your home, the greater the home equity will be. This makes sense. When you own 100% of your home, you’ll receive 100% of the equity.
- Home improvements. If you make home improvements that increase the value of your home, it will increase the market value. Be careful though. In order to make these improvements, you’ll have to spend money. In the long run, it might not be worth it. If you’re going to make renovations to your home, make sure that they are renovations that just bring you up to the level that the other houses in your neighborhood are at.
- Increase property value. You don’t have to do anything to increase your property value – it just happens. If property values in the area increase, the market value will increase automatically.
If you are selling your house, for whatever reason, you want to ensure that your home equity is as high as it can be. Selling at the right time can mean some extra dough in your pocket.
What if the House is Only in My Spouse’s Name?
Years ago, when you were a newlywed and you were buying your home, you may have been talked into not signing the house title by your lovely new spouse. For many people, this scenario is all too familiar. If this has happened to you, and you now face divorce, what happens next? Even if only your spouse’s name is on the deed, you have a legal right to occupy that home for as long as the two of you are married. The trouble occurs if you and your spouse decide to get a divorce. If your name is not on the deed, you do not have a legal right to the property.
However, this does not mean that all is lost. In many cases, equity is still split between both parties, even if your name is not on the deed. If you are about to get a divorce and you realize that your name is not on the house title, you should be proactive. If you lived in the house, you should file a Notice of Home Rights with the Land Registry. This will ensure that your spouse doesn’t try to sell the house without letting you know. While you are still married, you have the right to know what is happening with the property, and it cannot be sold without your consent. Even if only your spouse’s name is on the deed, you have a legal right to occupy that home for as long as the two of you are married.
Unfortunately, once you are divorced, if your name is not on the house title, you will not have a legal right to the house. However, you can fight for half of the home equity. Chances are that you will want a fresh start after your divorce, so even if you are unable to live in your old home, it might be a blessing in disguise, as it will help you close that chapter in your life and begin the next one.
Retirement Funds in Divorce
Determining what you have a right to in your divorce can be difficult. One of your major assets that you might be concerned about in divorce is your retirement fund. If you are confused about if and how your retirement fund will be divided, the law can clarify it.
Qualified Domestic Relations Order
By law, you are not allowed to divide your retirement assets without being penalized. The only time that you can divide your retirement fund is when you are going through a divorce. This doesn’t mean that you or your spouse can liquidate your assets without penalty, but it does allow you to divide your retirement funds if you want to. In most cases, this is achieved when both parties file a Qualified Domestic Relations Order (QDRO). It is important to keep in mind that this area of the law can be tricky. Also, the ability to divide your retirement funds and this process will vary based on the company you work for and the parameters of your individual retirement plan. For this reason, every case of dividing retirement funds is different. You will get the best information for your situation by contacting a divorce lawyer.
Filing the QDRO
Filing a QDRO can be a difficult process because these forms need to be filled out in a precise manner. You will have to gather a lot of information about your retirement plan and your spouse’s in order to fill out this form. In addition, in order to qualify, you have to make sure that your retirement plan is covered by the Employee Retirement Income Security Act of 1974 (ERISA). If you have a good job and a good retirement plan, you could have a lot to lose if your spouse is seeking part of this plan. In certain situations you may be able to offer your spouse some other asset instead of rights to part of your retirement plan.
Filing a QDRO is a complex process that should be handled by attorneys. After all of the paperwork is filed, a plan administrator will review the QDRO to ensure that it is in compliance with regulations. At this point, the plan administrator will determine each party’s share in the fund. In determining each party’s share, the plan administrator will consider whether or not the spouse who has the retirement plan was enrolled in that retirement plan or pension before the marriage took place. If the plan began before the marriage took place, the duration of the marriage as well as the duration of the plan itself will be taken into consideration when determining what belongs to whom. Because this is an intricate process, several months can pass from the date a divorce is entered to the final distribution of the retirement plan.
QDROs and Divorce
QDROs can help you to plan for your future and can be extremely helpful for a spouse that does not have a job or who does not make a lot of money. In some cases, you may have to give a part of your pension plan to your spouse, in other cases, you might receive money from a pension plan that your spouse has. QDROs can help you claim your retirement plan and will give you and your spouse a fair portion of the fund.
At this point, each party’s share in the fund will be determined. The representative will consider whether or not the participant was enrolled in the pension or retirement plan before the marriage took place. If the plan was started before the marriage took place, the duration of the plan itself as well as the duration of the marriage will be taken into consideration when determining what belongs to whom. Several months can pass from the date a divorce is entered to the final distribution of the retirement plan. QDROs can help you to plan for your future.
In some cases, you will have to give a part of your pension plan to your former spouse, in other cases, you might receive money from a pension plan that your former spouse set up.
Personal Injury Awards
Personal injury awards can be considered either marital property or separate property. It depends on the situation in which it was received. Courts generally use either the analytic or mechanical approach to determine if the spouses should share the personal injury awards, or if only one spouse is entitled to the compensation.
The analytic approach is used in most states in the U.S. This approach uses what the personal injury award was meant to replace as a way to determine who is entitled to it. If the compensation replaces something that both of the spouses lost, such as income, the personal injury award is considered marital property. However, if the compensation replaces something that only one spouse lost, such as a limb, the award will be considered separate property.
An award is considered separate property if it was meant as compensation for the injured spouse’s well-being. The mechanical approach to personal injury award division is slightly different. The mechanical approach focuses more on the state law’s definition of separate property and marital property. By law, separate property is considered property that was acquired by one spouse. This happens as inheritance or a gift during the marriage. Or, it could be property that was acquired before the marriage took place.
Marital property refers to any property that is acquired during the marriage. The mechanical approach determines that personal injury awards do not fit the definition of separate property and therefore must be divided amongst both spouses. The division of personal injury awards between spouses that are getting a divorce will vary from state to state. If you live in a state that uses the analytic approach, you might have a better chance of keeping some if not all of the compensation as separate property. However, unless your injury occurred before you were married, the mechanical approach will probably consider the awards as marital property, and it will have to be split between both spouses.
Worker’s Compensation Awards
If you were injured on the job, or if you became sick as a result of work, you will probably be entitled to workers’ compensation benefits. Workers’ compensation is a mutually beneficial program. It allows workers to be compensated for their injuries without filing a lawsuit against their employer. Also, it allows the employer to save money that would be spent defending against costly lawsuit fees. However, sometimes it is difficult to determine who is entitled to your workers’ compensation benefits if you get a divorce. Will your ex-spouse still have a claim to the money that you get as compensation? The answer to this question will depend on several factors.
Different state courts treat workers compensation in different ways. Some states consider workers’ compensation as a personal injury award, while others treat it as wages. Some states consider it marital property, and some consider it separate property. As a result, your ex-spouses entitlement to your compensation benefits will depend on the state that you live in and how it views workers’ compensation. If your workers’ compensation benefits are treated as wages, your ex-spouse’s claim to the compensation will depend on when the accident took place.
Awards and Divorce
If you were injured during your marriage and started receive payments while you were still married, the compensation benefits will be treated like marital property. As a result, you will have to share the benefits with your ex. However, if you were injured before or after your marriage, the workers’ compensation is considered separate property, and you will be entitled to all of it. When workers’ compensation benefits are considered disability pay, compensation that is received during the marriage is treated as community property, whereas payments received after the marriage has ended will be considered separate property. If your workers’ compensation is treated as a personal injury award, some parts of the compensation will be considered marital property and some will be considered separate property.
Money that covers medical bills or lost wages during the marriage is considered marital property. Payments that cover medical costs and wages outside of the marriage, or loss of limb or bodily function are considered separate property. Keep in mind that some states consider all workers’ compensation payments as marital property if the accident occurred while you were married. As a result, there are many different situations that you can find yourself in when trying to determine who is entitled to your workers’ compensation in a divorce.