Homes, Properties, and Assets in Divorce

The Divorce Ins and Outs of Property Sales, Estate Division, and Asset Allocation

You’ve worked hard to build your financial foundation, which might include property and other high-value physical assets. During your divorce, the division of these assets will be determined based on local and state laws and your specific circumstances. You might work with your spouse directly or through mediators to come to an agreement. If an agreement cannot be reached, the court can decide. When dividing assets in divorce, a holistic approach is often used to try to create fairness for all parties. In the end, assets might be divided based on value, history, lifestyle, infidelity, or the earning potential of either individual, and will be guided by local and state laws.

Marital and Private Property

First, it is important to understand the two types of assets that you might have in your portfolio: marital and private. Marital property includes things that you acquire during your marriage and is jointly owned by both spouses. There are exceptions, like inheritances and personal gifts, which might be considered private property regardless of when they were acquired. During a divorce, marital property is usually a part of the division of assets. Things that you brought into the marriage with you are typically considered private property and may remain so through your divorce. If there’s a dispute, you may be asked for proof of private ownership for anything you claim was owned prior to marriage.

Understanding your rights will ensure that your assets are divided fairly between spouses.

Equitable Distribution States

In an equitable distribution state, marital assets will be divided fairly between the spouses. Based on financial circumstances, this might not mean a 50/50 split. Instead, property is divided so that both parties can maintain their quality of life. When deciding how to distribute property, various factors will be considered, including things like:

• Alimony.
• Child support payments.
• Debt, assets, and the financial situation of each spouse.
• Current and future earning potential of each person.
• Conduct before and during the divorce.
• Wrongful actions that might have resulted in wasted assets.
• The long-term well-being of each spouse.

Community Property State

In a community property state, assets are usually split 50/50. This means that each spouse has the right to half of the value of marital property that the couple acquired together. There are some exceptions, like assets covered by a prenuptial agreement, gifts, and property received through inheritance, so it’s best to check with an attorney to fully understand your rights under the state laws where you live.

Selling a House During a Divorce

Selling your home because of a divorce can be difficult. You may have deep, sentimental feelings, especially if you raised children or spent many years there. However, it is often the most straightforward way to divide the property's value. Here is an example of how the process can work:

1. An agreement is reached, either by the couple or through the court, outlining how property will be divided based on its value.
2. Once terms are settled, the couple can file for divorce and include the details of the house sale.
3. Both parties agree on a real estate agent.
4. Upon sale of the house, debts, mortgage payments, or liens are settled out of the estate.
5. Proceeds are divided based on the plan for the division of assets.

If one spouse doesn’t want to move, they can often buy out the other person’s equity in the property if they are in a financial position to do so. This can be accomplished with a lump sum payment, through a loan, or a payment plan.

Selling a Vehicle or Other Large Property

The sale and division of significant property like automobiles may follow the same rules as those for the distribution of the value of a house. The spouses will come to an agreement or have one handed down by the court, and then an agent can be chosen to handle the sale and oversee the fair and equitable allocation of the funds. One person may also offer to purchase the property outright from the other.

Prioritizing the Family Home for Children

In a divorce case with children, there are additional considerations. The primary focus is usually protecting any children involved and minimizing the impact on their lives. Depending on short and long-term custody agreements, the parent with primary custody may be viewed as being more deserving or in need of the house or other significant property, such as a car. Creating a sense of normalcy and continuity for the kids is paramount throughout this process.

Retirement Accounts

Retirement accounts and future pensions are considered in the division of assets. The judge may institute a Qualified Domestic Relations Order (QDRO) when assets such as 401(k) funds cannot be withdrawn. The QDRO will designate the division of assets into two accounts. In some cases, these funds can be offered to one of the spouses instead of alimony, support payments, or certain property. The process can be tricky, and you should consult with a legal professional to prevent loss of benefits.

Taxes

A considerable tax burden can reduce the proceeds when homes or properties are sold during a divorce. The timing of your house sale may impact your tax liability, and you may be eligible for exclusions. Consult an attorney or CPA to discuss your situation so that you can make informed choices about the best way forward.

Go Your Own Way

Divorce is a time of transition. Understanding your rights will ensure that your assets are divided fairly between spouses. While selling your home and beloved property can be challenging, it can also be cathartic and help you move on. As you start your new life, you won’t be burdened with memories from the past and can instead focus on making new ones. It can be a scary time, but also one of opportunity and potential.