Property Division - Overview of Dividing Assets and Liabilities

Property division or asset allocation is one of the two main financial categories of decision-making addressed in divorce and it involves making informed decisions about dividing the assets and liabilities between you and your spouse. This division includes all properties, debts, financial accounts, investments, real estate, personal possessions, and any other assets owned or acquired during the course of the marriage.

The property division analysis starts by establishing a snapshot in time of everything you have now in one or both of your names. Then you determine who will keep what or how things will be divided.  You are creating a marital “balance sheet” and then dividing up the assets and liabilities within it. The balance sheet is a financial snapshot that outlines the assets, liabilities, and net worth of an individual or couple to be used in a divorce to assist in the allocation of assets and liabilities between spouses (see module on Balance Sheet).

At the heart of property division is a clear and objective understanding of your assets and liabilities. This includes knowing the value of real estate equity, vehicles, investment accounts, bank accounts, retirement accounts, and any other significant possessions. Then you need an understanding of all debts and liabilities. We’ll guide you on how to compile a comprehensive and accurate list of your assets and debts, ensuring that both you and your spouse share a common understanding of these facts. Remember, facts in property division are indisputable numbers and valuations that form the foundation of equitable distribution.

Laws Vary by Jurisdiction

Property division is governed by specific laws that vary by jurisdiction. Some regions operate under community property principles, while others follow equitable distribution rules. Both paradigms essentially differentiate between assets and liabilities created during the marriage (marital property or joint property) and those from prior to the marriage, or gifted or inherited during the marriage.  This second category of non-marital or separate property is typically awarded to one specific party, while the marital property is commonly divided equally or in another manner meant to be fair between the two parties.  In this property division section, we'll delve into understanding these legal frameworks and how they apply to your situation. You'll learn about the legal rights and obligations that influence property division, as well as the potential for legal discretion and interpretation. Whether you choose to work with an attorney or research these aspects yourself, a solid grasp of the relevant laws will empower you to navigate this process with confidence.

While the law provides a structure for property division, there is often room for personal discretion and agreement. You may want to reflect on what arrangements feel just and fair to you, beyond the black-and-white letter of the law. This might involve unique arrangements or compromises that align with your personal values and future goals. We will explore how to negotiate these personal preferences while ensuring fairness and respect for both parties. We will also provide you a sample balance sheet and walk you through specific examples to help you fully understand how property division works.

Liquidity, Taxes and Timing

When considering an overall property division, it is important to think about liquidity, taxes and timing.  Liquidity is the ability to easily access financial assets if needed.  As you think about your financial goals moving forward consider your need for cash and make sure your settlement provides for those needs.  For example, if you are considering buying a house, you will need cash for a down-payment.  If all of your assets post-divorce are in retirement accounts which are not easily accessible, you may not have adequate liquidity in your resolution.  Many assets also have inherent tax implications that should be considered so one spouse doesn’t unknowingly take on more tax liability than the other.  And, the timing of certain assets may be important if you have any transitions coming up.  If you are planning to cash out retirement, for example, in order to pay off credit card debt, you will want to think through the timing of the cash-out and know you will be incurring fees on the debt for thee 3-6 months until the retirement transfer is complete.

Throughout the property division process, it's essential to maintain open communication, transparency, and a focus on achieving a fair and equitable resolution that meets the needs and interests of both spouses. Seeking guidance from legal professionals and financial advisors can provide valuable support and assistance in navigating the complexities of property division in divorce.

We aim to equip you with the knowledge, tools, and confidence to navigate the complex terrain of property division. So let’s get started.

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