Dividing Assets & Debts
Division of Property and Other Assets
In a nutshell, all income and assets acquired by either spouse during the marriage — ;homes, retirement accounts, stock options, bank accounts, cars, boats, time-shares in vacation property, life insurance, artwork, furniture, even frequent flier miles — are considered marital property and are subject to an even split during the divorce.
“Most jurisdictions want an equal division of marital property, but there are reasons for having a different type of split,” CPA and divorce mediator ;Roy Nelson says.
For example, if one spouse makes a lot of money and the other spouse has put his or her career on hold to take care of the children, the wage-earning spouse may agree to give the lower-income spouse a higher percentage of the marital assets in lieu of paying spousal support.
“It all depends on the needs of the couple,” Nelson says.
Property that was acquired before the marriage is considered separate from the marital property, but if that house you purchased a year before your marriage in your own name appreciates in value during the marriage, some jurisdictions will consider that appreciated value to be part of the marital assets.
Sorting through these types of financial conundrums is where divorce can get tricky — ;and emotions you thought were under control can rear their angry heads.
“You would think it would be the big-ticket items that people argue over,” Nelson says. “But it’s amazing how much time and energy go into dividing the household items, the things that aren’t high value. It’s the things that a couple bought together that can be sticking points … those are the things with real emotional attachments.”
One thing that a lot of people don’t understand about separating the marital assets, Nelson says, is that equitable division means that every type of asset will be considered in the dividing of marital property.
“For most families, their home is usually one of the bigger assets in their portfolio,” Nelson explains. “So if one person wants to stay in the house, then the other spouse is going to get other assets — ;vehicles, brokerage or retirement funds — ;to balance it out. It may look, on the surface, that one spouse is getting a lot of stuff over the other, but it’s just part of an equitable division of all the assets.”
Dividing Your Debt
Just like marital assets, the marital debt also will be divided during the divorce. And in times of recession, high unemployment and foreclosures, it’s not uncommon for divorcing couples to have more debt than assets.
“Actually, it’s somewhat common for couples to be living beyond their means,” Nelson says. “And with separate households, they’re going to generate even more bills without any additional income, so we will look at the net assets and the net liabilities and help them understand their options.”
If your home is underwater, your financial advisors will urge you to take a good, hard look at whether staying in the marital home is worth the added financial burden.
“A lot of people think they really want to keep the house, even if it’s underwater, but they have to understand what they’re asking for and decide if this decision is sustainable in the long-term,” Nelson says. “If it’s not sustainable, we will discuss options like a short-sale. Sometimes, getting rid of the house and starting over is the best thing to do.”
Tax considerations are another factor for couples splitting up their marital assets.
“When you get into the division of property, there are tax ramifications of those divisions,” Nelson says. “Let’s say one spouse takes the house and the other takes the retirement accounts, both of equal value. Generally speaking, the person who gets the home is in better shape because the retirement accounts are taxable when they’re withdrawn.” The profits on the marital home, however, aren’t taxed unless they exceed $250,000 per individual or $500,000 per couple. ; In every instance, while the Fiscal Architect can provide solid guidance on a property settlement, the couple will want to consult their own tax advisors if they have any questions at all.
