There are many things to be concerned about in a divorce: Your children, where are you going to live, how much support will you pay or receive, and other similar concerns are common.
However, one of the most important issues people face in divorce involves the money. Especially when one or both of the spouses has a significant income and property, it is critical to understand the basic steps in property division and some unique challenges before proceeding.
The Basic Steps in Property Division
In general, asset division proceeds something like this:
- Inventory: The first step is to inventory all of the assets and liabilities for each party to disclose to the other.
- Valuation: It is important to determine the value of the various assets and debts in a divorce. Knowing what each item is worth helps in determine how to split up the various assets and debts in a manner that is most equitable.
- Classification: Once all of the assets and debts are accounted for, the next step is to determine for each asset (or debt) whether it is considered marital or separate. Although there are exceptions and qualifications, generally speaking something acquired before the marriage is considered premarital and something acquired during the marriage is considered marital. The importance of this distinction is that only marital assets are split in the divorce. Individual assets generally stay with the separate and are not subject to asset division pursuant to a divorce.
- Division: Finally, the assets are divided. Whenever possible, it is often best to work through these issues in negotiation and mediation rather than having the court make these determinations. By working out these issues outside of the courtroom, couples retain a greater measure of control and flexibility to come up with an asset division agreement that is favorable for everyone involved.
Some Challenges in Dividing Assets
- Retirement accounts:Individual retirement accounts (IRAs), 401(K)s and similar accounts can be extremely difficult to divide. With compounding interest and the changing principles that result make it difficult to determine accurate values and amounts spouses would be entitled to receive. These determinations require the help of an experienced lawyer and often the help of forensic accountants, as well.
- The family home: The family home is a significant challenge to divide in divorce for a number of reasons. There are often personal attachments, memories and emotional connection to one’s personal residence.Further, there are numerous ways to divide the house, including selling and splitting the equity, having only one spouse live there permanently or having the children live there and the parents rotate in and out during their respective parenting times.
- Dividing businesses and professional practices: Dividing business and practice assets and debts can present a number of challenges, especially when these are successful and both parties want to keep the businesses going.
- Debt: We will talk more about dividing debt in a future post, but significant complications arise in determining how much of the debt should be considered marital property and how much should be considered individual debt. These determinations are based on the time the debt was incurred and other factors. It takes knowledge and experience to properly divide debt in a divorce or separation.
The problems presented by these various challenges are significant enough in their own right, but they become exponentially more complicated when considered in light of all the other factors in a divorce. The determinations regarding child support, spousal support, parenting time and other divorce-related factors will have influence on how property is divided and vice versa.
There is no way to expect a favorable outcome regarding property division in your divorce or separation without working with an experienced legal team. Make sure you work with a lawyer you trust to protect your financial interests.