What You Need to Know About Divorce and Dividing Assets
Dissolving a marriage is hard. Be prepared with the basics before you separate.
Let's start with some good news. According to recent Census figures, the median age for first marriages in the U.S. is now 30 for men and 27 for women, up from 27 and 25 in 2003. The end result of couples waiting a little longer to get married is divorce rates are dropping. While divorce rates used to hover around 50%, experts now put your chances of getting unhitched at 39%.
Getting divorced can impact everything from your retirement account to your taxes. If you're going through the process, you'l need to invest a fair amount of time splitting up the assets. If you're on good terms, you and your spouse can create a fair and amicable property division settlement. If not, you'll likely leave the decision to a judge. In both cases, the million-dollar question is how to divide everything “fairly.”
The definition of “fair” varies from state to state. In some states, it's an even divide down the middle. In others, fair is based on a variety of factors including the earning power of each spouse both during and after the dissolution of the marriage. No matter where you live, if you're getting a divorce the first order of business is figuring out your assets.
Marital property and separate property
An asset is anything that carries an economic value like your home, car, or bank account. Marital property, or common property, are assets that were acquired during the course of the marriage. Assets can range from the couch you bought together to investments and retirement accounts. The important thing to know about marital property is that it's subject to equitable distribution.
Unlike marital assets, you won't be required to divide separate property which might include items like property purchased before marriage or an inheritance given directly to you. There are some exceptions. For example, if you added your spouse's name to a home purchased before marriage, it's now a marital asset. This is also true if you deposit any inheritance money into a joint banking account. Your spouse could acquire part of that inheritance in your divorce.
The best way to start figuring out your assets is to simply list everything you own and then determine whether you owned it before the marriage. This comprehensive list is known as a financial affidavit. A financial affidavit is a formal document that lists all of your assets, from property and income to liabilities and debt. It's not fun but taking account of all of your assets and debts will make the process of dividing your assets a lot easier.
Your state of affairs
During a divorce, you have more than your emotional state to consider. The state you live in will help determine how your assets are divided. If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin, you live in a Community Property State. Community Property States require you to split everything evenly in a divorce, no matter how skewed you and your spouse's assets may be.
Every other state is considered an Equitable Distribution State where things aren't so cut and dry. In a divorce, several components will be taken into consideration when dividing assets, like income and future earning potential. Talk to your lawyer about specific laws in your state that may impact the proceedings.
If you have dependent children, dividing financial obligations with your spouse can be challenging. Most couples going through a divorce want the smoothest possible transition for their kids. Continuity and maintaining a similar lifestyle is best for your children's long term health.
If you or your spouse will be responsible for paying alimony to help maintain that lifestyle, there are several factors to consider. Your income will factor into your alimony payment, but it goes beyond your current annual salary. A judge could rule that you're not earning your full income potential based on your education, or even base your earning potential on a previous job that paid more.
Depending on the state you live in, other aspects of the marriage may be considered when determining alimony. For example, the length of the marriage or whether you or your spouse committed adultery could impact alimony obligations.
In many cases, custody and child support issues can be settled outside of court. If you and your spouse are able to reach an amicable agreement because you both have your kids' best interest at heart, it can save everyone involved a great deal of time and money.