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Life Events :  Divorce

How to divide property and debts when you get divorced.

1. How is property divided at divorce?

It is common for a divorcing couple to decide about dividing their property and debts themselves, rather than leave it to the judge. But if a couple cannot agree, they can submit their property dispute to the court, which will use state law to divide the property.

Division of property does not necessarily mean a physical division. Rather, the court awards each spouse a percentage of the total value of the property. (It is illegal for either spouse to hide assets in order to shield them from property division.) Each spouse gets items whose worth adds up to his or her percentage.

Courts divide property under one of two schemes: equitable distribution or community property.

• Equitable distribution. Assets and earnings accumulated during marriage are divided equitably (fairly). In practice, often two-thirds of the assets go to the higher wage earner and one-third to the other spouse. Equitable distribution principles are followed everywhere except the community property states listed just below.
  
  
• Community property. In Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, all property of a married person is classified as either community property, owned equally by both spouses, or the separate property of one spouse. At divorce, community property is generally divided equally between the spouses, while each spouse keeps his or her separate property.

2. How do we distinguish between community and non-community property?

Very generally, here are the rules for determining what's community property and what isn't:

• Community property includes all earnings during marriage and everything acquired with those earnings. All debts incurred during marriage, unless the creditor was specifically looking to the separate property of one spouse for payment, are community property debts.
  
  
• Separate property of one spouse includes gifts and inheritances given just to that spouse, personal injury awards received by that spouse, and the proceeds of a pension that vested (that is, the pensioner became legally entitled to receive it) before marriage. Property purchased with the separate funds of a spouse remain that spouse's separate property. A business owned by one spouse before the marriage remains his or her separate property during the marriage, although a portion of it may be considered community property if the business increased in value during the marriage or both spouses worked at it.
  
  
• Property purchased with a combination of separate and community funds is part community and part separate property, so long as a spouse is able to show that some separate funds were used. Separate property mixed together with community property generally becomes community property.