Marital Property Division in Divorce Actions

Divorce: Property Division

One of the most important matters that is addressed after a divorce is property division. Spouses can establish their own rules for property division through a written settlement agreement or through an enforceable prenuptial agreement. If there is no written settlement agreement or prenuptial agreement, then a court will divide the marital property. Property division rules differ on a state-by-state basis, depending on what statutory guidelines a state adopts.

First, we will discuss the basic principles and mechanisms of property division. Next, we’ll look at what property is subject to division upon divorce by defining “marital property” and “separate property” in “community property” states and other states. Finally, we will briefly discuss prenuptial agreements’ effects on property division.  

Property Division Background

There are two ways of viewing marital property. Some states are “community property states.” These include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and the territory of Puerto Rico. Community property states assume that all marital property inherently belongs to both spouses equally, simplifying division upon divorce. Other states that do not make this assumption engage in “equitable distribution” of marital property.

Community Property Division

In community property jurisdictions, marriages are considered a “50/50” partnership. Property is either classified as “marital” or “separate.” All marital property is deemed owned one-half by each spouse and will be divided evenly. Division of community property can be abrupt and may not seem fair to either party because of how strict the 50-50 division rule is.

In these states, “marital” property is defined as all real and personal property acquired during the marriage by either spouse. As a result, all marital property is owned one-half by each spouse.

The following types of real and personal property are examples of marital property:  

·         Earnings and wages accumulated during a marriage;

·         Portion of a pension that was earned during a marriage;

·         Home furnishings purchased during the marriage;

·         Stock options earned during the marriage;

·         Interest income earned by business investments

On the other hand, separate property is NOT subject to 50-50 division. The following are examples of separate property:

·         Property that was owned by a spouse prior to the marriage: premarital assets can include real property, business assets, personal property, and even bank accounts[1];

·         Property acquired by gift;

·         Property acquired through inheritance or by bequest

In the case of mixture of separate and community property, the property can be considered community property when there has been “comingling.” For example, if a husband purchases a vacation home prior to the marriage, but later adds his spouse’s name as a co-owner of the vacation home, it can lose its status as separate property. The vacation home becomes comingled and is classified as marital property.

Property is also classified as marital if the two spouses intended for it to be classified as property for both.  For example, if a wife inherits a car from her father, but she permits her husband to use it at will for joint purposes, the car may be considered marital property since it was used by both spouses in the ordinary course of the marriage.  

Equitable Distribution

            Equitable distribution of marital property is the most common property division regime employed in the United States.[2] The divorce court will equitably divide the property in a reasonable and just manner. Equitable property division statutes are designed to make property division less acrimonious and fairer by employing a variety of factors in determining how to divide property.[3] Equitable division is not necessarily equal division. Equitable simply means that the division should be “just” or “fair.”[4]

The factors that a court will employ for an equitable division inquiry include:

·         Marital fault if fault grounds for divorce are present;

·         Duration of the marriage;

·         Age, education, background, and earning capacities of both parties;

·         The standard of living of each party during the marriage;

·         The disparity of earning capacities between the two spouses;

·         The child custody provisions;

·         The needs of each spouse;

·         Each spouse’s opportunity to acquire future income and assets

For example, in Bice v. Bice, the New Jersey appellate court found it to be reversible error when the lower court failed to comprehensively review the parties’ year-by-year bank deposits to determine the income that should be imputed to the husband for purposes of equitable distribution and alimony. The court required the trial court to engage in what amounted to a forensic analysis of the couple’s deposits, business expenses and possible unreported income to make an appropriate determination of division of property.[5]

In Mojdeh M. v Jamshid A.,[6] the New York court carefully considered the value of the educations achieved by both spouses during the marriage and the potential future incomes that were generated by these educations when dividing up the marital property. Each spouse was considered to have drawn from the marriage the value of his or her education and this value was factored in when dividing up the marital assets. The court in that case also looked at other factors, such as the husband’s refusal to grant a religious divorce, when dividing the marital estate.

Under an equitable division regime, spousal maintenance and child support payments can also influence property division. For example, the court can award assets to one spouse instead of that same value being paid by alimony. If a court might otherwise award $1,000 per month to one spouse in alimony, but the court believes that a lump sum payment might help the other spouse more by allowing the other spouse to pay for job training, the court may reduce the alimony and award the spouse compensation during equitable distribution.[7]

Prenuptial Agreements and Property Division

            Prenuptial agreements are contacts entered by the parties prior to the start of a marriage. These contracts establish the rules for property division and influence property division in the event of divorce, regardless of whether the parties live in a community property, or equitable division of property state. Spouses can use a prenuptial agreement to avoid or override the default principles for property division in their states.

            If the spouses do not have a premarital agreement in place, then the normal rules for property division apply.

Property division is an expensive and time-consuming process. Divorcing spouses are encouraged to settle their differences and distribute property with a written property settlement agreement. When this amicable resolution to property division is not possible, courts will employ a process mandated by the state legislature: either community property division or equitable property division.