If you are in the process of getting a divorce, you’ll need to come to an agreement with your spouse on how to separate yourselves financially. You may be asking yourself: what do I need to know about divorce and division of property?
Your financial lives usually get jumbled together in the course of a marriage, so there may be some confusion about which property (assets or money) should even be included in this negotiation.
There are two types of property discussed in the context of divorce:
This could be property earned or received before the marriage and kept separate from marital assets. During the marriage, it could be received by gift or inheritance and kept separate from marital assets. If you have a prenuptial agreement, it could have been explicitly identified as separate property before you were even married.
Legally, keeping it separate is the important part. Depositing an inheritance from your grandmother into your joint account would be “commingling” separate and joint assets. That being said, you can agree to exclude something from your separation agreement, even if it has been commingled.
Here are some examples:
- The engagement ring (in most cases, this is considered a gift)
- Student loan debt (from before marriage)
- Rental property bought by one party before the marriage
- Your old car (bought before marriage)
- Trust fund
Marital property is earned, purchased, or received during the marriage. Even if one person earned it, or it is legally titled in Individual rather than Joint names, it is Marital, not Individual property.
Here are some examples:
- Your primary residence (marital home)
- Your investment accounts
- Your 401(k) – specifically the portion which was contributed or earned during the marriage
- Your company stock or options – even if they are unvested, the portion which was contributed or earned during the marriage would be considered marital property
- Your Pension – if it was earned during the marriage (even if payments have not started, it still has a value)
Marital property is also known as community property. Nine states (including California) are known as community property states. Division of marital property is typically a 50/50 split in these states, while other states have more flexibility to decide what is equitable.
Financial Assets to Include in Your Divorce
Now that you understand the difference between separate and marital property, you’ll need to determine what should be included in your settlement agreement. Be honest and thorough! Trying to hide assets (or debts) is likely to backfire by creating distrust, slowing down your divorce process, or increasing your legal expenses.
Start by making a list of your assets. The list should include:
- Checking accounts
- Savings accounts
- Children’s bank accounts
- Retirement accounts
- Investment or Brokerage accounts
- Real estate
- Company stock programs, such as options, restricted stock units (RSU) or employee stock purchase plan (ESPP)
- Executive benefits, such as deferred compensation plans or supplemental retirement accounts
- Contents of a safety deposit box
- Incentive programs, such as frequent flyer programs or points
Determine the Value
Once a list is made, acquire a recent statement or estimate of value for each. Couples may also agree on a specific date for determining value: either the date of separation or the end of the calendar year or quarter. Sometimes this is called the “stop the clock date”. After this agreed date (which can also be the date of filing for divorce), new earnings are no longer considered marital.
Valuation of a bank account is a simple matter, but the couple may have a difference of opinion regarding real estate or the value of a business. The best thing to do is hire a third-party appraiser in either case.
Confirm the List is Complete
A common concern is that if one spouse handles all the finances, the other could be missing something. One spouse may suspect the other is hiding assets, being unhelpful, or just disorganized. We think it can be helpful to have the help of an objective third party, such as a Certified Divorce Financial Analyst, to be sure that nothing is missed.
The best place to start is often your tax returns. We typically look at the last 2-3 years, but you could look at the last five years to be really thorough.
Tax returns provide a wealth of information, including:
- Income from all sources
- Property taxes
- Interest & dividends
- Profit or loss from a business
- Capital gains & losses
- Partnership income
Another useful resource could be your mortgage closing paperwork. Recent mortgage closings would require disclosure of assets, liabilities, sources of income, and tax returns.
Developing a list of assets and their value may be a simple or extremely difficult task, depending on the complexity involved, and the couple’s financial management process. However, it must be completed to proceed.
Hopefully this sheds some light on what (if any) assets might NOT be included in your divorce settlement.
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