Are you getting divorced?
If so, property division is probably one of the most stressful parts of the whole process. In fact, 70% of divorces involve couples trying to figure out what to do with their house, according to recent data from the American Academy of Matrimonial Lawyers.
And here’s the kicker…
The majority of people have no clue how property rights in divorce actually work. They think that everything gets divided equally. And yes, that can be true. But that’s not the whole story.
Here’s the problem:
Unless you educate yourself about property rights, you could wind up losing assets that are rightfully yours. Or even worse, you could end up being saddled with debts that aren’t your responsibility.
Let’s cover:
- How Property Gets Divided in Divorce
- Marital vs Separate Property
- Real Estate & Your Divorce
- Community Property vs Equitable Distribution States
How Property Gets Divided in Divorce
Property division in divorce isn’t always as simple as splitting everything down the middle.
The court’s first step is to classify the couple’s property as either “marital property” or “separate property”. This classification has a major impact on the outcome.
Marital property refers to most of the things that a couple acquires during their marriage. Family homes, vehicles, bank accounts, retirement benefits, etc. Even business assets acquired during marriage are usually considered marital property.
Separate property remains the sole property of whoever originally owned it. This includes assets acquired before the marriage, gifts explicitly given to one spouse, and inheritances.
But here’s where it gets interesting…
Separate property can become marital property if you’ve comingled it or if the other spouse significantly contributed to its maintenance or appreciation.
Say, for example, you owned your house before marriage. But after tying the knot, both spouses paid the mortgage, added a bedroom, and made other upgrades using marital income. Then, a court may rule that part of the house’s value has become marital property.
The Difference Between Marital and Separate Property
The distinction between marital and separate property is important for the protection of your assets.
In most states, anything acquired by either spouse during the marriage is owned jointly by both parties. Even if only one person is on the title. So if you purchased a car loan during marriage, even if only your name is on the loan documents, the asset still legally belongs to both of you.
To maintain the separate nature of an asset, you need to keep it strictly separate. Do not use marital funds for its maintenance, keep it in a separate account, and don’t mix separate money with joint accounts.
The first moment you start comingling separate property with marital assets, you start losing your right to claim it as separate.
If you’re dealing with real estate in divorce, then seeking guidance from experienced arkansas divorce lawyers can help you understand how the state’s laws specifically handle property division and protect your rights throughout the process.
What Happens to Your House During Divorce
Your family home is almost always your biggest asset during divorce. It’s also the one that often carries the most sentimental value. And, as such, can be the most emotionally charged aspect of property division.
Broadly speaking, you have three options:
Sell the House and Split Proceeds
By far the most common solution. Spouses agree to put the house on the market, pay off the mortgage, and split the remaining proceeds.
The benefit? A clean break with no ongoing ties to your ex.
The downside? You lose the family home and may have to pay capital gains taxes.
One Spouse Buys Out the Other
If only one of you wants to keep the house, that person can buy out the other spouse’s share of the equity. The process involves getting the house appraised, determining the total equity, and giving your ex his or her share.
Important: The spouse who keeps the home takes on all future risk. If the home loses value in the future, he or she is the one who suffers.
Continue Owning the House Together
Some couples decide to continue co-owning their house after divorce. Usually, this happens for three reasons:
- The children live in the family home, and both parents want them to remain in the family
- The real estate market is down, and selling would be a bad financial move
- Neither spouse can afford to buy the other out
Warning: This option requires high communication and trust between spouses.
Community Property vs Equitable Distribution States
Where you live has a major influence on how your property gets divided in divorce.
Community Property States
Nine states follow community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Property is split 50/50 (generally).
Equitable Distribution States
The rest of the states follow equitable distribution laws. This system means that property will be divided fairly, but not necessarily equally.
Courts take many factors into account to determine what “fair” means in each specific case. The length of the marriage, each spouse’s income, and child custody arrangements can all play a significant role in the final distribution.
The latest statistics reveal that 43% of marriages are expected to end in divorce in 2024. This makes property division one of the most pressing concerns for millions of Americans.
How to Protect Your Assets
If you want to protect your property rights, here’s what you need to do:
Before Marriage: A prenuptial agreement, careful documentation of separate property, and financial transparency.
During Marriage: No commingling of separate property and marital funds, and record-keeping of any property improvements.
During Divorce: Gather all financial documents and property appraisals, avoid hiding assets (it’s illegal).
The spouse claiming separate property has the burden of proof to establish it as separate in court with pre-marital bank statements, gift letters from inheritance, and purchase receipts.
Special Considerations for Real Estate
Real estate always requires special consideration since many houses have both separate and marital property elements.
One spouse owned it before marriage (separate property), but both spouses made mortgage payments after marriage (marital).
Courts will have to determine what percentage of the home’s current value is due to marital contributions vs. separate property contributions.
Important: Divorce proceedings don’t automatically remove either spouse from the mortgage. You both remain legally responsible until either party refinances the mortgage in their name only or sells the house.
Common Mistakes to Avoid
What are the most common mistakes people make with property division?
Hiding Assets: Do not lie or try to cheat the court. They will find out and punish you.
Making Emotional Decisions: Don’t try to “win” the house because of the kids or “because you’ve worked so hard to build this life”. Think rationally and economically.
Neglecting Debts: Debt division also matters. Marital debts need to be divided too.
Wrapping It All Up
Property division during divorce is complex, but a basic understanding of how it works can save you thousands of dollars and major headaches.
Let’s review:
- Marital property is divided, separate is not
- Property division rules are different in every state
- Your house deserves special attention
The most important lesson to take away from this guide? Get educated on the subject before making decisions or signing any documents. Property division affects your financial well-being for years to come.
Don’t do this on your own. Laws are complex, and you’re already under enough emotional stress. Work with people who understand property law and have your back.
