How to Divide Assets in Divorce

Co-authored by Stacy Chretien, CFP®

Last Updated: December 21, 2023 References

Once you and your spouse make the decision to divorce, you need to start thinking about how to divide the property you accumulated during your marriage. It can be as simple as personal items and household goods, or as complicated as real estate, investments, and retirement accounts. You and your spouse have a choice. You can create a fair and amicable property division settlement or you can live with what the judge decides.

Part 1

Part 1 of 4:

Preparing to Divide Your Assets

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1
Understand the concept of equitable distribution. Most states follow the law of equitable distribution. This doesn't mean split down the middle. It means fair, based on factors including the earning power of each spouse, contributions during the marriage, age and health, and future financial needs of each person.^{[1]
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Research source}^{[2]
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Research source}If you create a property agreement with these requirements in mind, you are increasing the chances that the judge will accept it without amendment.
- In California, Texas, Arizona, Idaho, Louisiana, New Mexico, Nevada, Wisconsin and Washington, the standard is community property. In these states, there is an assumption that there will be an even split of all property owned or held in the name of both spouses. The court will still look at fundamental fairness, but the presumption is that there will be a 50/50 split of the assets.^{[3]
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  Research source}^{[4]
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  Expert Source
  
  Stacy Chretien, CFP®
  Certified Financial Planner
  
  Expert Interview. 22 July 2020.}
2
Consider what is separate property and what is marital property. Marital property, often called community property, are assets that were acquired during the course of the marriage. Whether it is tangible items such as furniture or intangibles such as investments or retirement accounts, all marital property is subject to equitable distribution or division as community property.^{[5]
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Research source}Conversely, separate property includes assets that were wholly owned by each party before the marriage. This can include real estate, vehicles, inheritances, and heirlooms. In general, unless it is co-mingled, separate property goes to the owner with no claim by the other spouse.
- The lines blur when couples have shared their separate property. For example, when one spouse uses inherited money to make improvements on the house owned solely by the other party. If you have mixed up and mingled your individual property and cannot agree on how to divide it, you should consider consulting with an attorney to help craft a settlement agreement.
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3
Decide on an asset valuation date. You and your spouse need to decide on a date where you will fix the value of your property. This is especially important for volatile assets such as stocks.
- Get an updated balance on retirement accounts and interest-bearing financial accounts such as savings, CDs, and money market accounts.
- Calculate the equity in the real estate for buy-out or asset trading purposes. A good day to affix a value to the house is the statement date for the mortgage payment. You will need an appraisal and the pay-off amount to calculate the equity.

Part 2

Part 2 of 4:

Dividing the Tangible Property

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1
Claim your personal property. Start with the easy pieces such as clothing and personal accessories. There should be no argument about these items. If you disagree at this juncture, you may need the help of a lawyer or mediator to continue.^{[6]
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Expert Source

Stacy Chretien, CFP®
Certified Financial Planner

Expert Interview. 22 July 2020.}
- Mediators typically have cheaper rates than legal counsel.^{[7]
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  Expert Source
  
  Stacy Chretien, CFP®
  Certified Financial Planner
  
  Expert Interview. 22 July 2020.}
This category can be divided evenly, as in each side takes a certain number of place settings of china, or traded off. For example, one party may want the small appliances in the kitchen and the other wants sporting equipment. The key is to be reasonable and weigh the monetary value of the items versus the stress of a disagreement.
The marital residence may include a mixture of separate and jointly acquired pieces. Even if both parties used an item, equity says that heirlooms should revert to the original owner as separate property.^{[8]
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Research source} However, as long as it is fair and reasonable, you and your spouse can divide the furniture as works best for you. Children's furniture should stay with the spouse who has primary residential custody.
Depending on how they were purchased and titled, vehicles may be either marital or separate property. Let equity and fairness dictate your decision. For example, if you have two cars, even if they are both titled jointly, know that the court will award one to each party. Usually, each party will keep the vehicle they drive most often. Each should expect to keep any loan debt associated with the vehicle and assume the payments.
These should be divided fairly and evenly. Each party is entitled to a share of family photos, mementos, souvenirs, and collectibles. Make copies of photos and documents for each party as needed.
As you and your spouse decide on division of your personal property, you should keep a neatly written or typed list and each party initial it as you go. ^{[9]
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Expert Source

Stacy Chretien, CFP®
Certified Financial Planner

Expert Interview. 22 July 2020.}This can help deter arguments later. This inventory can be attached to the settlement agreement if necessary. It is also proof to the court that the property division was mutual and handled fairly.

Part 3

Part 3 of 4:

Dividing Real Estate

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If both parties agree to a sale of jointly owned property, you should contact a real estate agent as soon as possible and begin the process of appraisals, valuation, and staging it for sale.^{[10]
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In an equity transfer, one spouse keeps possession of the property, refinances the mortgage,^{[11]
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Research source}and takes over full ownership. If you are planning on an equity buy-out, the other party can take a cash payment or a bigger share of another asset in exchange for their equity.
3
Determine how to equitably handle separate real estate. If real estate was owned by one party before the marriage, it can be considered that person's exclusive property. However, if both parties shared in the use and benefit, for example, lived in it as the marital residence or collected rents, then the property may be considered ripe for equitable distribution or community property.^{[12]
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- The spouse who brought the property to the marriage can cede other assets to the other party or stand firm. If you and your partner can't agree, consider seeking legal assistance to determine your rights and options. If you cannot agree, the judge will be the one making the decision.
- In some cases, it might make more sense to let one spouse hold onto the house, as opposed to selling the house and splitting the proceeds.^{[13]
  X
  Expert Source
  
  Stacy Chretien, CFP®
  Certified Financial Planner
  
  Expert Interview. 22 July 2020.}

Part 4

Part 4 of 4:

Distributing Retirement Accounts

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1
Identify the retirement accounts. There may be both employer-based and private funds. Retirement accounts include 401K plans, IRAs, Roth IRAs, pensions, and trusts that mature at retirement age, typically age 65 years.^{[14]
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Trustworthy Source

Internal Revenue Service
U.S. government agency in charge of managing the Federal Tax Code

Go to source} You will need statements for each account for both parties that are current as of the mutually agreed-to valuation date.
- If your retirement plans are simple, for example, each party has a plan from their employer, you can agree that each will retain their own plan without distribution to the other. If there is a significant disparity in balances, other assets can be ceded to make up the difference.
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Determine which law covers each type of plan. If you have a variety of retirement plans, you will need to know which federal law pertains to the distribution. Failure to correctly categorize your retirement assets could lead to not only complications in the divorce, but also tax consequences. Seek the assistance of a lawyer or accountant if you are unsure how to handle different accounts.
- A "qualified plan" is set up by your employer and you receive tax breaks for your contributions. This includes pensions and 401(k) plans.^{[15]
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- Qualified plans are split using a Qualified Domestic Relations Order (QDRO.) A QDRO is a court order instructing the plan administrator to pay out a portion of the balance to the receiving spouse. The amount is typically 50 percent of the value of the assets dated from the time of the marriage to the date of the divorce. The receiving spouse is responsible for all taxes and penalties of this distribution.^{[16]
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  Research source} A QDRO is a very specific document that must contain certain information to be valid.
- IRAs and other private retirement accounts are divided using a procedure called "transfer incident to divorce." A property settlement can designate individual retirement accounts, in part or in full, to one spouse. The financial institution will either treat it as a rollover or a distribution depending on how the decree is worded.
- Poorly worded QDROs and IRA transfers can trigger significant taxes and penalties. If the transfer is not approved by the court, the IRS may require amended tax returns. It is not recommended that you write your own QDRO or transfer unless you have significant legal or financial experience. A lawyer or account can prepare these documents to attach to your property settlement.
3
Evaluate division of military benefits. Few subjects are more complicated and fought as hard in divorces as military pensions and survivor benefits. Even in the most amicable of divorces, discussions of military benefits should be conducted with a lawyer skilled in The Uniformed Services Former Spouses' Protection Act (USFSPA.)^{[17]
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- There are several considerations in dividing military benefits. The accrual date is either the date of the marriage or the date of entry into service, whichever is later.
- The marriage must have lasted at least ten years and overlapped time in service by at least ten years. This is called the 10/10 rule.
- The order must specify if calculations are based on Gross Retirement Pay or Disposable Retirement Pay and take cost-of-living increases into consideration.^{[18]
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  file:///C:/Users/User/Downloads/AttorneyGuidance-03-07-2014%20(2).pdf}
- If one spouse is on active duty during the divorce, the requirements of the Service Members Civil Relief Act must have all been met.
- The non-military spouse should consider enrolling in the Survivor Benefit Plan. ^{[19]
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- After the divorce, non-military ex-spouses can apply to the military via form DD 2293 to begin payments.^{[20]
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  Research source} You will have to submit a certified copy of the decree showing the property settlement that orders division of military pension benefits.
- Legal assistance for active duty soldiers and retirees may be available from the Judge Advocate General (JAG) office. However, check to make sure the attorney has the specialized training and experience in handling sensitive financial matters related to divorce.^{[21]
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