HOW DOES A COURT DIVIDE ASSETS IN A DIVORCE?
By Pansy Moore-Shrier
In a divorce, the court will divide the assets accumulated during the marriage. This article gives some basic information on how assets may be divided, but there are always variations. Ultimately, the court is trying to make a fair division that complies with state law.
It’s important to first determine what assets are part of the assets to be divided. Generally excluded from division are assets obtained prior to marriage, gifts to the individual, and inheritance. Also, if the couple has a prenuptial agreement, the general rules of division may not apply, because the prenuptial agreement will instruct how to divide the assets.
In determining the value to place on assets, the court will usually place the value at a fair market value. For example, if you purchased a house for $100,000 during the marriage, but the fair market value of the house at the time of divorce is $150,000, the court will use $150,000 as the value to be divided.
Complications occur when the court has to decide the date to value the asset. Using the house as an example, what happens when the couple separates in January 2017, files for divorce in January 2019, but doesn’t get a divorce until January 2021? The court must determine a date to value the house that the court believes is fair. If the husband lives in the house after separation, pays the mortgage during that time, and provides repairs and possibly improvements during that time, then it is likely that the court will use the date of separation—January 2017—as the date to value the house. If, however, the couple shares the expense of the mortgage payments as well as repairs and improvements during the time from separation until divorce, then it is likely the court uses the time of divorce to set the value for the house.
Another common example of an asset where the date of division is important is where the court must divide a 401(k) account. For example, if the wife has a 401(k) account that was started before the marriage, contributed to the 401(k) during the marriage, and continued to contribute to the 401(k) after the parties separated but before the divorce, how does a court generally divide this asset? First, the portion of the 401(k) account that existed prior to the marriage is separate property of the husband, plus all passive increases or decreases on this portion. The portion of the 401(k) from contributions during the marriage (but before separation) are marital property, plus all passive increases or decreases on this portion. The portion of the 401(k) from contributions after the separation are generally held to be the separate property of the husband, plus all passive increases or decreases on this portion. While this seems difficult to calculate, the administrator of the 401(k) can specifically calculate and divide the amounts by a Qualified Domestic Relations Order (sometime referred to as a QDRO) so long as the QDRO form is filled out with the date range of the portions to be divided and meets the form requirements of the 401(k) administrator.
In preparing to file for divorce, it is helpful if you make a list of all your assets (and debts) and the current fair market value of each. For complicated issues on asset valuation, you may need to hire an expert to calculate the value. As always, if you have specific questions on state laws and the divorce process, you should seek advice from an attorney with experience on these issues. [Disclaimer: Nothing contained herein is intended to be legal advice or to create an attorney-client relationship. Any information contained herein is for general information purposes only.]
By Pansy Moore-Shrier
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