Divorce: Debts & Assets
Marital property and debt division, like most things related to domestic relations, is governed by the law of individual states. In both community property and equitable distribution states, the family law code contains provisions relating to the classification and distribution of marital property and marital debt. While the specifics of classification and distribution may vary from state to state, the same general trends are present in all jurisdictions.
Other People Are Reading
-
Classification
-
The classification of an asset or debt as marital, separate or mixed is a high-value issue in family law cases and can itself create a great deal of litigation. As a general rule, family courts do not divide property and debt held by a party before a marriage or acquired after date of separation or, in some states, date of divorce. As such, it is in a party's best interest to classify as much of his property as possible as separate and as much debt as possible marital. Mixed assets are those with both marital and separate components, such as investment accounts to which a party continued contributing after separation or divorce or which he held before the marriage but thereafter continued contributing.
Dividing the Estate
-
When a court has received a full picture of the marital estate, it must then distribute the estate according to state law. In community property states, which constitute the minority of jurisdictions, courts must distribute the estate to the parties in equal shares. In equitable distribution states, however, the courts apply a rebuttable presumption that a 50/50 division is equitable, or fair, but allow for an unequal distribution of property and debt upon the showing by either party of certain statutory factors. In equitable distribution states, a party can receive more debt and less property than her spouse.
-
Distributional Factors in Equitable Distribution States
-
Factors that a court will consider in an equitable distribution (ED) proceeding are set forth in the family law code of each such state. ED courts are commonly required to take into consideration the relative earning capacities of each party and the physical and mental health of each party on the underlying theory that a higher-earning party will be able to replenish lost property and pay allocated debt with greater ease than the other. Such courts also consider the liquid nature of any asset distributed, the tax consequences of the distribution, the difficulty in distributing a closely-held corporation or business, and the existence and size of a party's separate estate.
Relation to Other Parts of the Case
-
A division of property and debt can have important repercussions for other issues in a given case. After division, a party who would have qualified as a dependent spouse in an alimony case may no longer qualify, or her dependency may be reduced. The loss of income-producing property by a supporting spouse will reduce his income available to pay support. The receipt of income-producing property by the same spouse will have the opposite effect and will also be considered in any calculation of child support.
-
References
- Photo Credit ring image by Jens Klingebiel from Fotolia.com
