One of the most contentious issues that surfaces in divorce cases involves the division of marital assets. The assets to divide include the family home, furniture, cars, and jointly-owned property. It also includes bank accounts, retirement accounts, and interests in businesses. Dividing these assets often proves problematic for several reasons, many of which we’ll explore below.
Divorcing couples that are unable to agree on how their marital property should be divided may need to opt for mediation or arbitration. Both processes can produce a settlement agreement the spouses feel is fair. In cases where one or both parties are unwilling to compromise, the case may end up in court, which substantially increases costs.
Throughout each of the three scenarios above – i.e. mediation, arbitration, or litigation – it is imperative to have the guidance of an experienced divorce attorney. He or she can advise you and ensure your rights are protected as you decide how to divide your property. Below, we’ll cover the main assets involved in a typical divorce settlement negotiation.
The Family Home
When couples file for divorce, they must decide what to do with their home. There are numerous ways to approach this issue. For example, the couple may decide to sell their residence and split the proceeds evenly (after paying off the remaining mortgage).
Another option is to allow one spouse to keep the house. This can be done in several ways. For example, the party that keeps the home may agree to relinquish control of other assets equal to the value of his or her portion of the house. Alternatively, he or she can simply buy out the other party.
If the couple disagrees on how the family home should be divided, a divorce court judge can decide for them. Here, a number of factors may be taken into account. If the couple has a child, the spouse awarded legal custody of that child may be allowed to stay in the home. Or, if the property was owned by one spouse’s family long before the couple married, the judge may give ownership of the house to that spouse.
Couples that own a business will need to decide whether to sell it, allow one party to buy out the other, or to continue working together. The latter option is seldom feasible since it entails spending considerable time together on the business. Ex-spouses may find the situation to be uncomfortable and stressful.
A buyout allows the business to continue running while remaining in the hands of at least one of the owners. This is a good option if the business is successful. In the event that neither spouse has sufficient funds to buy out the other with a lump-sum payment, an arrangement can be negotiated based on future revenues. For example, one spouse could own and run the business while the other would receive a portion of the monthly profit until a predefined amount has been reached.
The last option is to sell the business. This is the best approach if neither spouse is willing or able to buy out the other, and no other arrangement can be negotiated between them. Unfortunately, it also means getting rid of a potentially-profitable enterprise.
Accounts held by both spouses at banks and other financial institutions should be included in the divorce settlement agreement. This includes checking and savings accounts as well as credit card accounts. Jointly-held bank accounts must be liquidated and split between the spouses (the ratio of the split will vary per each couple’s settlement). One option is to place the funds into an escrow account with the intention of releasing them after the divorce has been made final.
Credit card accounts on which both parties are named should be closed immediately after the couple files for divorce. This prevents one spouse from running up the balances, which can have an adverse effect on the other spouse’s finances. The balances should then be split between the two parties.
Many couples have safe deposit boxes in which cash or valuables are stored. These boxes should be frozen at the time a divorce petition is filed. Otherwise, one of the spouses may be tempted to remove the contents.
IRAs, 401(K)s, And Other Retirement Accounts
Retirement accounts are also considered for distribution in settlement negotiations. Such accounts include IRAs, 401Ks, 403Bs, and pensions. Retirement assets are often split between the divorcing spouses. Under normal circumstances, such a split would require liquidating some or all of the account’s holdings. This in turn would create a taxable event. In order to avoid such an event, one party can obtain a Qualified Domestic Relations Order (QDRO).
As with other financial accounts, it is important to freeze retirement assets as soon as a petition for divorce has been filed. Doing so protects both parties.
Property division during a divorce can be a complex issue, especially if the divorcing couple has many types of assets to divide between them. Having said that, if both parties are committed to negotiating a fair settlement, dividing their marital assets should present few problems.