Divorce is a time of emotional stress. It can be difficult to decide which property is "yours," "mine," "ours," or "theirs."
Here are some pointers.
When thinking about dividing property, draw four columns on a piece of paper; then follow these steps:
• Step 1. In the first column, list each property, whether separate or joint. Include everything you own.
• Step 2. In the second column, write what each property is worth next to each description.
• Step 3. In the third column, try to assign each property a fair-market value.
• Step 4. In the fourth column, write how each property might be divided.
What Do You List as Property?
Property includes your family home and ranch, rental property, cars, trucks, trailers, livestock, crops, and equipment. It also includes bank accounts, investment accounts (such as mutual funds, stocks, bonds, and annuities), life-insurance cash value, retirement accounts, profit-sharing accounts, and pension plans. You can probably think of more things to add to the list because there is practically no limit to what is considered property.
States such as Massachusetts are "equitable distribution" states, where settlements are meant to be fair, but not necessarily 50/50. Marital or community property is everything acquired during the marriage regardless of whether one spouse bought it with her salary or placed only one name on the title document.
Massachusetts is an equitable distribution state. In determining how property will be divided, the court shall consider the following factors:
- The length of the marriage.
- The conduct of the parties during the marriage.
- The age, health, station, and occupation of the spouses.
- The amount and sources of income, vocational skills, employability of each spouse
- The estate, liabilities and needs of each of the parties and the opportunity of each for future acquisition of capital assets and income.
- The contribution of each of the parties as a homemaker to the family unit.
- The contribution of each of the parties in the acquisition, preservation and appreciation in value of their respective estates.
In determining the property distribution, the court shall also consider the present and future needs of the dependent children of the marriage. After a divorce, a husband or wife shall not be entitled to courtesy or dower in the land of the other spouse. Any real and personal property owned prior to the marriage will be considered the separate property of that spouse
Depositing separate property money into a marital-property bank account creates a co-mingled account. Over the years, this can complicate the process of identifying how much is separate versus marital property. Add in a purchase of something like a vacation home with co-mingled funds, and you have an even more complex situation.
Is It Marital or Separate Property in Massachusetts?
Massachusetts Law recognizes the division of property and liabilities in a divorce to be equitable, meaning that it should be fair, though not always equal. In Massachusetts the court can divide both marital and separate property. However, the court will usually, but not always, award separate property to the original owner in a divorce. (separate property is property one spouse acquires before marriage, or owns through gift during the marriage). There is no fixed formula for determining what is equitable; every case depends on the individual circumstance. In general, in a long-term marriage the court is more likely to order a roughly equal distribution of property and to ensure that both spouses can maintain a standard of living similar to what they had during the marriage.
Who Gets Which Assets?
The question is not which assets do you want to keep, but rather which assets are best for your long-term financial security. In the end, who gets what will most likely be the result of negotiating between spouses. Knowing what to negotiate for is crucial.
When trying to decide who gets which property, consider the issues related to the property and long-term financial security.
The Entire Picture
In real life, couples take all their property into consideration: assets, debts, retirement accounts, etc. The examples in this article show simple comparisons of property. When everything is included, assets are not compared one-on-one, but rather in a mixture.
During divorce negotiations, it's common for spouses to go back and forth about who will get what property. This is in an effort to reach a fair settlement. This is not necessarily an equal split: a settlement can be fair without being equal.
In addition to the long-term financial considerations of a settlement, the couple will think about how a property division will affect their minor children. It may be financially fair to the adults to sell the family home and divide the resulting cash, but it may not be emotionally fair to the children.
In the case of the divorce involving an older homemaker, the property division should include consideration for her decades of life as a homemaker instead of a career woman. Her employment skills at the time of her divorce can easily be substandard. She will most likely be facing a significant reduction in her standard of living. To help her keep an equal and fair economic position, the division of property might need to be unequal.
There are no guarantees in dividing property in divorce. Negotiations go back and forth. This article has barely touched on the issues. Couples need to understand the aspects of their property to determine how a property division will affect their individual long-term financial security.
We hope this case study has been helpful to you. As CDFAs we are here to serve you during a trying time in your life. A CDFA is a financial professional who is trained in the specific financial and tax issues of divorce. Please click below to contact us to see how we can work with you to navigate these complex issues and find a fair and reasonable way to get you on your way to your new life.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies may be appropriate for you, consult your financial advisor. This information is not intended to be a substitute for specific individualized legal advice. We suggest that you discuss your specific situation with a qualified legal advisor.
Contributed to by: Mark Shepherd, Registered Principal, CFP®, AIF, CDFA™and Tracy B. Stewart, CPA, PFS, CFP®, CFF, CDFA™