When a couple chooses to file for divorce or legal separation, their debts, property, and other assets need to be divided between them. Assets can refer to a number of forms of wealth, including real property, bank accounts, retirement funds, pensions, stock, possessions, vehicles, and so forth.The process of dividing these assets in a dissolution must result in an “equitable” distribution between the parties. However, many people misinterpret “equitable” to mean “equal,” and expect the assets, property, and debts to be divided between the parties exactly in half.
This is not necessarily the case.
The assets and debts in a divorce case can be divided between the spouses based upon an agreement between the parties themselves. If the parties cannot agree on their own, however, then a mediation process is the next step in attempting to resolve this issue.
Ultimately, a Judge approves the settlement agreed upon by both parties (by entering the Decree of Dissolution or Legal Separation). If an agreement is not be reached between the parties, then the parties proceed to trial where a Judge will decide how the assets and debts are to be divided.
It is important to note that most divorce cases do end in a settlement agreement between the couple. Most individuals would prefer to reach a reasonable compromise and determine the settlement amounts and distribution themselves, rather than leave those decisions up to an arbitrary third party.
Types of Assets: A List of Examples
Because each case is entirely unique, the “equitable” division of assets is different on a case by case basis. Yet, the types of assets that are subject to distribution usually include the following:
Money/Cash - This includes checking and savings accounts, as well as cash on hand.
Retirement Accounts - This includes 401(k) and 403(b) accounts, pensions, IRAs, and other tax deferred accounts. Typically these cannot be liquidated without tax penalty unless certain requirements are met. Defined benefit (pension) accounts have special rules of their own.
Home and Real Property - If the couple owns a home, that land and structure is considered ‘real property,’ meaning it is an asset that must be divided in the divorce. Unimproved land, vacation homes and rental properties also fall within this category.
Taxes - Tax refunds and tax credits may also be an asset to be divided in a divorce case.
Businesses/Business Interests - If the couple owns a business or an interest in a business, and if there are assets ascribed to the business, such as property, accounts receivable, merchandise, and good will, these interests will need to be valued and awarded in the divorce process.
Investments - Stock and mutual funds, stock options, brokerage accounts, and other investment-related assets will be divided as well.
Other - This category includes whatever other possessions the couple might have. Types of possessions that can often need to be divided would include art, patents/copyrights, insurance policies, valuable collections, contents of safety deposit boxes, vehicles, boats, household furnishings, and other items.
It is vital that each party involved in the divorce understands the true value and extent of the property owned by the parties. When it comes down to making financial decisions that can impact you for the rest of your life, no one wants any surprises. Understanding the extent and value of the property that will be divided in your divorce is key to establishing a fair and equitable settlement.
Community Property vs. Separate Property
Washington is a ‘community property’ state. Essentially, this means that, based on Washington’s laws, all assets and debts acquired during the duration of the marriage are considered to be owned by both parties. Any form of money, land, possessions, loans, or debt that was acquired during the time that the couple was married is jointly owned by both people.
However, there are some narrow (but important) exceptions to this rule. Not all property falls into the community property category, and this distinction can be complicated and arguable. This is one of the many reasons that we highly recommend working with a divorce lawyer. A divorce lawyer will assist with the itemization, category delineation, valuation, and proposal for an equitable division; issues that can be impossible to work through without the legal background necessary to support your position and protect your rights.
Also, the longer the marriage has lasted, the more complex these issues become. The more time that has passed usually results in a greater amount and diversity of assets that will need to be divided. For instance, if the couple has begun a business together, the process of dividing that asset can be incredibly difficult, and will likely require both the skills of an experienced divorce attorney as well as professional valuation, so that the information necessary is obtained and the end result is equitable.
Difference between separate property and community property:
The term ‘separate property’ refers to items, possessions, or property that one or both spouses might own, but was acquired outside the marriage or was acquired during the marriage but falls into an exception. Separate property is different from community property. For example, possessions or real estate that was owned by either party prior to the beginning of the marriage is considered separate property. Inheritance, gifts, or purchases that were bought using the separate property of either spouse also is defined as separate property. Generally, separate property belongs to the spouse whose separate property it is, alone.
However, the process of determining what is community versus what is separate property is often not straightforward. All property is before the court for equitable distribution in a divorce, both community and separate. The court has the power to award one spouse’s separate property to the other spouse during the process of attempting to settle on a fair and equitable division of assets.
Additionally, during the course of a marriage, couples often use separate property for community purchases and purposes, such as down payments on homes, vehicles, educations, home improvements, or investments. It is not always easy to determine what is separate and what is community when this is the case.
This is yet another vital reason why a divorce lawyer is valuable. Complex divorce cases in which the marriage has lasted many years and a lot of property has been accumulated will find the expertise of a divorce attorney particularly helpful. They will protect your interests throughout the process and ideally work toward helping you reach an agreed settlement. If agreement is simply not possible, your divorce attorney will represent your interests at your divorce trial.
For more information about the divorce process, download our recently released eBook on the divorce process. In this guide, you’ll read extensive discussions regarding the most important aspects of divorce cases and learn how a divorce attorney is an invaluable asset throughout the entire process.