Divorce Advice Articles Section

How Do We Divide Our Property in a Divorce?

Martha and Tom have been married for 35 years. She stayed home and took care of the four children. Tom earns $150,000 per year and has started a business in the basement of their home, which he expects will bring in revenues after he retires from the corporation he works for. They own their home, worth $135,000. It is paid off. He has his pension, which has been valued at $90,000. They have a savings account with $28,000, and he values the business at $75,000. Their assets total $328,000. Assuming a 50/50 property split, each would receive $164,000.

These are their assets.

However, splitting the property and assets down the middle is often not the most equitable division. In this case, as in nearly all divorces, Martha wants the house. It is not unusual for the wife to have an emotional attachment to the house, especially if that is where she raised the children.

Tom also says, "I have a business deal coming up soon and I am going to need cash for that deal. I must have the savings account." Put the savings account in his column.

Then Tom says, "The business in the basement is mine. You don't know what it looks like and you don't even have an idea of what I do." Put the business in his column.

Here's what the division looks like.

Her assets total $135,000 and his assets total $193,000. If we were to look at a 50/50 property split, he would owe her $29,000. Although Tom has a large income of $150,000 a year, he does not want to give up any of the business or pension or savings.

We can even out this division with a Property Settlement Note. Tom can pay Martha $29,000 over time, like a note at the bank. He can make monthly payments with current market interest. Or, he can borrow funds directly from the bank, since he has assets, including a savings account comparable to what he would owe.

Property Settlement Note
A Property Settlement Note is from the payer to the payee for an agreed-upon length of time with reasonable interest. It is still considered division of property, so the payer does not deduct it from taxable income. The payee does not pay taxes on the principal -- only on the interest. It is important to collateralize this note.

Let's go back to Martha and Tom. Martha does not like this settlement. She says, "I want the house and I want half of your pension. We have been married for 35 years and I helped you earn that pension." Place the house ($135,000) in her column and half of the pension ($45,000) in each column. Then she says, "I want half of the savings account. You are not going to leave me without any cash." Put $14,000 in each column. She agrees that the business is Tom's, so $75,000 is placed in his column. The property split now looks like this:

Her assets are valued at $194,000, his at $134,000. Martha owes Tom $30,000 to make a 50/50 property settlement. It's not that simple. She does not have a job, has arthritis, and cannot walk very well. In reality, Martha is not in good health and is unlikely she would be able to get a job.

Her largest asset is the house, an illiquid asset. It is paid for, but it does not create revenues to buy groceries. How is she going to pay this $30,000 to him? Given that the prospects for this are bleak, Martha and Tom's attorneys need to take another try at dividing the assets.

These are the facts: (1) Martha is an older housewife with no work experience, (2) marriage is long-term, (3) the largest asset (the house) is an illiquid asset, and (4) Tom has a continuing business. Given these facts, it is possible that she could get a larger, disproportionate amount of the marital assets.