Divorce Advice Articles Section

WHAT IS OUR PROPERTY?

by Carol Ann Wilson, CFDP (Certified Financial Divorce Practitioner)

When looking at the property issues in divorce, the couple always asks three questions: "What constitutes property, what is it worth, and how will it be divided?"

WHAT CONSTITUTES PROPERTY?

Property includes such assets as the family home, rental property, cars, and art or antique collections. It can also include bank accounts, mutual funds, stocks and bonds, life insurance cash value, IRAs, and retirement plans. As you can see, there is virtually no limit to what can be considered property.

Although the laws vary from state to state, property is usually divided into just two categories: separate property and marital property.

In general, separate property includes what a person:
(a) brings into the marriage,
(b) inherits during the marriage, and
(c) receives as a gift during the marriage.

On the other hand, marital property is everything acquired during the marriage no matter whose name it's in. In some (but not all) states, marital property also includes the increase in value of separate property.

WHAT IS IT WORTH?

Beth and her husband are getting a divorce. Assume that when Beth got married, she had $1,000 in a savings account. During the marriage, her $1,000 earned $100 in interest and now the account is worth $1,100. She did not add her husband's name to the account. Her property is $1,000, because she kept it in her name only, and in some states, the $100 in interest goes into the pot of marital assets to be divided because that is the increase in value of her separate property. If Beth had put her husband's name on the account, she would have turned the entire account into a marital asset.

Now let's assume that Beth's aunt died and left her $10,000. That is an inheritance. If she put it into an account with her name only on it, then at the divorce, it is her separate property except for the increase in value. It is the same with a gift. When she received the gift or inheritance, if she put it into a joint account, she turned that money into marital property.

Beth saves $100 of her paycheck every month. She puts this $100 a month into an account with her name only, and now it is worth $2,600. At her divorce, is this money separate or marital property? This is fairly straightforward. It is marital property because it is acquired during the marriage, no matter whose name it's in.

What if Beth owned stock worth $10,000 when she got married? On the day of the divorce, it is worth $9,000. Is that a $1,000 marital loss? Yes. If there is a marital increase on one asset, it can be offset with a marital loss.

Assume that when Beth got married, her husband gave her an eight-carat diamond ring. Let's assume that they are in court and she is testifying that the ring was a gift from her husband so it is her personal property. He says, "Are you kidding? I would not give you an eight-carat diamond. That was an investment, so therefore it is marital property." The judge decides. Typically, however, women get to keep their jewelry, their furs, and similar types of gifts. Men get to keep their tools, their guns, and their golf clubs.

What if Beth's husband had given her an $80,000 painting for her birthday? She claimed it was a gift and he claimed it was an investment and therefore should be treated as marital property. In this case, the judge did deem that it was an investment and was considered marital property. But remember that you can never predict what the judge will decide!

What happens when both parties want the same item? Let's say Beth and her husband had divided all their property except for one item. They couldn't agree who was going to get the set of antique crystal that had come from England. They both wanted it so badly that they ended up spending $60,000 in court to decide that one issue. Seems absurd, but it happens every day. At $60,000, they could have each bought a set of crystal and a trip to England!

Most often, the home furnishings are not included on the list of assets because the couple just divides the items. If they are to be valued, the typical value is what you can get at a garage sale.