Dividing Property and Debt During Divorce

Learn all about dividing assets in a divorce, including the difference between community property and separate property, what happens to the house, and how to avoid court.

How to divide property and debt is often a big issue to navigate in a divorce. After all, even if they're on friendly terms, spouses can have very different ideas as to what's fair.

When divorcing spouses can't agree on property and debt division, they have to go to court, where a judge will apply the state's laws to craft a property division order. Many divorcing couples, though, are able to reach an agreement outside of court.

Regardless of how you'll resolve your divorce, understanding the basic legal rules can help you make informed decisions as you go through the process.

How Will Courts Divide Property and Debt in a Divorce?

Depending on state law, courts normally use one of two approaches to divide marital property and debt: community property or equitable (common law) distribution.

  • Community property. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are all community property states. Under community property laws, a judge must classify all marital property—property acquired during the marriage—as either community property (owned by both spouses) or separate property. The judge will divide community property equally between the spouses, and each spouse will keep his or her own separate property. (A few states, including Alaska and Tennessee, offer a hybrid form of community property division under which couples can agree to treat marital property as community property.)
  • Equitable distribution ("common law"). In all non-community property states, judges must first determine what property is marital property and what property is separate property. The judge will then divide all marital property equitably (fairly)—but not necessarily equally—in order to make the settlement fair to both spouses.

Division of property doesn't necessarily mean a physical division. Instead, the court might award each spouse a percentage of the total value of the property. Each spouse will get personal property, assets, and debts whose worth adds up to a fair percentage. (It is illegal to hide assets in order to shield them from property division.)

What's the Difference Between Community Property and Separate Property?

If you live in a community property state or have opted to treat some or all of your property as community property (possible in only a few states), the general rule is that spouses equally own all property either one acquires during the marriage.

However, there are exceptions to the general rule—some property is classified as separate property or commingled property. The following general descriptions can help you classify your property.

Community Property

Community property includes:

  • all income earned by either spouse during the marriage
  • all items purchased with money either spouse earns during the marriage
  • separate property that has been mixed with community property to the point that it can't be split out, and
  • all debts incurred during the marriage, even when only one spouse signed the paperwork for the debt.

Separate Property

Separate property belongs to only one spouse. It can include property acquired before and during marriage. It includes:

  • money held by one spouse before marriage
  • property owned by one spouse before marriage
  • gifts made to only one spouse during the marriage
  • inheritances received by one spouse during the marriage
  • personal injury awards received by one spouse during the marriage
  • pension proceeds that vested (that the spouse became legally entitled to receive) before marriage
  • property purchased with separate funds
  • any business owned by one spouse before the marriage (a court might find that a portion of the business is community property if it increased in value during the marriage or both spouses worked in the business), and
  • commingled separate property (separate property that is mixed with community property during the marriage).

Commingled Separate Property

Commingled separate property is made up of both separate and community property. When a spouse mixes separate property with community property during the marriage, the separate property can become partially or wholly community property. For example, when one spouse puts separate property money into a checking account used by both spouses, the separate property funds likely become community property. On the other hand, a court might consider property purchased with a combination of separate and community funds as part community and part separate property, so long as a spouse can demonstrate that separate property funds were used to make the purchase.

Who Gets to Stay in the House During a Divorce?

Which spouse remains in the family home depends on the circumstances. Although judges will look to see who holds the title to the house, the name on the title doesn't determine who will stay in the family house.

  • If you don't have children and the house is in one spouse's name: If you are in a community property state and the house is the separate property of one spouse, the owner spouse will generally be able to keep the house and has the legal right to ask the other to leave. In all states, though, if the spouse whose name isn't on the deed can show that shared funds were used to pay for the house or makes another compelling argument why the house is shared, the judge will make a determination based on what's fair or equitable.
  • If the house was acquired during marriage: In most cases neither spouse has a greater claim to the house than the other. One spouse can request that the other leave, but neither can force the other to leave. While the divorce is pending, either spouse can ask the court to issue a temporary order on who can remain in the house. Ultimately, if the spouses can't agree on who gets to stay in the house, the court will decide how to divide it.
  • If you have minor children: Often, a judge's consideration of what's in the best interests of the children weighs in favor of allowing the children's primary caregiver to remain in the marital home during and after the divorce.

When allowing one spouse to remain in the family home is unfair to the other spouse or results in an uneven distribution of property, judges often will award the home to one spouse on the condition that the spouse pay the other to make up for the imbalance (a "buy-out").

Can We Divide Property on Our Own?

Couples can maintain control over how marital property and debts are divided by negotiating a settlement agreement. Some couples might be able to work together on their own to divide property. For couples who need help to reach a settlement, though, divorce mediation is a great option. Courts often require divorcing spouses to participate in (free or low-cost) mediation. Alternatively, spouses can hire a private mediator to assist them.

In mediation, the spouses work with a mediator, who is a neutral third party, to discuss any unresolved divorce issues. Mediation can occur in person or online. During mediation, the mediator will guide the couple through the topics that need to be addressed and suggest. The mediator doesn't provide legal advice or make any decisions. If the spouses reach an agreement on how to divide their property and debt, the mediator will normally create a property settlement agreement for them to sign and submit to the judge.

If mediation fails and the couple can't agree on how to divide property and debts, either spouse can request help from the judge. Because mediation is confidential, neither spouse can use any of the statements or discussions that occurred in the unsuccessful mediation against the other.

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