Dividing Property and Debt During Divorce

Learn about splitting assets in divorce, including the difference between separate and marital property, what happens to the house, and how to avoid court.

By , Legal Editor

When you're navigating the end of your marriage, one big issue will be dividing your property. Whether you plan to get a do-it-yourself divorce or hire a lawyer, understanding the basic legal rules can help you make informed decisions as you go through the process.

Splitting Assets in Divorce: Property Agreements vs. Going to Trial

When it comes to divorce and property, you may think the most important question is who gets what in the divorce. Of course, that's the bottom line at the end of the process. But the first question is whether you and your spouse can agree on how to split assets and debts rather than have a judge decide for you. That's because the cost of divorce shoots way up when you go to trial.

We'll talk more below about how to prepare a divorce property settlement—including how to get help when you're having trouble agreeing with your spouse, and what happens after you've signed an agreement. For now, you should know that as long as both you and your spouse agree, you're free to come up with any way of dividing your property that you want—regardless of how a judge would decide on the issue under your state's laws. Still, the judge might not approve your agreement—a necessary step before getting your final divorce—if it seems unfair.

How Do State Laws Affect the Division of Property and Debts in Divorce?

Even if you hope to avoid trial by working out a property settlement, you should understand the basic legal rules of property division. Those rules will be in the background when you're negotiating with your spouse, because they'll govern a judge's decision on the issue if it comes to that.

The rules on property division in divorce are based on state law, and there are some significant differences from state to state. But the general principles are similar across the United States.

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

In most (but not all) states, only your marital property will be divided in divorce, while you and your spouse will each keep your own separate property. But how do you know which assets are marital and which are separate?

As a general rule, marital property includes any money or other assets that either spouse earned or acquired during the marriage—unless they both signed a written agreement (such as a prenuptial agreement) to keep some or all of that property separate.

Separate property typically includes:

  • property that a spouse owned before getting married
  • inherited property or gifts to one spouse, and
  • part of some personal injury awards.

There are a few differences in how states define separate and marital property. In some states, for example, the rule on property "acquired during the marriage" doesn't apply after separation. That means that once a couple permanently separates, each spouse's earnings are their separate property, even though they're still legally married.

The distinction between separate and marital property can sometimes get complicated, such as when couples mix ("commingle") separate and marital funds in a bank account, or when they use money from a joint account to make improvements or mortgage payments on a house that one spouse owned before they got married. But the distinction won't matter in a few states, where the laws allow judges to include all of a couple's assets and debts (both separate and marital) in the property division.

Equitable Property Division in Divorce

Most states use a rule known as "equitable division" when judges divide marital property in divorce. Basically, this means that a couple's marital assets and debts will be distributed between them in a way that the judge believes is equitable (fair) under the circumstances in the case. It does not necessarily mean that the property will be split equally.

Although the decision of what's fair in your case will ultimately be up to the judge, state laws do provide guidelines. Some of the typical factors judges must consider include:

  • the couple's debts and other liabilities
  • whether one spouse contributed to the other's education or dropped out of the workforce to care for their children
  • both spouses' economic circumstances, age, and health
  • the tax consequences of the property division
  • whether one spouse has wasted marital assets, and
  • whether it makes sense for one spouse to keep certain property, like a business or the family home (more on that below).

Dividing Assets in Community Property States

Nine states in the U.S. use the community property rules for determining the ownership of married couple's assets and debts:

In those states, both spouses share joint ownership of all marital (or community) property. Historically, the laws in these states presumed that community property should be equally divided between the spouses. But several of these states have been moving away from that equal division requirement. For instance, Texas and Arizona simply call for a fair division of community property. And while both California and Nevada call for an equal division, Nevada allows an exception when the judge finds a compelling reason for an unequal but fair distribution of the marital property. (Ariz. Rev. Stat. § 25-318; Cal. Fam. Code § 2550; Nev. Rev. Stat. § 125.150; Tex. Fam. Code § 7.001 (2022).)

A few of the equitable division states—including Florida, Kentucky, and Tennessee—allow couples to opt into the community property system or identify certain assets as community property, often by creating a special trust.

What Is an Equalization Payment?

Of course, when we're talking about property division in divorce, that doesn't mean physically splitting each asset between the spouses. Usually, judges will assign each spouse a percentage of the total value of all the couple's marital property (sometimes called the marital or community estate), minus their debts. Then, the judge will distribute assets and allocate debts so that each spouse's share of the estate comes up to the assigned percentage. Couples typically go through a similar process when they're working out a property settlement agreement.

But what if a couple owns one piece of property—like a house—that's worth far more than all of their other assets combined? We'll talk below about different ways of dealing with a house in divorce. But this problem can also come up when couples have two valuable assets that don't balance each other out (like retirement accounts), and there aren't enough other assets to make up the difference. One solution is to have the spouse who gets the more valuable asset make what's known as an equalization or equalizing payment to the other spouse. (Despite the name, this kind of payment may also be used in states where the property division isn't necessarily equal.)

Obviously, the cash for an equalizing payment must come out of the paying spouse's separate property, share of the marital property, or a combination of the two. When that spouse doesn't have enough cash to cover the amount, the judge might order future installment payments. But if you're considering a settlement agreement with this type of arrangement, you should be aware of the potential pitfalls and speak to an experienced divorce lawyer first.

How Is Your House Divided in Divorce?

If you own a house with your spouse, it may very well be your most valuable marital asset. That fact—along with the emotional connection to the family home, especially for children—means that dealing with the house will often be the most difficult part of property division. It's not just a question of who gets the house in the divorce, how the other spouse is compensated for their share of the equity, and whether you should move out during the divorce process. Decisions about the family home are also closely linked to other issues in the divorce, such as child custody, child support, and alimony.

There are several different ways of addressing what will happen to your house after divorce, including:

  • Buying out your spouse. If you want to keep the house, you'll usually need to refinance the mortgage loan to come up with the cash to buy out your spouse and put the property in your name. Of course, that might not always be possible, depending on interest rates and your credit rating.
  • Selling the house. If you can't afford a buyout or another option—or neither of you are interested in staying in the family home—you can sell the house when you divorce and split the proceeds.
  • Deferred sale. If it's possible financially, you and your ex may continue to co-own your house after the divorce for a certain period of time. You might decide on this option—or a judge might order it—when one parent has primary physical custody of children who need the stability of staying in the family home. It might also make sense when the current real estate market is particularly weak. Here again, if you're considering this arrangement as part of your settlement, you should speak with a family law attorney about the risks and how to address them in your agreement.

If the house is one spouse's separate property, that spouse will usually keep it. But if marital funds went to mortgage payments, renovations, and repairs, the other spouse could be entitled to part of the increase in the property's value during the marriage.

Can You Get Divorced Without Splitting Your Assets?

As a general rule, final divorce judgments must include orders dividing the couple's marital property and assigning responsibility for marital debts. But depending on your situation and where you live, you might be able to get what's known as a "status-only" divorce—meaning the judge will issue a divorce decree that legally ends your marriage but doesn't include orders on the other issues in your divorce, including the distribution of your marital property or debts. For example:

  • The laws or courts in some states allow judges to grant status-only divorces. In California, for instance, when one of the spouses requests it, a judge may hold a separate hearing (sometimes called a "bifurcated trial") just for the purpose of granting a status-only dissolution of the marriage. The judge must reserve the legal authority ("jurisdiction") to decide all of the other issues in the divorce later. (Cal. Fam. Code § 2337 (2022).) Other states might allow this kind of bifurcated trial when both spouses agree to it or when the judge decides it would be appropriate.
  • In some situations, you might be able to get a divorce in your state even though the court doesn't have the jurisdiction to issue orders on property division—such as when your spouse and the property are both in another state. In that situation, you would go ahead with the divorce in your state, but then you would have to file a separate legal action in the other state to request orders dividing your marital assets.

Even if you're able to get a divorce without a property division in your state, this could lead to unforeseen tax and other financial consequences. But there might be ways of preventing these outcomes, and a status-only divorce would allow you and your ex to get on with your separate lives (and maybe new marriages) while you continue trying to resolve your property disputes. So you should speak with an experienced divorce lawyer in your state if you're considering this option.

How to Reach a Property Agreement in Divorce

If you and your spouse haven't been married long and own only a modest amount of personal property, it might not be that difficult to agree on how to split it between the two of you. But if you just can't agree—or if you own complicated or valuable assets together—you'll probably need help.

Getting Help With a Property Agreement

There are three basic sources of assistance with property settlements:

  • Mediation. In divorce mediation, you and your spouse will meet with a trained, neutral professional who will guide you through the process of negotiating a settlement agreement. If you haven't reached a complete agreement before you file for divorce, judges in some states will require you to participate in mediation at a certain point during the divorce process. Whether you go through mediation before or during your divorce, the mediator will normally prepare a written document that reflects any agreements you reached during the process.
  • Online divorce. When you use an online divorce service, you'll typically receive a completed settlement agreement that's based on your answers to an online questionnaire. These services almost always require that you have an uncontested divorce—which means that you and your spouse have agreed about all of the issues before you file your divorce papers. But if think you're in agreement, the questionnaire could potentially alert you to any items or decisions you might have overlooked. (In some states, you might also be able to find forms for divorce settlement agreements on state or county court websites.)
  • Hiring a lawyer. There are times when you'll need a lawyer to help you negotiate and prepare a settlement agreement. But even here, you have some options on the attorney's role. You could have an attorney handle everything in your divorce (known as "full-scope" representation). Or, once you and your spouse have agreed on the issues, you might be able to hire a lawyer on a consulting basis to help draft the settlement document or to review the agreement that you or a mediator prepared.

Preparing for a Property Division

Whether you get professional help with a property settlement or work out an agreement on your own, you'll still need to take some preliminary steps:

  • Make a complete list your assets. It's important to be honest, transparent, and complete. If your spouse later finds out that you didn't disclose an asset during your divorce, the judge could reopen your case to reevaluate the property division. Also, you could face other penalties, because it's illegal to hide assets in order to shield them from property division.
  • Value your property. When you're figuring out the worth of each asset, you'll usually start with the fair market value (what you could sell it for on the open market today, not what you paid for it). You can often find this information online, but you might need to hire an appraiser for some assets, especially your house.
  • Identify which assets are marital and which are separate. If you claim that something you acquired during your marriage is separate property, you'll need to back that up with evidence about the source of the asset or the funds used to buy it.

Getting Court Approval of Your Property Settlement Agreement

You must submit your signed, written settlement agreement to the judge for approval. If you're filing for an uncontested divorce, you'll typically include the agreement with all of the other divorce paperwork that you file to start the process. Otherwise, you'll submit the agreement at some point before your final divorce hearing. The judge may ask you a few questions to be sure that you understand the provisions in the agreement and that you signed it voluntarily, without being pressured or coerced. The law in your state might include specific guidance for approving property settlements, but judges usually approve these agreements unless they're clearly unfair.

What About Debts and Credit Cards?

If you took on joint debt during your marriage—like a mortgage, car payment, or tax debt—you'll probably have to split the responsibility for paying that debt when you get divorced. The same is true of credit cards that are in both your names or were used to buy things for the two of you.

There's one important thing you should remember when you're dividing marital debts in divorce. Even when your divorce agreement or judgment assigns a debt to one spouse, that won't change the contract you have with your creditors.

So, for example, say your divorce judgment requires your spouse to pay off a joint credit card. If your ex misses payments, the credit card company can—and will—come after you for payment. Or say your divorce judgment orders you to pay off a credit card, but your ex continues to use the card after the divorce. In situations like this, you'll need to pay the bills and then go back to court and ask the judge to order your ex to reimburse you.

If at all possible, the best way to avoid this kind of problem is to close all joint accounts when you're separating or are planning a divorce. And if your settlement agreement (or the divorce judgment) will require you to pay off a credit card debt, make sure that your spouse's name is removed from the card.

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