You and your spouse were partners. And during your marriage, worked hard to achieve your financial goals and enjoy a comfortable lifestyle.

But now that you’re facing the end of your marriage, you need to understand more about how are assets divided in a divorce and how who gets what is determined.

For many couples getting a divorce, splitting assets (and debt) is one of the most difficult issues to resolve because the general rule is to ensure everything is divided fairly. But what does that even mean?

To help you understand what you can do to protect your assets and make sure they don’t wind up wasted on a contested divorce in court or outrageous attorney fees, in this post we’ll cover:

• The differences between separate property and marital property, and how property can change from one form to another and sometimes be both;
• How dividing assets in divorce depends on the state which you live in;
• How the method you use to end your marriage can also significantly impact how the division of your marital estate will take place;
• And how to maintain control over your divorce asset split

* This post is for informational purposes only and should not be construed as legal advice, financial advice, or counsel.

Generally speaking, assets are either marital property or separate property.

• Marital property typically includes: any assets acquired by either spouse during the marriage, regardless of who made the purchase, or whose name is on the title.
• Separate property typically includes:  any asset owned by either spouse prior to the marriage, an inheritance either spouse received prior to or during the marriage, personal property or gifts given from one spouse to the other spouse, or received from others, and proceeds received for pain and suffering in a personal injury lawsuit.

When it comes to dividing assets in a divorce, marital property are considered divorce assets, whereas non marital assets are considered a spouse’s separate property. In my experience, the longer a couple is married, the less of a chance they have both separate and marital property as over time, everything becomes commingled. But like everything, there can be exceptions as you’ll soon learn.

Let’s say you owned real property such as a home prior to the marriage and after you got married, you added your spouse to the title so you could be co-owners. And used joint funds to make the mortgage payments moving forward. In this example, you converted separate property into marital property. Or you each had individual checking accounts before you got married, then combined them into one joint account. That commingled property is now also considered marital property. And both the house and the checking accounts would be subject to negotiation between you during your divorce.

Incidentally the opposite is also true – you can convert marital property to separate property if you and your spouse both agree in writing. But that’s another post for another day.

Let’s say when you and your spouse first started your current jobs you were both single. You each enrolled in your company’s 401(k) plan, and for the next 6 years you and your spouse contributed to your respective accounts. And, after you got married, you still continued to contribute to those very same accounts.

Flash forward 15 years – and you and your spouse are divorcing. In this example, your retirement plans – the 401(k)s – are both separate property and marital property. So in theory, a portion of each of your respective retirement plans would be retained by only one spouse, and a portion would be subject to distribution between you, with the other spouse possibly receiving a share of your investment account, or vice versa.

– Dividing property that is both separate and marital is a complex topic outside the scope of this post.

What happens if you or your spouse owned a rental property prior to marriage that was completely self-sustaining – meaning, no marital funds were used for its management or upkeep. Then, at the time of your divorce, it had doubled in value?

If the appreciation in the value of the house was due to market forces outside your control (passive), then that appreciation is most likely considered non marital property. But if the rental property increased in value because you both spent your free time renovating and improving it, then possibly yes, that growth could be considered marital.

Here in the United States, dividing assets and debts in a divorce follows one of two different methodologies: either Equitable Distribution or Community Property Division. In Community Property states like California and Washington state, both spouses are generally considered equal owners of all marital property and debts. So the going in supposition is generally a 50-50 split. Unless the parties otherwise mutually agree in writing.

Whereas in Equitable Distribution states like New Jersey, New York, Illinois, and Pennsylvania, there should be a “fair division” of a couple’s marital property and debt – but not necessarily equally.

So as you can see, state law where you live is one of the factors that can play a role in how the financial aspects of your divorce are handled. But there’s more to it than that.

• During a divorce, assets are generally classified as either marital property (acquired during marriage) or separate property (owned before marriage or received as inheritance/gifts). This difference plays a crucial role in determining how assets are divided.
• Separate property can transform into marital property through actions like combining accounts or adding a spouse’s name to a title. This process, known as commingling, becomes more common the longer a couple is married.
• Some assets, like retirement accounts started before marriage but continued during marriage, can be both separate and marital property at the same time. This creates a more complex situation that requires careful consideration.
• The state you live in significantly impacts how assets are divided. Community property states typically split marital assets 50-50, while equitable distribution states aim for a “fair” division that may not be equal.
• Working together through mediation or collaborative divorce gives couples more control over their property division compared to letting a judge decide.
• Some assets are more complicated to divide than others. For example, retirement accounts require special legal documents (QDROs) and professional assistance to split properly, while bank accounts can be divided more simply.
• The fairness of asset division isn’t just about splitting things equally – it’s important to consider whether assets are pre-tax or post-tax, and whether their values might change over time.