Diving Your Assets and Liabilities During Your Divorce Can Become Complicated, but it Doesn’t Have To
For couples going through a divorce, the division of assets and liabilities can be a challenging experience. It is important to know that Florida is not a common law jurisdiction, it is an equitable distribution state. The presumption is that all marital assets and liabilities shall be shared in value as close to equal as possible.
In most divorce proceedings, we typically follow a set pattern to reach an equitable split of assets and liabilities. First, all martial and non-marital assets and liabilities are identified. Then the values are determined. Lastly, the marital assets and liabilities are divided equally between you and your spouse. Of course, there are exceptions to every rule, and there may be assets or liabilities that are not split in half, or that may be removed from the marital estate and considered non-marital for purposes of property division and equitable distribution. It is common to engage the services of an accountant or an appraiser to determine the value of an asset during the divorce.
Our main asset is the house. How do we split it?
It is common for the largest marital asset to be the marital residence. Depending upon how much equity you have in the home, it can be sold, with the net sale proceeds being split equally, or one spouse can keep the house and buy the other spouse out of his or her share of the equity by taking a loan or with some other asset. I caution the spouse who wants to keep the home for the children. The marital residence is often the largest marital asset, and it is also usually the most expensive asset to support on a monthly basis. Often times, one spouse will want to keep the house without realizing how expensive it will be to maintain and realize after the fact that he or she is “house poor”. Being house poor means you cannot afford any other luxury or fun because all of your disposable income is used to support the house.
If the amount of the loan or loans you owe in connection with the marital residence exceed the value of the marital residence, it might not make sense to sell the home during the divorce, and you and your spouse can elect to wait until you have acquired equity in the residence before selling it. Either you both can move out and find a tenant, or one of you can stay and support the residence until the residence can be sold for a profit.
I am entitled to a pension. Do I have to split that?
Assets, such as IRAs 401(k)s and pension plans are distributable in a divorce. Generally, the value will be determined by looking at the value of the asset at date of the marriage and the value of the asset at the date of filing the dissolution of marriage action. You and your spouse will each be entitled to one-half of the marital portion of each retirement plan. If you have a pension, then an order will be entered requiring the pension to pay your spouse directly his or her share of the marital portion of the pension when it is in pay status.
Regardless of whether you have IRAs or 401(k)s or other retirement assets such as annuities, they will be equitably divided. That means that it is not necessary to split each asset equally, but one can be offset by another. For example, if you have an IRA with $20,000.00 and your spouse has an IRA with $40,000.00, then in order to equitably distribute the two (2) IRAs, your spouse would transfer from his/her IRA to you the sum of $10,000.00. The off-set number is determined as follows: You owe your spouse $10,000.00 from your IRA and your spouse owes you $20,000.00 from his or her IRA. Deduct what you owe your spouse from what your spouse owes you, and you are owed $10,000.00. After you receive your $10,000.00 from your spouse’s IRA, you each have $30,000.00 in an IRA.
My spouse has stock options. Am I entitled to those?
If you or your spouse acquired stock or stock options during the marriage, those stocks or options can be distributed in a divorce. Stocks can be equally divided meaning each spouse receives exactly half of the asset. Stock options can also be distributed. The most effective way to distribute stock options are to place a constructive trust over them. A constructive trust means that the stock options you may be entitled to are still held by your spouse, but they must exercise them at your request, and you are to receive the benefit of the option or sale. Your attorney will know how to create an agreement or order regarding the constructive trust over stock options.
Can my spouse take any of my inheritance?
Many divorce litigants receive inheritance during their marriage. Depending on how the inheritance was received and what was done with it will determine whether your spouse is entitled to any of it. For example, if you received bank accounts from your mother upon her death and you never transferred those funds into a jointly titled account or never deposited those funds into an account where you deposited marital money, your spouse should not be entitled to any of your inheritance. If you received moneys and deposited them into your joint checking account, those funds could be considered co-mingled and you might have to split them in some manner with your spouse.
We have a lot of credit card debt in my name. Will my spouse have to pay for half of it?
Liabilities are also equitably distributed in a divorce. If you and your spouse have several credit cards with large balances that are not paid off each month, it is likely that you and your spouse will each be responsible for half of the total credit card debt. If it is all in your name, you will want to make provisions for your spouse’s share to be paid in some fashion. You do not want to have to wait each month to see if he or she has paid her half. If you are assuming the marital credit card debts, you should seek the debt to be offset by an asset. For example, if you also have a retirement account that will be split equally, you might negotiate for your spouse to receive less of the retirement account to cover his or her share of the credit card liabilities. Of course, credit card debt is after tax debt and retirement account monies can be before tax monies, so the retirement account monies that are paid to cover the credit card liabilities should be tax effected.
If you have no assets and are going through the divorce process and have only liabilities, your attorney will work with you to figure out the best methods of paying off the liabilities. You and your spouse should discuss contacting the individual creditors to settle the account for less than what is owed, or if you cannot afford your marital residence, consider a short sale. You should always discuss these options with an accountant to understand the tax consequences of these actions.
We have a family business. How does that get divided?
Family businesses are common and easily dealt with in a divorce. Generally, a forensic accountant can review the business accounts, books, inventory and other items to determine the value of the business. After the value is determined, it can be distributed in the divorce. If you are the spouse operating the business, you will want to receive the business in the divorce and you will likely have to buy out your spouse of his or her share. If you and your spouse cannot decide who should keep the business, you can elect to remain in business together – though that is not recommended, or you can agree to sell the business and split the net sale proceeds. Your attorney will help you make the best decision for you.
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