If you are considering entering into a separation agreement, it is in your best interest to seek out advice from an experienced attorney before signing anything related to property matters. Oftentimes, these can become complicated because a couple failed to do some research and had unrealistic expectations when it came to how their property would get distributed. 

There are some basics to know in general about what occurs to your property once you and your ex-spouse decide to separate. The courts will divide your assets under one of two basic schemes: community property or equitable distribution. The main difference between community property and equitable distribution is that in community property states, there is an absolute 50-50 split of all property obtained during the marriage. However, in an equitable distribution state, more assets may be considered “marital property,” but the split is not necessarily 50-50.

How Does Community Property Function? 

There are nine states that are considered community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, all property of a married person is considered as either community property (owned jointly by both spouses) or the separate property of one spouse. Marital property usually refers to all of the property acquired by either or both spouses during the marriage. Separate property refers to any property the spouses accumulated separately before the marriage or after separation (or in some states after divorce). 

Separate property also includes any gifts or inheritances obtained by either spouse at any time. There are few exceptions to these basic rules, which are described more in detail in each state’s property laws.

Couples in Alaska can choose a community property system like the one described above. In South Dakota and Tennessee, spouses can have a more modified community property approach by transferring specific assets or property into a valid community property trust.​

How Does an Equitable Distribution Function? 

In the remaining states, assets and earnings acquired during marriage are divided equitably (justly), but not necessarily equally. In some of those states, the judge may order one party to use separate property to ensure that the settlement remains fair for both spouses.

It is important to keep in mind that division of property does not entail a physical division. A family court may award each spouse a percentage of the total value of the property. In that instance, each spouse will get personal property, assets, and debts whose worth adds up to an assigned percentage. It is crucial that either spouse does not hide assets in order to shield them from property division. 

If you are guilty of committing this type of fraud, a court could punish you with sanctions in some states by awarding a percentage of the value of the hidden asset to your spouse. In California, if you intentionally and fraudulently hide an asset from your spouse during the divorce, a court may award 100% of that asset to your spouse as a punishment for the illegal actions. 

How Does a Court Establish a Fair  Division of Marital Property?

A court will review a number of factors in determining how to distribute the marital property. Below are some factors that a court will examine:

  • The financial condition and earning ability of each spouse; 
  • The value of each spouse’s separate property, including a spouse’s business, business interests, retirement plans, 401(k) plans, stocks, bonds;
  • The degree to which each spouse contributed to the accumulation of marital property; 
  • The degree to which each spouse contributed to the education and earning ability of the other spouse;
  • Future financial needs and liabilities of each spouse; 
  • The ages and overall health of each spouse; 
  • The liquidity of marital property
  • Premarital and prenuptial agreements and;
  • Spousal maintenance or alimony obligations.

How and When Does a Court Value Marital Property?

Marital property is usually valued by the fair market value at the time the marital litigation is filed. However, if a period of months or years have passed before a divorce decree becomes final, some states will  allow the parties to share in the appreciation or depreciation of marital assets between the date of separation and the date of divorce. 

Marital property is generally classified by state law. Typically, marital property includes that property that was obtained during the marriage from marital funds regardless of whose name is on the legal title to the property. Marital property rights mostly depend on state laws.

As discussed above, some states are community property states which consider all property and income accumulated during the marriage as marital property. Most states are equitable distribution states which require that marital assets be divided fairly but not equally. Still other states may allow the parties to decide which type of distribution model to utilize.

Marital property is different from separate property, which is usually not divided during the divorce or separation process. Separate property has property that was owned prior to the marriage and that was acquired through the use of separate funds. It also can be property that was received as an individual gift or inheritance. But sometimes property is commingled, such as an account that had separate funds in it before the marriage and then was used as a joint bank account. If the original source of funds cannot be traced to separate funds, the asset is generally considered marital property.

What are Property Settlement Agreements?

A married couple may enter into a property settlement agreement as part of a legal separation or an agreement before their divorce is being finalized. The agreement may lay out specific agreements regarding property issues that may arise after a legal separation. Usually, the parties are required to provide financial disclosures to each other so that they can make informed, reasoned decisions. 

A property settlement agreement may mandate that the parties have received the advice of counsel and that they voluntarily are agreeing to the terms. It may also state that the agreement can be used as evidence in the divorce case or be incorporated into a final decree of divorce. 

The property settlement agreement may also specify the value of certain property the couple owned and list out the personal and real property that each party will receive. The agreement may discuss arrangements concerning vehicles, retirement accounts and other specific assets. In general, this agreement is a contract between the parties. It can also have provisions that are not economic in nature, such as provisions concerning child custody or visitation. Usually, this agreement will not have to be filed with the court in order to be effective and will stand as an independent contract until it is incorporated into a formal legal order.

As mentioned earlier, property is considered separate if one of you owned it prior to your marriage or you inherited it during your marriage. Funds acquired as a gift during the marriage may also be deemed separate property. However, separate property can lose its separate nature if it is commingled with marital property.  For instance, if one person owns a house or a condo prior to their marriage and then adds their husband or wife to the deed after marriage.

When Do I Need to Contact a Lawyer?

If you are contemplating your marriage and have concerns about distributing your property among the both of you. It is recommended that you seek out an experienced family lawyer to resolve these issues before they get more complicated for you.