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Property In A Divorce
by Andrew H. Sargent, MbA, JD

Property Issues
The information below is based upon Washington State law however the general principles are followed in most community property states. Do not rely upon these articles but check with an attorney licensed in your state to determine your particular rights based upon the facts of your case and the most recent cases.

General Principal
Each party owns one half of the assets and owes one-half of the debts. However, the court does not have to split the property and debts exactly equal. It can "award assests and debts" unequally in order to achieve a "fair distribution." i.e. give more debts to the higher income earning spouse. No one said life was totally fair. (If you find a place where it is please advise me immediately)

Debts and Liabilities.
Remember - if the debt is "awarded" to your ex then the ex is responsible to pay the debt. However, if he/she does not pay the debt then you most likely are still liable if the debt was jointly incurred. Creditors don't really care what the judge says. They can still move against you and the court order is usually not a defense.

This means if your name in on the credit card, dept. store account, bank loan, on the car loan or on the car title - then you could still be liable. Be sure to talk to you attorney and make sure your name is off all titles, loans and credit cards. I have seen a credit card case where they came after the other spouse 8 years after the divorce because both names were on the application. (Don't ask what happened. It is a California case and still in the courts.)

Classifications of Property
All property is classified as:
  1. real property - land and building
  2. personal property - cars, boats, jewelry - things - including stocks, bonds and patents.

All property, both real and personal then can be classified as either Community or Separate property depending upon when and how it was acquired

Separate Property (acquired before or after marriage)
Separate property is property acquired before marriage, after the date of separation or by gift or inheritance. It belongs to whom ever earned, inherited or received the gift of it.

Date of Separation
The day you separate with the intent to end the marriage. Usually the date one party moves out of the home. However, even this date can be disputed in some cases.

Community Property (acquired during marriage)
Community Property is property acquired by work effort between the date of marriage and the date of separation. How title is held does not matter. Each spouse owns one-half. You are not giving you ex anything when he/she takes one-half. Nor are you taking anything from them when you take one-half. Property acquired by gift or inheritance is separate property and is not community property. It belongs to whom ever received the gift or inheritance.

Transforming Property
Property can be changed from one type to another by agreement or by actions. For example if the spouses execute a community property agreement, add their spouse onto title of real or personal property, put the money into a joint bank account the separate property can become community. Or if the property is so co-mingled (mix together) that it can not be traced then is all is community.

Alternatively, the community can gift community property to one spouse as her/his separate property. This generally is an issue of fact that will need to be prove to determine the actual status.

Mixed Status
Many times there will be a mixed status. For example a pension. Assume the spouse worked 10 years before marriage and 10 years doing the marriage. The pension is mixed as to separate and community.

Property	Husband	Wife
10 years or one-half is separate property	50%
10 years is Community property	25%	25%
Total	75%	25%

Thus in this example the wife would own 25 % of the pension. This could be cashed out to her, offset by other assets or paid out each month a it is paid by the pension fund.

One Business- Four Possible Outcomes

A business could be evaluated the same way. Assume 10 years before marriage and 10 years during the marriage. Now assume each of the four fact patterns below. The ownership will depend upon the salary taken and the community investment and effort put into the business.

Outcome 1. It is all separate property.
If the spouse did nothing and had professional managers run the business then it would most likely stay separate property. No community effort or assets were used. Marriage alone does not change the status and we are assuming they did nothing to change the status.

Outcome 2 It is all separate property.
The spouse worked full time in the business but paid themselves $100,000 a year which was put into the joint checking account. Here the court could hold the spouse was paid a fair salary and the salary belongs to the community but the business remains separate.

Outcome 3 It is mixed.
The spouse worked full time in the business but did not pay themselves well and left the money in to grow the business. Here the court could hold that the appreciation is community but the starting point remains separate.

Outcome 4 It is all community property.
The spouse worked full time, the community put in money, the other spouse was active in the business as an equal partner. Here the court could hold the parties transformed the separate property into community property.

Huh? I'm confused!

Welcome to the club. Now you see that although the rules seem simple the applications gets tricky due to the facts, faulty memories and misunderstandings. Be sure to discuss all facts and aspects with your attorney and don't try to determine it yourself.

The Family Home
There is nothing special about the house except the emotional attachment both people have for it. Usually this is the biggest assets. Pensions usually come next. If you want the home be prepared to give up other assets so the division is fair. Make sure you can afford the payments. Many times the low income spouse takes the house, can not afford it and sells it in a couple of years. This can cause a large income tax bill which could have been avoided at the time of the dissolution.

Income Tax Issues
Transfers between spouses are not a taxable event. The cost basis goes with the asset to the receiving spouse. Be sure to discuss the tax impact with your attorney when planning the division of community property.