“It’s just stuff,” you might say – but “stuff” is important. And it is important in the context of domestic litigation.
Dividing property during a divorce can be a difficult task, especially when both spouses share significant assets. A house, retirement plans, businesses, rental property and brokerage accounts may take time to build together; separating these assets can take more time and emotional energy if both individuals cannot agree the best way forward. Even in amicable situations, deciding who should get what is challenging. A contentious divorce can make things more difficult. I’ve seen people take a stubborn stand with regard to a coffeemaker – it’s not pretty.
In general, your primary focus should not be to divide assets based solely on current dollar value or, with the exception of heirlooms and such, emotional tie. Understanding which assets are in your best interest for short-term and long-term financial security, and developing a plan along those considerations, is generally the better approach.
Of course, having a thorough understanding of each asset will aid in your decisions. I am more than happy to guide you through this process, ascertaining what assets are worth fighting over (hint: you can buy a new coffeemaker), what the tax implications of certain assets may be, as well as other considerations.
Non-Marital and Marital Property
Before determining which property to divide, you will want to consider the legal difference between non-marital property and marital property. Details may differ among states, but for those of you in Charleston, Summerville, and every area in between, non-marital property is defined as:
- Property acquired by inheritance, devise, bequest or gift from someone other than the spouse.
- Property acquired by either party before the marriage and property acquired after the happening of the earliest of either: (a) a temporary order in divorce/separate maintenance action; (b) formal signing of written property or marital settlement agreement; or (c) the entry of permanent order of separate maintenance or of an order approving property/marital settlement agreement.
- Property acquired by either party in exchange for property in the first or second part above.
- Property excluded by written contract.
- Any increase in value of non-marital property, except to the extent that increase in value happened because of effort from other spouse.
While these cover non-marital property, any one of the above may lose that status if all or a portion is commingled with marital property to the point where it becomes impossible to trace which is which. For instance, a deposit from an inheritance into a joint bank account will most likely be considered marital property. This is called “transmutation.” Other ways that non-marital property may be considered transmuted:
- Property is utilized by both spouses in support of the marriage
- Property is titled jointly
- Property is otherwise used by the spouses in such a manner that it shows an intent by the spouses to make that property marital property.
With some exceptions, all property acquired during your marriage becomes marital property. Although many people assume that they are not entitled to property held only in the other spouse’s name, that’s not necessarily true. Here in South Carolina, marital property is generally defined as:
- All real and personal property acquired by parties during marriage, and which is owned of the date of filing or commencement of marital litigation, regardless of how legal title is held.
- Enhancement/appreciation of marital assets due to efforts of either spouse during marriage.
- Gifts between spouses during marriage.
- All vested and non-vested benefits/funds accrued during marriage.
- Real property held by parties as joint tenants with right of survivorship, whether acquired before or during marriage.
Different types of marital property may include all or portions of pension plans; 401(k)s; IRAs; bonuses; commissions; bank accounts (checking and savings); real estate; tax refunds; vehicles and boats; life insurance; annuities; closely held businesses; mutual funds, stocks and bonds; deferred compensation; country club memberships; antiques; personal injury settlements; and more.
Generally, when it comes to matters of retirement plans and the like, increases during the marriage from separately owned property—such as a 401(k) that predates the marriage—is also considered marital property. There are some states, however, that differentiates how the appreciation of the property is determined for marital property purposes.
I am fortunate that this web site receives traffic from outside of the Charleston, South Carolina area. For those from the outside of our wonderful state looking in, knowing whether you reside in a Community Property state or Equitable Distribution state is helpful in determining how both categories of property are treated. In Community Property states, both spouses are considered equal owners and marital property is divided equally. Currently, there are nine states that follow Community Property laws.
For those here in South Carolina, know that the Palmetto State is not one of those nine.
Equitable Distribution applies to the remaining 41 states, including our beautiful state. Equal settlement of property is not required in these states; however, the expectation is that property division will be fair and equitable. As such, in most cases, the Court will begin with a 50-50 approach, and several different factors may determine whether the Court advances the proverbial football away from that proverbial “50-yard line.” In fact, 16 different factors are considered, when appropriate and applicable:
- Desirability of retaining the marital home when (a) it is desirable to do so, (b) it is in the best interest of a child or party, and (c) it is financially feasible to retain.
- Need for additional training or education in order for a spouse to achieve one’s income potential.
- Vested retirement benefits of each spouse.
- Contribution to the marriage by each spouse, including care and education of kids, services as a homemaker.
- Support being paid or received by either spouse with respect to any prior marriage or child.
- Separate maintenance (temporary spousal support) or alimony which has been awarded.
- The duration of the parties’ marriage.
- Child custody arrangements, insofar as property affects same.
- The physical health of the spouses, and any related special needs.
- The emotional health of the spouses.
- The tax aspects and implications of divorce, recognizing that the high wage earner has the benefit of deductions, while low wage earners have the burden of paying more tax.
- The overall financial and economic circumstances of parties, including each spouse’s income, earning potential, and more.
- Any fault or marital misconduct of the party, whether or not said misconduct is used for a fault ground (i.e. adultery) for divorce, the argument being, “well, he’s the one that ran off with the personal trainer – why should he get half of ___insert item here___?”
- Liens or encumbrances on marital property and separate property/debts.
- Non-marital property of each spouse.
- Other factors necessary to do equity and justice between the parties.
You will be quizzed on these later. Just kidding – it’s quite a bit to remember, and not everything is applicable in every matter, but it is always advisable to keep the criteria and considerations in mind.
Active and Passive Appreciation
Marital property assets can increase in value in one of two ways: active and passive. Active appreciation may occur based on direct or indirect actions by one spouse. An example of this is advice and ideas that your spouse gave that helped your business grow.
Passive appreciation is the result of outside forces such as inflation and other changes in the market. Consider the increase in value in a property even though you and your spouse made no improvements. This would be considered passive appreciation of the asset since neither of you contributed to the increase in value.
Important in considering matters of appreciation, whether active or passive, is understanding the relevant date for determining marital assets. For the sake of valuation, it is important to look at the date of the parties’ marriage, as well as the date of the filing of a Complaint for Divorce, or Complaint for Separate Support and Maintenance. That being said, the Court may consider changes to the value of property which occur after filing – active appreciation (i.e. contributing to a retirement account after filing) is looked upon differently than passive appreciation (i.e. how much the retirement account has increased on its own due to changes in the market).
Dividing Property with Your Spouse
When it comes to personal property, especially those items you have in your house and pass by on an everyday basis, the question I like to ask most is, “is it worth it?” Really, the answer to that question remains inherent to the nature of the property. A couple on the express train to Splitsville has every right to argue over things as small as the contents of the kitchen drawers but, in my experience, arguing over knives and forks is like a baseball coach kicking dirt at an umpire and arguing over balls and strikes: it’s not going to make a tremendous amount of difference, it’s likely only going to make everything a little dirtier, it’s not going to end well, and it’s going to make future engagements a little more awkward.
Some items, of course, are more important than knives and forks. And even for those relatively insignificant items, armed with an understanding of how assets appreciate and the property categories recognized in divorce court, you can begin dividing property with your spouse. The following tips will help you get started:
- Make a List of Personal Assets. List all jointly owned assets and agree on omitting truly insignificant items. For instance, furniture that has little or no value can simply be listed as “family room furniture.”
- Value Items on the List. Agree to a specific amount on the value of assets to consider such as anything at or above $500. Seek counsel from your attorney about a business, residential property or any other difficult item to value. Professional advice from an appraiser may help you to value antiques. An accountant or actuary can help to value pension plans. Any debt associated with an item should be subtracted from the current value.
- Decide on the Logical Owner of Each Asset. The next step is to go through the list and decide who should keep each asset. Begin with the most expensive and trade off on the least expensive items. Keep a tally of the value if you want to have an equal split of the total.
Most importantly, remain open and honest with your attorney—whether it’s me or anyone else—and spouse about everything you have gained throughout the marriage. Whether it is a secret bank account opened years before or the real value of your pension plan, serious penalties may arise from hiding property during divorce proceedings.
Overall, though, it is just “stuff.” It may be your “stuff” or it may be the other spouse’s “stuff.” As a husband and father who always keeps an eye on the budget and the bottom line, and as an attorney who believes that he’ll get more referral business from happy clients who have survived this process as unscathed and as inexpensively as possible, keep in mind two important things:
- The more you do, in terms of valuing assets and engaging in reasonable discussion with your spouse about those assets, the less that any attorney—whether it’s me or anyone else—will have to do, and the cheaper things will ultimately be.
- There is a value in moving on, turning a page, and starting anew. We can fight ‘till we drop for every stitch of fabric and every piece of wall art in your house, but often folks find that letting go of some items—even some treasured ones—makes the process easier and quicker, and that being able to move forward that much quicker rather than dwell on things is worth a whole lot more than some dumb coffeemaker.