Got Stuff? We all do. I’m not talking about your couches, TVs, or your prized collection of Harry Potter Books (oh is that just me?). Rather, today I want to discuss your major assets and debts, i.e. bank accounts, real property, retirement assets, credit card bills, etc. and how we distribute those kinds of marital property items in a divorce.
Over my years of practice, I have developed a 3 step process for dividing your marital property. While the time I spend at each step may differ in each case, this method works in all divorces, big and small. The steps are:
- Identifying what is marital property;
- Valuing the marital property; and
- Distributing your marital property between you and your former spouse.
Easy, right? Let’s dive in.
1. Identifying what is marital property
Many clients that come to my office are unaware as to what they and their spouse own and owe. This can be for several reasons. Sometimes, my client simply was not in charge of paying the bills or managing the finances for the couple. There is no shame in this. Every couple divides up tasks in their marriage, and sometimes my client just wasn’t the one who was in charge of the money.
However, there are some situations where the other spouse may purposely keep financial information from the other. Again, this could be for different reasons. Was your spouse carrying a lot of credit card debt and didn’t want you to know? Did your spouse use money to control you and keep you in the marriage?
Whatever the reason, you need to determine what assets and debts make up your marital estate. So, what kind of assets and debts should you be looking for?
Start with this marital property list to help you identify your marital assets and debts.
- Real Property: the marital home, rental properties (commercial and residential), land, farms, timeshares, and vacation homes.
- Bank Accounts: checking accounts, savings accounts, money market accounts, and CDs.
- Investment Accounts: brokerage accounts, stock accounts, stock option accounts, mutual funds, and ETF accounts.
- Business Interests: partnerships, corporations, and rental properties. Remember, a person can have an interest in a business as a passive investor. Meaning, they don’t have to work at the business as their job to have a financial stake in the company.
- Retirement Assets: 401(k)s, 403(b)s, IRAs (Roth and Traditional), pensions, cash balance pension plans, KEOGH, and annuities.
- Personal Property: vehicles, boats, RVs, campers, planes, jewelry, antiques, art, and other valuable collections.
- Life Insurance: whole life and term life policies.
- Debts: credit card debt, collection actions, mortgages, car loans, personal loans, medical bills, tax liens, and student loans.
Now that you have a list of what you are looking for, we next need to identify where you can find information about this marital property.
Where you can find information about these assets and debts: the tax return
I always start with the parties’ most recent federal income tax return. You may be surprised, but a tax return can tell you a lot about what you own. Here are the types of information I can get from an income tax return:
General Income:
I first look at the type of income the parties take in. This is located on the first page of the return. This can show me if they have business interests, accounts earning interest and dividend income, stocks, rental properties, and even if they have retirement assets (if they are withdrawing monies from them).
Interest and Dividend Income:
The tax return identifies the name of the financial institution where the accounts earning this income are held. While it doesn’t provide a value for the account, at least having the name can help you and your attorney gather this information through other means. We’ll talk about those in Step #2.
Business interests:
Depending on the type of business interest that a spouse has, this information can be located either on an attached Schedule or K-1 form. Again, while these forms don’t provide a value for these assets, they will provide the name of the business, the type of business and, in some cases, the percentage interest that the spouse holds in that company.
Rental Income:
Your tax return will show the amount of annual rent being received and the expenses for the property. It will also provide the address for the property, should it need to be appraised. More about that in Step #2.
Retirement assets:
If your spouse has withdrawn money from their retirement account, either prematurely or not, this will be identified on the first page of the return. While it doesn’t give the name of the account, you will at least know that one exists and can investigate further.
Capital gains and losses:
If your spouse has sold stocks and has either earned or lost money on those sales, this information will also show up on an attached schedule. Again, the value of the accounts will not be listed but the names of the stocks will be.
So you looked at the tax return, what’s next?
Tax returns aren’t the only place to look for marital assets and debts. Do you and your spouse keep financial papers in your home? While many parties are moving to keeping their records on line, some still keep hard copies. If you do, make a copy of them and provide them to your attorney in an organized way. You have every right to that information. While your attorney can get it through the litigation process, it is much cheaper and quicker for you just to make copies yourself and provide them. Also, it avoids a situation of this information “disappearing” when your divorce heats up.
However, if you are like me and keep everything in the cloud, you may be unable to access this information without assistance from your spouse. If you and he/she can work together to gather this information, great! It will save you both money and stress.
However, there are some situations in which you and your spouse can not work together to identify marital property. Therefore, you are going to have to do some digging.
Other tips for identifying marital property
- Act like a private investigator: Have you seen mail come through for a bank that you don’t know about? Have you seen deposit slips for accounts that you didn’t know existed? If so, don’t steal the mail but write down the name. Your lawyer can ask about those assets in the litigation process.
- Go to the bank yourself: If you and your spouse have joint accounts, you can go to the bank and ask for statement for those accounts. While they may charge you a fee for copying, it is probably cheaper than having your lawyer fight with the other side to get this information.
- Go online: Almost all financial institutions offer online accounts. If you can, use this to access credit card, student loan, investment, banking and retirement accounts. While you may only be able to get a few months of statements, that may be enough to value your assets or at least, give your attorney account numbers so that they can get that information in the divorce process.
- Related: How to build a solid financial foundation post-divorce
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2. Valuing the marital property
Now that you have identified your assets and debts, we need to value them. For some property, it will be as easy as obtaining the account statements. Others will be a lot trickier. Here is how we do this.
Bank accounts, investment accounts, retirement accounts, and most debts:
These are generally the easiest to value. For the most part, the account statements indicating the balance of the account or debt owed will be the value for the division of marital property. I suggest starting with obtaining the statements for the date of marriage (if the account existed), date of separation, and the current value. If, after reviewing these statements, it looks like money has been taken out or moved, I will ask for statements for other time periods.
Real property
If you and your spouse own houses, rental properties, or land that is not going to be sold as part of the divorce, you will need a fair market appraisal. This can be performed by a certified real estate appraiser. Select someone who is familiar with your area. If your property is commercial, make sure that the appraiser has experience in valuing those types of structures as well. Not all appraisers are commercial appraisers.
Business interests
Not all business interests require an extensive (read: expensive) business valuation. However, it is best to discuss this with your attorney. If necessary, a business evaluator can determine the value of the business interest for your divorce.
Stock and Stock options
If you know how many shares of stock that you or your spouse own, you may be able to go online to determine the value. This only works if the stock is in a publicly traded company. I generally use Yahoo Finance. Yahoo can also provide historical values for stock so if you need to know the value from a year or two ago, you can find it there.
Pensions
If you are going to try to offset the value of the whole pension with another asset (see more about that in Step #3), you may need to get an appraisal of its value. This is tricky and should only be done by a pension evaluator. Some employers will offer this service to their employees as well. If your company does, use that first. It could save you a few hundred bucks. And who doesn’t like saving money, right?
Personal Property
You may need to obtain appraisal of certain personal property if you own antiques, jewelry, cars, or other items of value. The appraiser should have experience evaluating these items so that the value will hold up if your spouse disagrees with it. Who wants to pay for a worthless appraisal?
Related: Drafting your essential divorce team
3. Distributing the marital property between you and your spouse
So you’ve identified and valued your assets and debts, whew! That was a lot of work. Now it is time to divide these items up. Sounds easy right? Well . . . .
I often use the analogy of a pot of soup (or stew, or bisque, whatever works for you) as all of your marital property (debts included). You and your spouse each have a bowl. We need to give “soup” to each of you until the pot is empty. In some cases, each bowl should have the same amount of soup. In other cases, one bowl should have more than the other.
So how do we divide up the soup?
My step-by step process for dividing marital property
- I first look at how the assets and debts are titled, i.e. who’s name is on the account? If the account is in one party’s name alone, I will put it in their bowl. Same goes for debts.
- I then look at jointly titled marital property. Are they bank accounts or debts that can be divided? If so I may put some of that asset or debt in each party’s bowl.
- Then I look at joint assets that can not be divided, such as the marital home. Is one party going to keep the house? If so, I put that asset in that party’s bowl.
- By now my pot should be empty. I then look at how much soup is in each bowl. Does someone have too much? Too little?
- If one bowl has too much I have to figure out how to get assets to the bowl that has too little. There are a lot of ways to redistribute the soup. The appropriate method for you depends on the assets and debts in your case. For example, does one spouse need to pay cash to the other because that spouse has too much debt in their bowl? Does a spouse need to rollover certain retirement assets to the other spouse because that spouse didn’t have any retirement accounts in their name?
- Once that redistribution is complete you and your spouse should enter into an agreement confirming this distribution so there is no confusion later on.
So what are your takeaways for dividing your marital property?
Dividing up your marital property is often the most time consuming part of your divorce. It takes time to get through the process and then agree on the distribution. However, if you break it down into these 3 easy steps you will ensure that you discussed and divided everything that is important to you and your post-divorce financial success.
Have a question about how to find, value or distribute a specific asset? Don’t know what to do with your money after your divorce? Check out the following articles or leave a comment below!
- Related: Budgeting for your best post-divorce life
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- Related: How to build a solid financial foundation after your divorce
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