How Does the Judge Determine Exactly How Much Property Each Party in a Divorce Action Will Get? And is it taxable?

How do judges make “property” awards in divorce action? What criteria do they use? Well, it depends on where the parties are getting divorced. If it is in a community property state, the court or judge will normally split the property in two equal parts with fifty percent going to one spouse and fifty percent going to the other. This is generally true unless it would be demonstrably inequitable to do this split and then even in community property states (except in California and maybe a couple of others) the judge might consider these inequities in deviating from the law mandated fifty percent rule.

In the US, most states are equitable distribution states. However a handful of states are still under the community property schema and these include Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin.

All other states follow the equitable distribution rule in dividing up property and what this rule says is that a divorcing spouse gets what is fair and equitable as a property settlement. The catch is that the judge would start at fifty percent, an even split, and then work his or her way downward depending on who made what contributions, how the property was acquired, and other factors.

What are the factors the Court usually considers in making an equitable property award in a divorce?

There are many factors which the court will consider in deciding what is an “equitable” property division. For example, in Vermont (and many other states), this is the usual list:

1.The length of the marriage; 2. The age and health of the parties; 3. The job and source and amount of income of each of the parties; 4. The vocational skills and employability of each spouse; 5. The contribution by one spouse to the education, training, or increased earning power of the other; 6. The value of all property interests, liabilities, and needs of each party;  7. Whether the property settlement is to be awarded instead of, or in addition to, spousal maintenance; 8. The opportunity of each party to obtain future capital assets and income; 9. The desirability of awarding the family home or the right to live there for reasonable periods to the spouse having custody of the children; 10. The party through whom the property was acquired; 11. The contribution of each spouse in the acquisition, preservation, and depreciation or appreciation in value of the respective estates, including the non monetary contribution of a spouse as a homemaker; and 12. The respective merits of the parties. (e.g., whether either party was abusive, or committed adultery, or was an alcoholic).

  •  What types of property are included in the marital estate?

It depends. If there is no prenup then any and all property acquired by one or both parties during the marriage up until the filing for divorce action. It does not usually matter whose name is on the property or whose money bought the property. All property bought during the marriage is considered to be marital property. Sometimes, in some states, like Vermont, even inherited property might be considered marital property; and gifts from third parties to a spouse could be considered marital property.

  • Marital property vs separate property

In some states, however, marital property and separate property are distinguishable by date of acquisition, whether there is a prenuptial agreement and what that agreement says, whether the property is an inheritance, whether it is a gift, etcetera. Even if property is separate, it could be considered marital if it is subsequently “comingled” with marital res, however.

  • How does the Court decide the value of the overall marital property?

This will depend on forensic evaluators, asset locators, appraisers, accountants and other experts who will have to appraise and assess the value of the various properties and provide the parties with an objective and impartial report of the value of the property. These figures are then added together to the rest of the marital assets to get one lump sum value. Typically, property value does not include things like “income” which is a different issue and affects, for example, alimony and child support rather than property settlement.

So it is possible to get a property settlement and on the next hand get alimony and spousal support. These are different types of apples. Of course, a lot of double-dipping occurs all the time where an item is treated as both an asset and as in “income stream” and this is problematic and a very complicated area of practice for divorce practitioners.

  • Taxable consequences for property settlement and alimony

A few years back Jeannie, our most prolific blogger, wrote an article about property settlement and alimony and I think it is a good article so I direct you to it here. I think it is important to consider the taxable consequences when you are allowing the judge to make decisions about how property will be divided. Property settlements are not usually taxable. And they can be in cash. They are not always “property.” But usually, a cash payment is alimony and is taxable. It depends on how it is designated. Keep in mind that the property settlement can be discharged in bankruptcy but alimony cannot be discharged in bankruptcy. So it is all well and good to say that the judge gave you an “equitable” property settlement – maybe even fifty percent of the value of the marital estate. But your spouse can turn around and file bankruptcy on certain types of property settlement obligations, especially the cash ones.