Perhaps one of the biggest concerns when facing a divorce is how the couple will divide their properties. This is because assets that couples acquire during marriage become marital properties that courts can divide.

According to the U.S. Centers for Disease Control and Prevention (CDC), approximately 672,502 divorces and annulments were reported in the United States, with a divorce rate of 2.4 per 1,000 people in the most recent national data available. 

Understanding which assets are included and how courts determine ownership is essential for protecting your financial interests during a divorce. 

Let’s look at the assets that can be included when splitting property during a divorce and the factors that can influence the final outcome. 

Community Property States vs. Equitable Distribution States

There are actually nine states that use community property principles. This includes Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Any income earned and any property brought into the marriage by either spouse during the marriage is normally treated as community property. This means they are owned roughly the same by both partners. 

Each spouse has an undivided one-half interest in all community property the moment it is obtained. This is regardless of whose name is on the title, whose income paid for it, or who handled the day-to-day calls around it. This community property is split equally, so each spouse ends up with half.

The other 41 states, plus the District of Columbia, follow equitable distribution instead. Equitable distribution doesn’t really mean equal; it’s more like fair based on all the relevant circumstances. Judges look at statutory factors that often cover the length of the marriage, the economic situation of each spouse and their earning capacity, and each spouse’s contribution to the marital estate, including non-monetary roles like homemaking and childcare. 

In some states there can also be consideration of fault grounds and economic misconduct. So, in a long marriage where one spouse makes significantly more, you might see something like 60/40 or 65/35 instead of a clean 50/50, depending on how the statutory factors get applied and how the evidence lines up.

Fairfax property division lawyer K. Leigh Taylor says that when property is commingled, in which both marital and separate property are mixed, such as improvements made during the marriage to a home owned by one spouse, the court will determine how to divide the assets.

Marital Property vs. Separate Property

Both frameworks sort out marital (community) property that is subject to division and separate property that each spouse keeps on their side. So that difference decides what pile of assets can actually be divided.

Marital property usually covers pretty much any asset, plus income brought in during the marriage, even when the title sits in only one spouse’s name. The marital home bought after the wedding is marital property, even if it is titled just in one spouse’s name. Retirement account contributions made during the marriage count as marital property even if the retirement account is held only by one spouse. 

Business appreciation during the marriage is generally treated as marital property, even if the business itself started before the marriage. However, this applies only to the extent that the increase is linked to marital work, rather than to passive market forces.

Separate property usually covers stuff owned before the marriage, plus inheritances that one spouse got on their own, either during or before the wedding, and gifts that were aimed at only one spouse. 

For example, a premarital bank account that gets rolled into a joint account and where day-to-day marital spending is often pulled from typically loses its separate status. 

The safest strategy is to stay on top of documentation and also keep the separate assets in separate accounts so that the classification stays intact.

Specific Asset Categories and How They Are Treated

The marital home is usually the biggest single asset in a divorce, and it creates the most upfront practical headache: two people can’t really live in one single family residence at the same time. 

So the court might order the home to be sold, with the money split out, or it can award the home to one spouse, along with an offsetting payment or a credit to the other for what they’re owed in equity. In some situations the judge lets one spouse stay for a while, most often when there are minor children, and only later requires the sale. 

The equity amount used for the split is typically computed as an appraisal value minus the remaining mortgage balance. Then each spouse’s role in paying down the mortgage, funding renovations and improvement upgrades, and the origin of the down payment (marital versus separate funds) are reviewed to figure out what counts as marital equity that can be divided.

Retirement accounts and pension benefits that build up during the marriage are marital property and usually end up being divided too. ERISA-qualified accounts (like 401k and 403b plans) call for a Qualified Domestic Relations Order, or QDRO, to divide them. 

In divorce, business valuation tends to use one of three main approaches. They look at the income approach, which is basically the present value of projected future earnings. The other is the market approach, where they look at sales of similar companies. Finally, they do an asset approach, which means looking at the net asset value.

Now, the different methodologies can end up producing different numbers, and it’s not rare that the spouses end up with competing experts, each one with a materially different valuation. 

Debt Division

Debts that were incurred during the marriage are usually split up, like the assets are. Mortgages, home equity lines, vehicle loans, credit card balances, student loans taken during the marriage, and business debts, for the most part, get labeled as marital debts and then they are reallocated between the parties as part of the settlement. 

The practical issue with debt division is that there is this line between what the divorce decree says and what the creditors can actually do: the divorce decree might order one spouse to pay a particular debt, but if that spouse doesn't pay, the creditor can still try to collect from the other spouse, especially if both people were on the original loan terms. 

The spouse who isn't paying has only one realistic option: to return to family court for enforcement. Refinancing the debt in the name of the spouse who will handle it, thus removing the other spouse from the obligation, is usually the best protection, though it still depends on the responsible spouse qualifying on their own.

The American Bar Association family law resources give state-specific snapshots of how marital property gets defined and divided, which helps a lot for figuring out whether the state where the case was filed uses community property or equitable distribution principles.