Dividing Assets and Debts in a Divorce

More than a million divorces occur in the United States every year: about 50 percent of first marriages and 60 percent of second marriages. In nine out of 10 cases, couples settle the details themselves outside of court. The following tips might help you be one of those cases.

Learn Local Laws

• Most states, except a handful of community property states, use an equitable distribution approach to dividing marital property in which everything acquired during a marriage in either spouse’s name or both spouse’s names is considered a marital asset subject to division in a property settlement agreement. Who actually holds the title to property is irrelevant. Three exceptions are assets owned prior to marriage, gifts, and inheritances, unless they become commingled in joint accounts.
• Prepare a net worth statement (assets minus debts) because your attorney will request a complete accounting of your separate and joint property.

Decide Whether to Keep the House

• Consider carefully whether either spouse can afford to keep the family home following divorce, especially if it took two paychecks to qualify for the mortgage.
• Compare the costs of staying in the house (including mortgage, insurance, property tax, utilities, yard work, and maintenance) with the cost of renting and one-time moving costs (moving van, security deposits, and utilities hookups, for example).
• If neither spouse can afford the house on a single salary, the usual property settlement solution is to sell the house and divide the proceeds (if any) after all mortgages and/or liens are paid. If one spouse can afford to stay, he or she might decide to buy out the interests of the ex-spouse with cash or a transfer of property.
• Another common option is to retain joint ownership of the family home for a period of time (until the youngest child graduates from high school, for example). Often, the custodial parent resides in the house and expenses are shared. When the house is eventually sold at a future date, both spouses share any profit.

Protect Your Credit

• Protect a good credit history. No matter who charged what, both spouses are liable for debt incurred on jointly held loans and credit cards. Even when a divorce decree states that one spouse should pay certain bills and the second spouse should pay others, both spouses are legally responsible.
• If you have doubts that an ex-spouse will pay, consider requesting duplicate statements from creditors or immediate third-party notification if a payment is late.
• Close joint credit accounts with your ex-spouse and apply for credit in your own name.