Does how the property is titled determine who gets it in a divorce?
There is a common belief that if the house is titled in one spouse’s name or the car is titled in one spouse’s name, then that will be the person who gets the property in the divorce.
This is absolutely false!!
It does not matter in whose name the property is titled, so long as the equity in the property, whether a house, car, boat, gold, silver, businesses, etc. was acquired during the marriage.
If the marital residence, or any other real property for that matter, was purchased by one party prior to the marriage, the other party would be entitled to an equitable share of the net increase in the equity in the marital home should marital funds be used to increase that net equity. For example, the Wife purchased a home for $200,000 in the year 2005, and she married her spouse in 2010. In 2010, the property had a fair market value of $225,000.00. She and her spouse moved into the house, and both spouses contributed to the mortgage. At the time of the marriage, the outstanding balance due on the mortgage was $100,000, Let’s say the parties separated in 2020, and at the time they separated in 2020, the principal balance due on the mortgage was $50,000 and the house had a fair market value of $300,000.00. We would look at what the value of the home was at the time of the marriage, $225,000 and what the value of the home was at the time of separation, $300,000. Then we deduct what the current balance due on the mortgage, and we have a total equity of $275,000.00. However, the Wife’s share of the equity would be greater than her Spouse’s share, however, her Spouse would be entitled to some of the equity. It would not necessarily be one-half of $275,000.00, because we have to give Wife credit for her 100% equity ownership at the time of the marriage, which would be $125,000.00. Whatever equity is left after that, minus any mortgage or other debt tied to the property would be subject to division between Wife and her spouse.
Thus, in distributing real property in a divorce, where the real property was in one party’s name prior to the marriage but marriage funds were used to reduce the mortgage debt, it would be proper to distribute the proceeds from the sale of the property or the equity in the property, based on the contribution of the party who acquired the property prior to the marriage and weighing it against the total non-marital and marital investment in the property.
What if after the parties married, and one of the spouses inherited $300,000, which was used to purchase the marital residence? The same analysis as above would be used, because inheritances are not marital property subject to division in a divorce, unless the inheritance was left jointly to the spouses.
A closely-held corporation could also be subject to equitable division.
Stock options could be, too. As a general rule, property is subject to equitable division if (1) acquired as a direct result of the labor and investments of the parties during a marriage. So if stock options were acquired before the marriage and vested before the marriage, then they are not subject to equitable division, because they were neither generated by the marriage nor accumulated during the marriage; however, if the stock options were acquired before the marriage and vested during the marriage, it must be determined whether the vesting was the direct result of the parties’ labors and investments during the marriage, and (a) the stock options are marital assets subject to equitable division if the vesting was the direct result of the efforts of either party during the marriage but (b) if not, then they are the separate property of the spouse who owned them prior to the marriage and are not subject to equitable distribution. To determine whether the vesting was the direct result of the parties’ labors and investments during the marriage, it must be determined whether marital or premarital funds were used to exercise the option, the employer’s purpose for granting the option (whether it was for past, present or future service); the best formula for apportioning the marital share of the options based on the purpose and timing of the options in relation to the marriage, the method of distribution, and the parties’ tax obligations resulting from the distribution.
The same analysis used to determine how assets are divided is also applied to allocation of marital debt in a divorce. If the Wife has a credit card and she runs up a ton of debt during the marriage, it could be considered marital debt, however, there are ways around that and factors/circumstances that can change that, such as whether you can show that most of the debt was accrued on wasteful spending vs. expenses for the household.
How the arguments are framed for dividing up assets AND liabilities can really determine the financial outcome of your divorce.