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Property settlement during a divorce

Dividing property is often the most complicated part of a divorce. Spouses acquire property before their marriage, as well as throughout the marriage. All of that property is divided into two categories: separate and marital. Spouses can then prepare their own property settlement agreement or a court will divide the property amongst the spouses.

Separate Property

Spouses are allowed to keep any property that court deems nonmarital or separate. If a spouse acquired property before the marriage, she must keep it separate during the marriage in order to retain sole ownership. (Reference 1)

Some property received during the marriage can also be considered separate. For example, if one spouse receives a gift or inheritance from her family, it is her separate property. Also, if either spouse received a monetary award from a personal injury lawsuit, she will retain sole ownership of the money upon divorce. (Reference 2)

Marital Property

All income earned and any property purchased during the marriage is considered marital or community property. (References 1, 2) Additionally, separate property can sometimes become marital property by a process known as "transmutation." If marital property, like a paycheck, is deposited into one spouse's separate bank account, or separate property, like an inheritance or personal injury award, is deposited into a joint account, the funds are considered commingled and the separate property becomes marital property. If property is purchased jointly using separate funds, the property is also marital and will be divided accordingly. (Reference 1)

Property Settlement Agreements

Spouses can design their own settlement agreement setting forth which spouse will be entitled to what property. The agreement must be submitted to the court for approval. The court will approve the agreement as long as it appears fair to both spouses. If a court finds that one spouse was not represented by her own attorney or that a spouse did not fully disclose all of his assets, the agreement is considered "unconscionable" and the court will not uphold it. (Reference 4)

Community Property Distribution

If spouses are unable to reach their own agreement, a court will divide the property. Several states are considered community property states. They are California, Louisiana, Arizona, Idaho, New Mexico, Nevada, Washington, Texas and Wisconsin. Community property states allow spouses to retain ownership of their separate property and divide all marital property equally between the spouses. However, when a court divides property, the court divides the value of the property, not the physical property. The court determines the percentage of property each spouse is entitled to and then distributed items until both spouses have property valued at half the total. (Reference 2)

Equitable Distribution

All other states divide property according to "equitable distribution." This means that courts examine several factors to determine a settlement that is fair to both spouses, taking into consideration each spouse's financial situation. Factors include: each spouse's age and health, the length of the marriage, the value of each spouse's separate property, each spouse's income, each spouse's contributions in acquiring the property, which spouse has custody of the children and any marital misconduct, such as adultery or abuse, as courts may decrease that spouse's property award as punishment. (Reference 3)