Property and Debt in a Divorce or Separation
Whenever two people decide to dissolve their marriage, the courts will be tasked with equitably dividing assets and assigning debt. In most cases, property of the marriage is defined as anything that can be bought or sold, including a house, cars, furniture, clothing, or even investment assets such as bank accounts, pension plans, 401ks, stocks, and life insurance policies with cash value. Other property that can be divided as part of divorce or legal separation includes patents, security deposits, and even some business assets.
If the parties to the divorce can agree about the division of assets, the judge may simply sign off on your agreement as long as the court deems that the assets are being fairly divided between each party. In some states, anything defined as “community property” or “mixed property” will be considered divisible as part of the divorce proceedings. In most cases, your separate property – including assets you acquired prior to the marriage – can be deemed as separate from the marriage and not subject to division as part of the divorce. If assets, even separate assets, have been combined or commingled during the marriage, then the courts will most likely consider those assets as under the jurisdiction of the divorce decree. When it comes to assigning debt, problems can arise as the creditor is not necessarily required to comply with any agreement between you and your spouse. For example, credit card companies can hold both parties responsible for the balance and interest owed on a card, even if the parties have agreed that only one spouse will be responsible for managing that debt. When deciding upon how to allocate debt responsibility, it is important to be well informed of all the duties and regulations that govern your outstanding balances.
A pension plan is another asset that may not be subject to any agreement between the spouses. Depending on your state laws and the regulations regarding your payment plan, you may not be able to divide or assign this asset and must instead follow preexisting guidelines. In fact, it may make sense to table the issue of the pension plan until such time as you can better understand exactly how this asset will be impacted by the dissolution of your marriage.