How to Split Property in a Divorce

You have decided to get a divorce, or maybe you are trying to work it out but still want an idea of what separating will mean financially. How are you going to split your property in your divorce? This is truly why SquareFairy was created: to help you quickly get a fair and square deal, save money, and move forward with your life, no matter what you decide to do.  

The financial aspects of splitting your property in a divorce involve three things:

  • Deciding who gets which financial and physical things owned by both spouses.  
  • Spousal support, or alimony, helps the lower-earning spouse carry on, as long as this spouse remains unmarried after the divorce.
  • Child support, to help provide care for children still living with one of the spouses.

Currently, SquareFairy helps with deciding who gets which assets, by creating alternative splits, and letting you decide what you want.

Splitting Property in California

The state you live in determines the rules for splitting items.  California is a “community property” state. This means that everything acquired during your marriage is owned by both of you.  Assets acquired before the marriage belong to that spouse, as are things received from an estate (given as inheritance).  The jointly-owned property is split 50/50, although you might agree to a different split.

Splitting Property in “Common Law” States

Most other states use a “common law” approach to ownership. This means whoever is on the title or is the registered owner, owns the item(s) after marriage. For example, if one spouse is the registered owner of a vehicle, then by law, that person owns the vehicle. If you are both on the title/deed for your home, it is owned by both of you. As with so many things, “everything is negotiable”. For items that you both own, SplitFairy can help come up with a split that reduces fees, taxes, and effort required to create a fair split.

Splitting your House

For most couples, your house is the most valuable thing you own together.  You have a few options:

  • Sell it (incurring selling fees and maybe taxes)
  • One of you keeps the house
  • You decide to keep it and own it, but as unmarried people

Selling your home takes time, costs money, and depending on the real estate market where your home is, may not sell for more than you owe on it.  If there are other valuable items, one spouse can keep the house, and the other gets items to compensate. Also, if there is sufficient equity in the home, a secondary mortgage can be acquired to allow more cash to be paid to the person not getting the home.

The SplitFairy software considers all of these possibilities to generate your options. Finding the one that either keeps as much value for the couple, or generating more cash to split.  It also takes your personal preferences into account, if one of you wants the home.

Splitting Retirement and Investments

Retirement funds (401Ks or Individual Retirement Accounts – IRAs) can also be split among the two of you.  However, depending on whether you are of retirement age, you may be hit with significant taxes and fees if you decide to convert them to cash.  There’s a 10% tax penalty on any amount converted to cash before you turn 59 ½ years old. And then you will also owe regular income tax on the amount converted.  

IRAs can be split, using your IRA administrator’s forms. However, any 401K that needs to change ownership requires a Qualified Domestic Relations Order (QDRO for short). QDRO is issued by the divorce court, although it may be drafted by your divorce attorney ahead of time.

Again, the software considers the cost of converting to cash, and attempts to minimize the taxes and fees, based partly on your income tax rates.

Non-retirement investments (stocks, bonds, certificates of deposits, etc.) are more easily divided, as you can assign ownership to either spouse.  However, if they need to be converted to cash, there may be tax consequences if their current market value is greater than the price paid when acquiring the investment.  SquareFairy considers how long you have owned the investment, and applies appropriate tax rates, when selling is required to achieve your goals.

Finally, there are the many other things you own (cars, furniture, jewelry, art, etc.).  This is where you may make individual choices, as the items may have practical or emotional value to one of you.  Converting any of these items to cash may result in receiving far less than the item is worth to you, especially if you need to replace the item with new items.

SquareFairy

SquareFairy helps you split your property in a divorce for free using the SplitFairy Property Split Calculator. You can also use the software to document your properties and debts.

Getting divorce is stressful, and often overwhelming. SquareFairy is here to help you consider options that few mediators/lawyers/financial advisors can consider.  Please contact us if you have any questions.

Learn more from other useful divorce blogs here.

Mark Streich

Mark is one of the cofounders of SquareFairy, dedicated to helping struggling couples move forward, so they can rediscover the joy in their lives.

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