How will our property be divided?
In Minnesota some property is considered to be “marital property” while other property is considered to be “non-marital property.” “Marital property” includes most property which is acquired during the marriage regardless of which party earned the money used to purchase the item. Marital property is usually divided as close to 50/50 in value as possible. Naturally, it is necessary to determine what your assets are worth. This can be done by agreement between the parties or by hiring someone who is qualified to appraise the value of the various items to determine what they are worth. The value of your property is what it could be sold for now rather than its original cost or replacement cost. The basic approach is to determine what all of the property together is worth. Sometimes one party will receive property of a greater value than the other and a cash award is necessary to equalize the division.
Rarely, one party has unusual needs and is, therefore, awarded more than 50% of the property. As a general rule, however, every attempt is made to divide the property equally. You will note that your attorney generally speaks of “real property” (real estate) and “personal property” (anything which is not real estate, such as cars, furniture, savings accounts and pension plans).
Briefly, “non-marital property” refers to any property which was acquired prior to the marriage. Non-marital property may also include some property received during the marriage such as inheritances received by one of the parties, certain types of personal injury claims, gifts to one party from someone other than the spouse and, sometimes, property which was received in exchange for non-marital property. For example, money received from a home owned prior to the marriage being used as a down payment on a house purchased during the marriage. Distinguishing between marital and non-marital property can be complicated. If you have property you consider non-marital, be sure to discuss this with your attorney.
Who receives the non-marital property?
Normally, non-marital property is awarded to the person who originally owned it. However, there are some extremely rare circumstances where one party has unusual needs so that they might be entitled to a portion of the non-marital property.
What if I have a prenuptial agreement?
If you and your spouse have a valid prenuptial (sometimes referred to as an antenuptial agreement) or a valid postnuptial agreement, your property will be divided according to the terms of that agreement. A prenuptial agreement may also say whether you may receive or pay spousal maintenance. Be sure to tell your attorney if you have a prenuptial or postnuptial agreement.
What happens to our home?
If you own a home, you will have to decide what is to be done with it after the divorce. There are several ways of dealing with this. In some cases, the house is sold and then, after the mortgage is paid in full, the remaining money is split between the parties. There are times when the home is worth less than what is owed. In this case, the loss may have to be divided as a debt. Sometimes, one person may wish to continue to own the home. In this case, he or she may buy out the other person’s interest in it. This might be done by actually paying cash, by trading other assets at the time of the divorce, or it might be done by placing a marital lien or a mortgage on the home. The marital lien or mortgage would specify how much money is going to the person who no longer owns the home and also specifies when and in what manner that money will be paid. If you have minor children, the party who has custody of the children is sometimes allowed to stay in the homestead until the children reach age 18 if the custodial parent so desires. The court may do this to ensure that the children’s lives remain as stable as possible. This is not as common as it once was, but is sometimes done.
What if we own a cabin or other real estate?
Any other real property would be dealt with in the same way as the homestead, except that the property would most likely be awarded to one of the parties or else it would be sold now rather than waiting.
Are there immediate tax consequences related to property settlements?
No. Property settlements are not taxable at the time of the divorce. However, when the person awarded the property sells it at a later time, they may be responsible for any taxable capital gain. For example, when determining what you originally paid for your home and what money you have put into it over the years, you do not include the money you paid to your ex-spouse at the time of the divorce. It is always wise to discuss these issues with your accountant or other tax professional.
What if my spouse and/or I own a business?
If you or your spouse own a business or own a portion of a business, it will be treated like any other property. In most cases at least a portion of it is going to be marital and must be divided. Even if the business was bought before the marriage, it may have increased in value and that increase in value may be considered marital property.
The toughest part of dividing a business is trying to decide what it is worth. This may require hiring an accountant to determine what the value is or perhaps it can be done by agreement between you and your spouse after looking at the various business records. It might be that you would remain joint owners after the divorce, although it would be more typical to have some type of a Buy-Out Agreement. In rare cases, this is not possible and it is necessary that the business be sold, the debts paid and the left over funds divided between the two parties. Divorces where one or both parties own a business may be very complicated and it will affect the total cost of your divorce.
Are pension plans and similar items divided?
Yes. Pension plans, profit sharing plans, 401(k)’s, IRA’s, ESOP’s, annuities and other similar retirement plans are divided upon a divorce. Your attorney will need to know whether you and your spouse have any such plans, whether through their present or past employment, or privately obtained. It is possible that a portion of these retirement plans could be non-marital if some money was contributed prior to the marriage. If so, only that portion which is considered to be marital would normally be divided. There are tax considerations in dividing up retirement plans which your attorney will discuss with you. It is possible to assign a portion of most retirement plans through a Qualified Domestic Relations Order (QDRO) or other similar order so the former spouse will have money for their retirement. This can avoid taxes and penalties becoming immediately due. The most important thing is to find out whether or not you or your spouse have any such retirement benefits.
Who will pay our bills?
Debts are considered when property is divided. Debts can be divided so that the net effect of dividing property and debts will be an equal division between the husband and wife. Your attorney will ask you for detailed information about all of your property as well as all of your debts. Typically, when a party receives a major item, such as a car, as a part of the divorce, the party who received the car will be liable for the debt owing on it. This would also usually apply to home mortgages. Once again, there may be exceptions to this general rule. You should be aware that while the court can order you or your spouse to pay a particular bill, that does not prevent the creditor from asking either of you to pay it if you were both originally obligated on the debt. It is not unheard of for a person to have a credit card company pursuing them for a debt that the other party was ordered to pay. Your attorney can explain what this means in greater detail.
How do I find out what property my spouse owns?
Sometimes you may not know about everything your spouse owns. It is possible that your spouse may have retirement funds, pension plans or insurance policies of which you are not aware. There may be other assets such as bank accounts which you do not know much about. In order to help you find out this information, your attorney can conduct “discovery.” This may include sending out written questions to your spouse which must be answered under oath disclosing exactly what property is owned and where that property is located. Your attorney can request that your spouse produce copies of tax returns, bank records and other documents which might indicate what assets are owned. This discovery process involves increased legal fees. In addition, discovery is sometimes necessary to find out additional information about assets and debts that you do know exist. Therefore, you will need to balance the cost of engaging in discovery against the possibility of there being assets or property of which you were not aware. Divorces are generally faster, cheaper and less acrimonious if both parties freely and fully provide the necessary documentation and information.