How Are Assets Split in a Divorce?

Picture this: After years of marriage, a couple decides to go their separate ways. The house, the savings, the cars, the investments—they're all up for grabs. Divorces can often feel like a battlefield, and the division of assets is one of the most contentious issues. Who gets what?

The way assets are divided in a divorce depends largely on two factors: the laws of the state or country in which the divorce is taking place and whether the couple can come to an agreement on their own or through mediation.

In the U.S., divorce laws vary from state to state. The two main types of property division systems are equitable distribution and community property.

Equitable Distribution: Most states follow this method. In an equitable distribution system, marital property is divided fairly, but not necessarily equally. Courts will consider several factors, such as the length of the marriage, the earning potential of each spouse, the contributions to the marriage (including non-financial contributions like raising children), and more. Fair does not always mean 50/50.

Community Property: In a few states like California, Arizona, and Texas, the law requires that all marital property be divided equally. That means that everything acquired during the marriage (with few exceptions) is considered joint property and will be split right down the middle, 50/50. This system leaves less room for negotiation and more room for hard feelings if one spouse feels the split isn't "fair."

But what about separate property? Assets owned by one spouse before the marriage, gifts, or inheritances are generally considered separate property and not subject to division. However, if the value of separate property increases during the marriage or if separate assets are mixed with marital ones, the distinction can become blurry.

In recent years, prenuptial agreements have become more popular as couples try to avoid this exact situation. A prenuptial agreement (or "prenup") is a legal contract entered into before marriage that outlines how assets will be divided in the event of divorce. Though prenups can streamline asset division, they are not foolproof. Courts may choose to invalidate them if they are deemed unfair or improperly executed.

While the division of physical assets like homes and cars can be straightforward, the real battle often lies in financial assets. Stocks, bonds, retirement accounts, pensions—these are the real sticking points in many divorce settlements. Couples often underestimate the complexities involved in dividing these assets, especially when it comes to things like the tax implications of selling stock or cashing out retirement funds early.

Even more complex is when a spouse owns a business. How do you value a business? And should the non-owner spouse be entitled to a share? The valuation process often involves accountants and business appraisers, making this one of the most drawn-out aspects of asset division.

A common tactic used by wealthier spouses is to try to hide assets. Offshore bank accounts, hidden real estate, or funneling money into secretive investments are all tricks that some try in order to keep more than their fair share. In high-net-worth divorces, forensic accountants are often called in to uncover these hidden assets.

Let’s not forget debts. Just as assets are split in a divorce, so too are liabilities. Any debts incurred during the marriage—credit cards, mortgages, car loans—are typically considered marital property. However, if one spouse racked up a significant amount of debt without the other’s knowledge or consent, a court may rule that those debts belong solely to the person who incurred them.

Once the court determines how assets and debts should be divided, the next step is often a settlement agreement. This is where couples (often through their lawyers) negotiate who gets what. If they can agree, the settlement is presented to the court, which will generally approve it as long as it’s deemed fair. If they can’t agree, a judge will make the final decision.

For those who have children, child custody and child support are also factors that can impact the division of assets. In some cases, the spouse with primary custody of the children may be awarded the family home, for example, in order to provide stability for the kids.

It’s important to note that divorce doesn’t always have to be a drawn-out, expensive process. More and more couples are turning to mediation or collaborative divorce, where a neutral third party helps them negotiate a fair settlement without going to court. This process is often less adversarial and can save both time and money.

In conclusion, the division of assets in a divorce is a high-stakes, emotionally charged process. From the type of property division law in your state to the existence of a prenuptial agreement to the complexities of dividing financial and business assets, there are numerous factors at play. And while no one ever goes into a marriage thinking about the possibility of divorce, understanding how assets are divided can provide some much-needed clarity during a tumultuous time.