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How To Split Assets In Divorce

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

Yesterday we reviewed the best ways to protect your assets during a divorce.  Now let’s consider how to split assets as a way to protect yourself. Even if you and your soon-to-be ex-spouse are splitting up amicably and/or using a mediator to reduce the cost of divorce, divvying up the assets fairly can be confusing. When there are retirement accounts and 401k accounts involved in divorce, it gets even more complicated. Rather than struggle with this (or let the attorneys turn this issue into a major stumbling block) here are some guidelines that might help you navigate this potential mind field safely.

Before we get started it’s important to remember that I am not an attorney and this post is not meant to give you legal advice. This is meant to help you understand the possible ways to approach the topic of splitting your assets during divorce. I recommend that you seek out the council of a qualified attorney to help you formulate an asset split plan. Once you come to agreement, you might be able to then use a service like Legalzoom to complete the process of divorce and thereby save a great deal of money.

Asset Splits In Divorce – The Basics

How you split your assets is usually a function of:

  • When the asset was acquired and with separate or joint money.
  • How long have you been married?
  • Are there any children involved?
  • Is the income earned equally or does one partly earn much more than the other?

 

For example, consider Mary and Jim. Assume they’ve been married for 5 or 6 years. Let’s say there are no children involved and both parties established their careers prior to getting married. In this case, the assets would probably be split 50/50 down the line. Neither one gave up anything to get married so they are essentially in the same place as they would be had they remained single. This is a simple situation and very straight forward. This couple should have no problem getting their financial lives on track after divorce.

Had this couple been married for a longer term the settlement might be different. Let’s say that they both have good jobs but Jim makes more than Mary. That means his standard of living will increase faster than Mary’s after the split. A judge might give Mary 60% of the assets to compensate for that but Mary probably wouldn’t be awarded any marital support.

An alternative would be for them to split the assets 50/50 but for Jim to pay Mary spousal support for a fixed number of years. This helps make up for the fact that Mary won’t be able to afford the same lifestyle as Jim and it will give her a period to adjust.

Let’s change up the scenario and see how that impacts the settlement. Let’s assume that Jim and Mary have two children. Mary gave up her job a couple of years after they got married and became a stay-at-home mom. If the couple gets divorced, Jim will pay child support and Mary will likely get more than 50% of the assets. In addition, she’ll likely receive some support for a fixed period of years in order to ease her way back into the workforce. The asset split agreement might also spell out that once Mary starts working, her support might decrease.

If the couple was married for a longer period and Mary was out of the workforce for many years, she might be awarded the house with the value of the equity being deducted from an overall 50/50 split. She’ll probably get spousal support for an extended period of time and she’ll likely have a claim to a portion of Jim’s retirement pension. Obviously, if children are involved they will receive child support too.

By now, you get the gist of how assets are split up during a divorce. The concept that judges try to apply is to be equitable. If possible, more assets and income is awarded to the spouse who has the most ground to make up.

The Take-Aways

First, you can see generally how asset splits work. If an attorney on either side of the table argues for support and/or assets that fall far outside of these guidelines, ask why. There might be some special circumstances of course but the attorney might also be trying to create more conflict. Sometime they do this in order to stretch out the process – and earn greater fees. It’s happened once or twice before. Just saying.

Next, keep in mind that everyone’s situation is different. The longer you’ve been married and the greater disparity there is between you and your spouse (with respect to earning potential) the person with more limited resources will typically receive a bigger slice of the pie.

If at all possible, try to work out a division of assets amicably. Afterwards, it’s probably a smart idea to consult with your own attorney or a joint mediator in order to make sure the plan you come up with is equitable. But familiarize yourself with the general guidelines in order to make the divorce process that much easier.

If you got divorced, how did you split your assets up? What would you do differently now?

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Who is Neal Frankle

Neal Frankle

I'm a CERTIFIED FINANCIAL PLANNER™ Professional with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
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