What Happens to Our Property?
10 Ways to Divide Your Property with Your Ex?...Not Really
Division of Assets is when the real lawyering begins. Our mantra is "prepare, prepare, and prepare some more. Know the facts and the law better than anyone in the courtroom. Show the Judge why our client's story is the only fair and just story." The judge may be the decider, but your lawyer is the one who decides what the issues is are and how the law applies to your unique assets.
Black letter Family law has a reputation for being soft—which is to say that judges have lots of discretion. Division of Assets is based upon the standard of "equitable distribution." There are some black and white rules such as premarital gifts are not subject to equitable distribution, but there are very few hard and fast rules to limit the discretion of a judge. Property distribution is as lawless as the wild west!
When a couple divorces or ends their committed intimate relationship their property and debts must also be divided. Washington is a community property state, which means that all property accumulated during the marriage is subject to “equitable distribution.”
Is This Yours or Mine?
Community or Marital property is possessions or real estate or any “thing” of sentimental or financial value that was acquired after the date of marriage. Separate property means possessions or real estate that was owned before the marriage, or that was received during the marriage as a gift or as an inheritance, or that was bought with separate property.
Equitable is not Equal
Equitable distribution focuses on comparing the economic strengths and needs of each partner. Bad behavior by one Partner, such as having an affair or even domestic violence is by law excluded from the consideration of “equitable distribution,” unless the bad behavior itself depleted the marital assets. Examples of bad behavior that might result in lopsided distribution are criminal activity that led to seizure, extraordinary gambling or addiction expenses or giving marital resources to an affair partner.
The black letter law on equitable distribution is set out in RCW 26.09.080 (click here) and requires the judge to:
“without regard to misconduct, make such disposition of the property and the liabilities of the parties, either community or separate, as shall appear just and equitable after considering all relevant factors including, but not limited to:
(1) The nature and extent of the community property;
(2) The nature and extent of the separate property;
(3) The duration of the marriage or domestic partnership; and
(4) The economic circumstances of each spouse or domestic partner at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to a spouse or domestic partner with whom the children reside the majority of the time.”
Equitable is definitely not “equal”, rather it is more commonly defined as “fair”. Below are common factors typically considered by Courts in equitably distributing property:
The financial condition and earning power of each spouse.
Future financial needs and liabilities of each spouse.
The length of the marriage
The value of each spouse's separate property
The degree to which each spouse contributed to the acquisition of marital property.
The degree to which each spouse contributed to the education and earning power of the other spouse.
The ages and overall health of each spouse.
The liquidity of marital property.
Premarital and prenuptial agreements.
Spousal maintenance or alimony obligations.
Commingling and Tracing, Sounds sexy right?
Commingling and Tracing are opposite concepts. Tracing refers to proving that property acquired during the marriage is still separate property because it was purchased with pre-marital separate property. For example, Partner 1 owns stock, sells it to purchase a vintage car, sells the car and buys a vacation home. If Partner 1 can clearly trace the money back to pre-marital separate property, then there is a good chance this is not marital property subject to equitable distribution. Commingling occurs when both parties contribute and take from a mutual asset. This mutual asset could be a savings account that originally belonged to just one spouse, but if both spouses deposit and take money out then the separate nature of the account becomes very muddled. This could lead to a Court deciding the entire asset is marital property or perhaps finding that the asset has a split characterization such that a percentage of the asset is determined to be separate property.
Example 1, The Family Home: (simple): Partner 1 and Partner 2 married young with no savings, but then both saved over several years for a down payment and purchased a home. Each has equal earning power and potential for future earnings. They have no children. Ten years later they divorce. Aside from their home they have no other savings or property of value. All the value in the home is subject to equitable distribution because the home was acquired after the marriage began with savings accumulated during the marriage. The home value will likely be split 50/50.
Example 2, The Family Home (complex): Partner 1 and 2 married and purchased a home using a gift for the down payment that was received before the marriage from Partner 1’s parents. After their marriage they each contributed to the mortgage payment and expenses of the home. Fifteen years later they divorce and the home has appreciated substantially. They have two children 10 and 12. Partner 1 has considerable assets from a large inheritance. Here, the Court could conclude that the home is not a marital asset because it was purchased strictly with Partner 1’s separate property. Even though both Partners paid towards the mortgage and expenses of the home, a court could equate those payments with rent paid to a landlord. Alternatively, a court could consider the agreement to use Partner 1’s premarital asset for the down payment as a gift to the marriage or the court could simply declare the initial down payment as a split characterization and split the equity in the home according to the percentage of the down payment to the total value of the home. If the Court determines the house is marital property it could consider heavily the fact that the children were born and raised in the home and award the home to the spouse who intends to live in the home. Economic disparity and future earning potential will also be considered.
Investments and Retirement Benefits
Retirement savings and Investments are treated just as the family home to the extent that the first step is to determine whether the property is marital or non-marital property. Then the asset is divided according to equitable distribution. Some investments such as stock options are more tricky than others. For stock options, the seminal case in Washington is In Re the Marriage of Short (click here) . This was a 1995 Washington Supreme Court case and it is still good law today. It held that vested options are acquired when they are granted, but non-vested options are divided into community and non-community property by applying the “time rule” which is a mathematical equation that balances why the options were awarded, the length of marriage, the length of employment and the date when the options vest. Retirement benefits are treated similarly in that length of marriage, length of employment and date when the retirement benefits become available are important considerations to equitable distribution.
Equitable distribution of Retirement Benefits is one of the most complex areas of family law. Each different type of retirement benefit has its own rules and regulations as well as tax consequences. Our firm often consults experts to fully understand the value of the retirement benefit and understand the unique properties of the particular asset. U.S. Military benefits are particularly tricky as both State and Federal Law directly contradict each other and there are multiple formulas that consider different factors such as pay at the time of divorce verses pay at the time of disbursement.
Gifts and Inheritances
Gifts received during the marriage are presumed to be marital property, but that presumption can be overcome by evidence that the gift was solely intended for one spouse. The burden of proving that the gift was intended for just one spouse is on the recipient of the gift. Consider for example a family heirloom, such as a ring or piece of antique furniture or perhaps a vacation home that has been in the family for a long period of time. Inheritances are often easier to prove as separate property as they typically come as a result of court action or a will or trust specifically naming the intended recipient.