One of the most contentious and often difficult parts of the divorce process is the division of the spouses’ marital assets or property—both real property (real estate) and personal property (money, stocks, bonds, homes, cars, art, household furnishings, etc.). The spouses may be able to agree on how such assets will be divided—but often they cannot, and the court must determine how the assets will be divided—and sometimes the court will order certain assets be sold to facilitate the division of the assets.
If the spouses live in a community property state (as opposed to an equitable distribution state), and if an asset was acquired by one spouse before the marriage, it will generally remain that spouse’s separate property and not subject to division upon divorce. But income earned from the separate property asset and any appreciation (increase) in the value of the separate property asset during the marriage may be community property rather than separate property, and subject to division. Community property states generally include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
In other states—so-called equitable distribution or common law property states—the court attempts to divide the spouses’ assets equitably (fairly)—which does not necessarily mean equally. In deciding what is an equitable distribution of the spouses’ marital property, the court may consider factors such as the relative education, employability, earning capacities, and separate property assets (acquired before marriage) of the spouses, and whether one spouse’s infidelity or abusive behavior, for example, was a greater factor in the breakup of the marriage.
In practice, the difference between the division of assets in community property states and in equitable distribution states is sometimes not as great as it may seem, as the court in a community property state may have the discretion to divide the spouses’ community property on a 60-40, 70-30, or other unequal basis.
When evaluating the division assets, it is also important to consider any tax implications for the division of the assets—such as the responsibility to pay property taxes due on a home or other real property.
In Texas, which is a community property state, the division of marital assets during a divorce is based on the principle that all property acquired during the marriage is considered community property and is subject to division. Assets acquired by one spouse before the marriage are typically considered separate property and are not divided. However, income from separate property and any increase in its value during the marriage may be deemed community property and thus divisible. Texas courts aim to divide community property in a manner that is just and right, which may not always result in a 50-50 split but could be an unequal distribution based on various factors. In contrast, equitable distribution states divide assets based on fairness, considering factors such as each spouse's financial situation and contributions to the marriage. Despite the theoretical differences between community property and equitable distribution systems, in practice, the outcomes can be similar, with courts in both systems having discretion to divide assets in a way that they deem appropriate. It is also crucial to consider tax implications when dividing assets, such as property tax responsibilities.
