Purchasing Property During a Divorce
If you are undergoing a divorce, you may find yourself in the position of needing to make significant purchases, such as a more reliable vehicle to transport children, furniture to outfit a separate residence, or perhaps even a new residence.
When you purchase property (whether land or personal property) while a divorce is pending, a court may consider the purchase in dividing assets. But a court's treatment of such newly purchased property at the time it divides assets depends on a number of factors, among them the value of the purchase;the financing for the purchase, if any; the source of funds to make the purchase; and the jurisdiction where the divorce occurs.
How do I Prevent My Spouse from Making Big Purchases?
Your state's divorce laws may have a mechanism in place for you to request a financial restraining order that prevents you and your spouse from dissipating assets during a divorce. These orders often permit the use of assets for normal necessary expenditures but require court permission for larger expenditures. If you need to make a significant purchase,you should discuss it with your family attorney or obtain the agreement of your spouse before proceeding.
How Will a Court Treat Property Purchased Through Financing?
Property purchased through financing usually has no or negligible value and a court will normally assign associated debts to the purchasing party.
As a divorcing spouse, you may be distressed to learn that your future ex just bought something of value like a vehicle or new furniture. You may be concerned that your future ex is wildly spending marital assets or believe such spending is anecdotal proof that your spouse has hidden assets and spent them on expensive items. However, if the property was actually purchased on credit, it either has no value in the court's eyes or is actually a liability.
Most people finance expensive purchases. Factoring in depreciation (e.g. a new car dropping in value on first use) or transaction costs (e.g. closing and financing costs on a new home), the actual value of the financed property may not exceed the associated debt.
In situations where you or your spouse made a down payment toward the purchase of property and financed the balance, a court may consider the down payment in a property distribution at divorce. If a down payment came from marital assets or marital community property, regardless of the actual value of the financed property, a court could treat that down payment as a pre-divorce distribution of marital assets and award the other party more of the remaining assets as an off-set. If the down payment came from funds that are separate property, then a court might choose to ignore the down payment and award the property and associated liabilities to the purchasing spouse.
What About Property That Has Been Purchased Outright?
Generally a court will award you and your spouse your individual personal property, which includes your personal items such as clothes, grooming supplies, accessories, and jewelry without significant value. If similar items are purchased during the pendency of the divorce and the source of the funds and the spending is not excessive or out of character, it is unlikely that a court will scrutinize the value of your respective personal property purchases to determine a fair property division.
Judges do not want to waste court time dividing a couple's personal property. For more significant purchases, a court's treatment of the property will depend on the source of the funds. And the outcome of a property division may depend on whether the jurisdiction is a community property jurisdiction or a "fair and equitable" jurisdiction. Examples of items that could have sufficient value for the court to scrutinize include art, jewelry, furniture, appliances, vehicles, antiques, firearms, tools, valuable collectibles,or real property.
What If I Live in a Community Property State?
In a community property state if you or your spouse used marital community assets to make the purchase, then the purchased property is community property and a court will consider the property's value in its eventual distribution of community property.
This normally means that the non-purchasing party would receive a larger share of the remaining marital assets to offset the value of the purchased property.If, however, you or your spouse purchased property with separate pre-marital assets, a court will characterize the property as separate property.
Further, if you and your spouse have separated permanently, each of your earnings will be considered separate property, and items purchased with those earnings will be separate property. Some community property jurisdictions, like Washington, give divorce courts the authority to distribute separate property to achieve a fair and equitable result, but they are less likely to do so than in a non-community property jurisdiction.
Does It Matter That I Live in a Non-Community Property State?
In a non-community property state, such as Oregon, property you or your spouse purchase during the pendency of a divorce is presumed to be marital property. As such, the property is generally presumed to be acquired through equal contribution and its value subject to equal division.Thus, the party keeping the purchased property would receive a smaller share of the remaining assets to offset the property's value, be forced to liquidate the asset and share the proceeds, or pay the opposing party a judgment to keep the property.
Even if you or your spouse proved that you used pre-marital funds to make the purchase or successfully rebutted the presumption of equal contribution, the value of the purchased property is still subject to distribution by a court.If a court found that an equal division of the marital assets was not "fair and equitable" the court could then consider the value of your or your spouse's separate marital property, regardless of when purchased, in deciding to make an unequal award of the marital assets or to divide separate marital property.
Courts in non-community property jurisdictions tend to be more likely to distribute a party's pre-marital or post-separation property or assets to achieve a "fair and equitable" result at divorce. Many non-community property jurisdictions also treat assets and property acquired outside of the marriage as separate, and they tend not to divide separate property if the parties are on relatively equal financial footing at the time of divorce. The specific results may vary from jurisdiction to jurisdiction.
Overall, it is important to know that the value of property purchased with proceeds from your community property or marital assets will be considered in a court's property distribution on divorce. Consult with your divorce attorney if you have concerns about property purchased during the pendency of your divorce.