How Will You Divide Your Assets & Debts in a Divorce?
During your Washington divorce, all your property and all of your debts, even those you have separate from your spouse will be divided and awarded to one party or the other, sometimes with the assistance of the court. The term "property" includes your home and all other real estate, personal belongings, vehicles, funds in your bank accounts or trusts, investments, stock options, retirement benefits, pensions, and business interests. The division of property is often one of the most contentious aspects of divorce in Washington. For many people, property holds a substantial emotional and financial value. It is best to avoid letting emotions get the best of you during this process. Your attorney can help you advocate for your retention of the property you hold most dearly, and for your fair portion of the property of financial value.
It is of great importance to the property division process that you and your spouse are aware of the existence, nature, and value of all marital ("community") and separate property. The financial value of property may be difficult to determine without the assistance of an expert appraiser, or sale of the property. Your family law attorney will help you determine which property should be appraised.
Whether your divide your assets through negotiation, or have a court decide the division in court, the process will likely be very similar:
- First, each asset and debt will be characterized as community or separate.
- Second, each asset will be valued. This can be done by selling the item, having it appraised by an expert, using the actual dollar value (in the case of financial accounts), or agreeing to a valued; and
- Third, assets and debts are divided between the parties.
The division of property and debts can have lasting implications on your life beyond divorce. It is important that you be aware of Washington laws regarding property and debts during divorce. It can be very difficult (or impossible) and expensive to modify a property division after the divorce, so it is very important that the process be done right the first time. You should obtain advice from a Washington divorce attorney regarding a fair property division in your case. Divisions of assets may substantially change your lifestyle, job expectations, and retirement plans.
Community Property and Separate Property
The first issue the court will address when deciding an equitable division of your property is to determine the character of all your assets. Washington is a community property state. In a community property state, all property and all debt accumulated during the course of a marriage including income of both spouses is presumed "community property" belonging to both spouses. However, property acquired prior to the marriage beginning, property shown to be acquired by gift or devise, and some personal injury settlements are considered separate property of the spouse who acquired it. That said, there are circumstances under which separate property can become community property.
Sometimes it is beneficial to speak with a Washington family law attorney prior to, or during, your marriage to determine the best way to protect the separate character of you property. At the end of a marriage, it becomes especially important to speak with a divorce attorney if you and your spouse have substantial or complex assets (such as a business that must be valued). Your Washington divorce attorney will likely suggest that you hire a business valuation expert or forensic accountant to determine the valuation and disposition of such property.
Valuation of Assets
The value of both separate and community property will likely be a contentious issue in your dissolution case. It is often difficult for parties to agree on the value of all their property. In some circumstances, sale is the best way to determine the value of property. If parties want to retain ownership of the assets the parties may hire experts or the court may appoint a professional (paid for by the parties) to value the assets. Then, the court or mediator will decide values after reviewing the experts' reports. The method of valuation and the differences in the experts' reports are often heavily litigated by each side. If you have substantial assets it is essential that you hire a qualified Washington divorce attorney with experience and relationships with appraisers and valuation experts.
Dividing Your Assets
How does the court decide who gets what?
Washington law requires that the court's division of your property be "just and equitable" (RCW 26.09.080). Equitable does not mean equal. Instead, it usually means fair under the circumstances. In other words this may mean a bigger property award for a spouse with less ability to earn in the future. The court even has the ability to award separate property of one spouse to the other spouse. This is not typical, and the court will usually try and make a "just and equitable" division without doing so. The court generally will not consider any marital "fault" when dividing your property.
When deciding how to create a just and equitable division, the court may consider the following:
- The nature and extent of the community property;
- The nature and extent of the separate property;
- The duration of the marriage; and
- The economic circumstances of each spouse at the time the division of property is to become effective.
The court is most concerned about the economic circumstances both parties will be left with when the marriage officially ends.
FREQUENTLY ASKED QUESTIONS:
Will I keep my separate property?
Not necessarily. In some circumstances, Washington divorce courts can award separate property of one spouse to the other spouse, as part of their just and equitable division of property. Separate property may include vehicles, houses, real property, or bank or retirement accounts that are currently held as separate property of only one spouse. In most cases, however, the court will award each spouse his or her own separate property. The court will award one spouse's separate property to the other only in unusual circumstances and only if doing so is found to be equitable under the circumstances.
If you brought separate property into the marriage, or if you acquired separate property during the marriage that meets one of the community property exceptions, it is likely worth your while to investigate how you can prove that property's separate character. Your divorce attorney can help you determine whether you do have separate property, and how you can prove it to a court or other decision-maker should it become necessary.
What if my marriage was very short?
The goal of courts when a marriage is short in duration is to order a division of property that puts the parties back in the position they would have been had the marriage never taken place. There is no precise definition for "short term," but it most often applies to a marriage lasting less than five years.
What does the final property division look like?
The final division of property will state the property that you and your spouse will each retain separately, the debts that each of you will be assigned to pay, and, in limited circumstances, any assets or debts to be maintained jointly. In some instances, the Washington divorce judgment may not divide all your property but instead will give you rules about how to divide the property in the future, including a timeline or deadline for the division of the property at issue. This might include, the divorce judgment ordering that you are to divide your personal property (like furniture) after the divorce, or providing rules about how you must sell real property and divide assets/losses after divorce.
Can a property division be modified later?
The Washington divorce court's property division, once finalized in a judgment, is non-modifiable except in rare cases. One exception is for "omitted" assets. An omitted asset is a significant asset that was left out of the property division at the time of the divorce. The court's authority in this instance depends on whether the asset was omitted accidentally or intentionally. As you go through the process of negotiating a division of assets, or as you prepare for trial, you and your attorney should prepare diligently, and assume that you will only have one chance at the property division, because in all likelihood, that will be true.
What is personal property?
Personal property includes assets such as vehicles, furniture, clothing, art, books, jewelry, household items, family photographs, other belongings, and even pets.
How is personal property valued?
Personal property can be very difficult for the Washington divorce court, or a mediator or arbitrator to value. While they may not have significant resale value, they often have significant practical or sentimental value. It is unlikely that the court will understand the importance and meaning of the personal property. As such, if at all possible, you and your spouse, rather than the court, should agree on a division of your personal property with the assistance of your Washington divorce attorney. Sometimes it is best to omit the valuation process for personal property items and simply list who will keep each item. You may be able to agree on most items and leave a few disputed items, such as valuable artwork, for the court to value and divide.
How does the Washington divorce court divide personal property?
Personal property is treated the same way as other property by Washington courts. The court will characterize the property (as community or separate), value it (using experts or sales value, as necessary), and then divide it as part of the overall property division.
Arguments regarding personal property can be irrational and disproportionally expensive given the value of the property. When you speak with a qualified attorney, they should be able to provide an objective analysis of the value of your property. They can also listen to the value you place on the item. Then, together you and your attorney can decide how many resources you want to use fighting for that item.
Will I keep my separate personal property?
As stated previously, under the law, personal property is treated the same as other property. Both separate and community personal property can be divided by the court. In practice, however, it is unusual for personal separate property to be awarded to the other spouse.
How will the Washington divorce court divide real estate?
If your real property is not divided through negotiations prior to trial, the court will usually divide your jointly-owned real estate equitably. In most cases, one spouse will be awarded ownership of the real property and the other will receive an "offset." An offset is cash or other property equivalent in value to a proportional share of the equity in the real property from your combined holdings. Or, the spouse awarded the property may be assigned a larger share of the debt.
The court may also order that a property be sold and the proceeds divided in a particular way. This is known as "partition by sale." Alternatively, the court may order that the property be physically divided between the parties in lieu of a sale (also known as a "partition in kind").
If one spouse used separate property as a down payment for jointly-owned property then the court may award that spouse the amount he or she contributed to the down payment and the estimated value of its appreciation. In general, the court can also divide real estate located in other states. However, upon the court's order, documentation will need to be properly filed or recorded in that state.
Will I keep my separate real estate?
Either spouse may own a home or other real estate that is titled in only one spouse's name. This may be because the property was purchased that way or because one spouse signed a quit-claim deed transferring ownership solely to the other spouse. The fact that the property is titled in one spouse's name does not mean that the property is not community property (if, for instance, marital funds were used to purchase the property). Even if the property is truly separate it will not necessarily stay with its owner. Separate real estate, like all other kinds of separate property, is still subject to division in a divorce in Washington and may be transferred to the other spouse.
Courts may divide any equity of your real estate, family businesses, and any other investments. For instance, even if you began your business separately the court could award your spouse half of the appreciation accrued during your marriage. The Washington divorce court can also divide premarital equity just as it can divide other separate property, depending on the particular circumstances of your case.
Bank Accounts and Trusts
The Washington divorce court may divide bank accounts and trusts regardless of which spouse's name is on the accounts or whether the accounts are characterized as community or separate property. If there are substantial funds that are both separate and community in the account, then you may wish to have a forensic accountant track the history of the account. With proper accounting, the Washington divorce court may exclude the portion of the funds traced back to a separate source from the property division. For example, in dividing the contents of a bank account the court may divide only the portion of the account acquired during the marriage and give the remainder to the spouse who separately (and pre-marriage) earned those amounts.
If your case goes to trial, your vehicles will be divided in the same fashion as your other property. Thus, vehicles are not necessarily granted to the spouse who has title or who drives the car. Instead, the court will award the vehicles based upon what is just and equitable. In most cases fighting over who gets the car will not be worth the resources expended to do so. Usually, your best approach is to agree on a division in a settlement rather than having the Washington divorce court value your vehicles and divide them.
If the divorce settlement or judgment will change the ownership of any vehicle make sure to change title with the Department of Motor Vehicles and to inform your automobile insurance company as soon as possible.
Retirement Benefits and Pensions
Retirement benefits and pensions are also subject to equitable division in your divorce in Washington. Retirement benefits will be presumed community property if earned during the marriage, and the spouse who is not named on the account may be awarded a share of the account. If some of the retirement was earned before marriage or after separation, with careful accounting, the court may divide only the portion of the account acquired while the marriage was intact and give the remainder to the spouse who separately earned those amounts.
Determining how to award business interests as part of a Washington state divorce can be complicated. One method for division is coming to an agreement in which one of the spouses "buys out" the portion owned by the other party. Another option is for payments to be made by the jointly owned business to both spouses over a specified time period. While the court will be unlikely to order the parties to continue sharing the business, if the parties request that the business continue to be jointly owned, the court may approve the request, assuming that the parties show that they can remain professional with each other. As with other assets, it is essential that you know the value of the business (often with the help of a business valuation expert) before you agree to any division.
Even if a business is owned only by one of the spouses, the court may divide the value of the business, especially if it finds that the non-owner spouse provided labor or otherwise contributed to the value of the business without being paid.
If you or your spouse is a business owner facing divorce in Washington you should seek a Washington divorce attorney with special experience in divorces involving business valuation and distribution.
The Washington court has two options when determining how to divide your investments in a divorce in Washington. One option is to distribute the investment "in-kind" based on equitable percentages, that is, fair shares between you and your spouse. The other option is a buy-out. This is a distribution based on the current value of the investment. Here, one spouse keeps the investment and the other is awarded comparable assets with comparable values. This method requires a current valuation and analysis of the relevant tax issues.
You and your Washington divorce attorney, together with your tax professional, should carefully analyze whether to ask the court to distribute your investments based on either the "buy-out" option or the "in-kind" option.
Stock options (both non-vested and vested) are considered property subject to distribution during a divorce in Washington. Stock options are a company's promise to sell company stock to its employees at a specific price. As stock prices may change before the options vest, the options may vary in worth and may even be worthless. This variability can make it difficult to value and distribute stock options during a divorce.
Just as with other kinds of property, the Washington divorce court will first characterize the options as community or separate property. Two of the main facts the court will look to are the date and purpose of the stock option grant. If the grant was meant to reward past or present service to the company, and the work being awarded occurred during the marriage then the grant is likely community property. However, if all or a portion of the grant is meant to elicit future service to the company, or as future compensation, the grant may be characterized as separate property.
After the property is characterized it will need to be valued and divided. These are complicated issues and usually require the involvement of tax and financial experts in addition to a Washington divorce attorney. Division of stock option assets can be handled in two ways:
- The options remain with the employee spouse, and the court will have the non-employee spouse receive an offset for half the agreed value of the marital stock options as part of the overall division of property and debts. In this option, the non-employee spouse is paid whether the options lose their value or not. However, if the value of the options goes up, the non-employee spouse will not share in that.
- The other option is for the court to require that the non-employee spouse be paid in the future, when the options vest, rather than at the time of the divorce in Washington. This is called deferred distribution. In this option, the spouses share the risk, but also the potential reward.
In some circumstances, stock options will be considered income for the purpose of establishing or modifying spousal maintenance. Your Washington divorce attorney and tax professional can help you analyze this issue when deciding how to divide stock options.
Division of Debts
It is not just assets that need to be divided. Community debts must be divided too. Like assets, the court will make what they believe to be a "just and equitable" division of debts. Again, the court will begin by characterizing the debt as community or separate. Debts that were incurred during marriage will be presumed community debts. There are narrow circumstances, where you can show the debts were entirely (or partly) incurred by just one spouse and not for the benefit of the marital community, that the court may consider it separate debt. As with division of property, the Washington court has the authority to award debt to either party regardless of whose name the debt is held in and whether it is considered separate or community debt.
In certain circumstances the Washington divorce court will order one spouse to pay some or all of the other spouse's attorney fees. This is most often based on "need" and "ability to pay," meaning one party has a "need" for money and the other party has the "ability to pay" the money. This can be done in two ways—before or after the legal bill is incurred:
- Before: The Washington divorce court can order one spouse to pay a lump sum toward future attorney fees and costs to allow the other spouse to pursue or defend a divorce.
- After: The court can order that one spouse reimburse the other for attorney fees and costs already incurred.
The court may also order attorney fees be paid in cases of intransigence. This means that one spouse has acted unreasonably or in bad faith during the divorce. The court may then order that spouse to pay all or some of the other spouse's attorney fees. For instance, a spouse who hides or fails to produce financial documents may be ordered to pay the other spouse's divorce attorney fees, or a portion of the fees, to get those documents. The court may also consider whether each spouse has made a good-faith effort to settle the case and order attorney fees to be paid by a spouse who refuses to negotiate toward settlement in good faith.