- Marital vs. separate property
- Commonly shared assets
- Selling the marital home
- Home refinancing
- Transferring property
- Spouse hiding assets?
- Legal consequences
- Hypothetical scenarios
- FAQ
Getting a divorce raises countless questions, including how to divide a couple’s assets. In a divorce, there is marital property – property subject to division – and separate property – personal property you own individually that's not subject to division.
When divorce is imminent, some people try to scoop up as many assets as possible, an act that isn't usually allowed. Why? Because most of your assets are marital or shared (community) property.
Marital vs. separate property
Legally, marital property and separate property are two distinct categories of assets. Marital property is subject to division, whereas separate property often is not.
Marital property
Marital property refers to any assets acquired by either spouse during the marriage, regardless of who paid for or received them. This property is generally considered jointly owned by both spouses.
Common marital property:
- Income or earned wages, bonuses
- Property or assets purchased during the marriage
- Retirement benefits, pensions, and insurance policies accrued during the marriage
- Real estate, bank accounts, and other financial assets acquired during the marriage
In community property states, marital property is almost always divided equally (50/50) between spouses during a divorce (if left up to the court).
In equitable distribution states, marital property is divided based on what is deemed "fair," which may not necessarily be equal. Courts consider things like the length of the marriage, each spouse's financial situation, and their contributions during the marriage (money, labor, etc.).
Separate property
Separate property belongs to one spouse only and is generally not subject to division during divorce.
Common separate property:
- Assets acquired by one spouse before the marriage
- Inheritances or gifts received by one spouse, even during the marriage
- Personal injury awards received by one spouse
- Property explicitly designated as separate in a prenuptial or postnuptial agreement
Can separate property be converted to marital property?
In some cases, separate property can become marital property. For example, if one spouse mixes their separate assets with marital funds or retitles separate property in both spouses' names, it can lose its separate status.
What assets do most couples share?
Most divorcing couples have assets that they share such as real estate, cars, and bank accounts. Real estate might include a house, vacation home, rental property, or other properties. If the couple jointly owns one or more vehicles, those will likely need to be split. Bank accounts to be split include joint checking and savings accounts from which both parties could access funds when they were a married couple.
Further, married couples may share investment portfolios including stocks and bonds, retirement accounts such as 401Ks or IRAs, mutual funds, and other investments. Life insurance policies are typically shared assets that need to be split between the two parties when they get divorced. There are other intangible assets to consider as well, such as profit-sharing endeavors and cryptocurrency.
Before a divorce can be finalized, all of these assets must be accounted for so there can be an equal division between spouses according to state laws and court orders.
Can I sell my marital home before the divorce is final?
Generally, you cannot sell your marital home before your divorce is final without permission from the court. Selling property before a divorce is finalized can complicate matters and impede negotiations during the divorce process. It may even go against the divorce laws of your state.
However, if you and your soon-to-be ex-spouse agree to sell the family home, you may be able to do so before you get your final divorce papers. You'll need to keep a clear accounting of the proceeds of the sale, as that money will be subject to distribution between you. In some cases, you may be able to use some of the proceeds to provide necessary spousal support for living expenses, but you'd need to keep detailed records of that, too.
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Can I refinance my house before the divorce is final?
Typically, you cannot refinance your home before you get your final divorce decree. Refinancing under your name only requires you to know your post-divorce income and prove that, with documentation, to the bank. You won't have that information yet, so a bank is unlikely to greenlight a refinance unless you can prove with documents that you qualify for a new mortgage based on your current separately earned income/single financial picture.
That said, you can start searching for the best refinancing rates now – though you won't be able to complete the refinancing process until after your divorce.
Note: If you plan to keep the marital home after your divorce and it is currently titled in both your names, you will likely need to refinance when changing ownership. This is why it's a good idea to begin your refinance search now. The more knowledge you have ahead of time, the faster you may be able to move through the refinancing process once your divorce is complete.
Learn more about mortgage refinancing:
- Mortgage and Refinancing Basics after Divorce
- Can I Refinance My House Before Our Divorce Is Final?
- Refinancing a Divorce Buyout
- What Happens if I Can't Refinance after Divorce?
Can I transfer property before my divorce to protect it?
No, and doing so could get you into serious trouble with the court, as it could be viewed as an attempt to withhold assets from your spouse. Transferring property before your divorce is finalized could even result in legal action being taken against you.
If you transfer any of your marital assets before your divorce is finalized, the court may consider these assets when determining who gets what in terms of property and debt division.
However, if one spouse does not have sufficient funds for living expenses during the divorce period, they may be able to transfer or sell assets before the divorce to cover these expenses. This usually requires permission from both parties or a court order.
What if I suspect my spouse is hiding assets?
If you suspect your spouse is hiding assets, it is important to take action right away. Alert your attorney and any financial experts involved in your divorce case. Your lawyers can help you investigate whether any assets have been hidden, and they may be able to access records and documents that would help give you a better idea of the total value of your community property.
Step-by-step guide: Suspect Your Spouse Is Hiding Assets During Divorce? + practical advice on documentation and more.
In some cases, your lawyer may need to talk to your spouse's accountant or other financial advisors to uncover any hidden assets. If necessary, the court may issue a subpoena obligating the other party to turn over all relevant records and documents related to their finances.
Additionally, if you believe someone who knows about the assets is lying during a deposition or refusing to cooperate, your attorney can file a motion to compel the person's compliance with the court orders.
Your attorney can also work with a private investigator if needed. Private asset investigators are trained in researching financial information and uncovering hidden assets by examining public records, bank statements, paperwork, tax returns, and other sources of information related to your spouse’s finances.
Legal consequences of selling items before divorce
Selling or transferring assets or property before a divorce is finalized can have significant legal repercussions, especially if it's done secretly or in an attempt to prevent the other spouse from claiming their share.
Here's an explanation of the possible legal implications followed by hypothetical scenarios for better clarity.
Breach of fiduciary duty
Courts expect spouses to act in good faith toward each other and to be honest. If one spouse sells or transfers assets to deprive the other spouse of their rightful share, this may be considered a breach of fiduciary duty. Courts can reverse transactions or order financial compensation for the other spouse.
Fraud
If one spouse transfers property to someone else (without a formal arrangement agreed to by the other spouse) in an attempt to hide it or to reduce the marital estate, this can be considered a "fraudulent transfer." Courts can invalidate such transactions and bring the property back into the marital estate for fair division.
Court-ordered penalties
Courts can penalize a spouse who improperly sells or transfers property. For example, they may give the other spouse a larger portion of the remaining marital assets to compensate for the loss or financial dishonesty.
Freezing of assets
Once a divorce petition or complaint is filed, courts may issue an automatic restraining order, preventing either spouse from selling or transferring property until the divorce is finalized. Violating this order can result in contempt of court, fines, or other severe penalties.
Hypothetical scenarios: Selling assets before divorce
Scenario 1: Selling a vacation home
John and Maria are in the process of separating. John sells their vacation home and uses the money to pay off his personal debts without Maria's consent or knowledge.
John may be found to have breached his fiduciary duty to Maria. Since the vacation home was part of their marital property, the court could reverse the sale or order John to compensate Maria for her share of the home’s value.
Scenario 2: Transferring stock to a family member
Before filing for divorce, Sarah transferred $50,000 worth of stock to her brother, hoping that her spouse, David, wouldn’t find out and wouldn’t claim it during the divorce.
The court may treat this as a fraudulent transfer. They could invalidate it, bring the stock back into the marital estate, and possibly award David a larger share of the assets. Sarah may also face penalties for trying to hide marital property.
Scenario 3: Gifting a car to a friend
Mark is planning to file for divorce soon, so he gives his car (which is a marital asset) to his friend under the pretext of a "gift." After the divorce, he plans to get it back from his friend.
The court could see this as an attempt to hide assets and could order the car to be returned to the marital estate. Mark might also lose credibility in court, which could affect other aspects of the divorce proceedings, such as alimony or custody arrangements.
Scenario 4: Liquidating retirement funds
Laura liquidated a portion of her retirement funds before filing for divorce, claiming that the funds were used for personal expenses not related to the marriage.
Retirement funds are often considered marital property. If the court finds that Laura improperly liquidated these assets, they might compensate her spouse by awarding them a larger portion of other assets or penalizing Laura financially.
Conclusion
Selling or transferring property before a divorce can lead to serious legal consequences, particularly if done in bad faith. While it may seem like if you used your own income toward purchases, those items are “yours,” that’s rarely the case. Stay-at-home or unemployed spouses may not be making money, but they are entitled to assets just the same. Courts aim to divide assets fairly, so any action that diminishes the marital estate will be carefully scrutinized. It's always advisable to consult with an attorney before making any significant financial moves if divorce is on the horizon.
FAQ about selling assets before or during divorce
Can I give away or gift assets to someone else during the divorce?
No, this can be seen as an attempt to hide assets, which is known as a "fraudulent transfer." See above for more information.
What happens if I sell an asset because I need the money for living expenses?
Selling an asset for legitimate reasons, such as covering necessary living expenses, may be allowed, but it’s crucial to be transparent and receive formal permission from your spouse or the court. The court can review the situation to determine whether the sale is justified.
What can a spouse do if the other sells property without their consent?
Petition the court to investigate the sale. If the court finds that the sale was improper, it can take various actions such as reversing the transaction, ordering compensation, or awarding the spouse a larger portion of the remaining marital assets.
Can I sell my business or shares in a business before the divorce?
This is complicated. If the business is considered marital property, your spouse may be entitled to a share of its value. Before selling business assets, it’s important to consult a lawyer to ensure that the sale complies with divorce laws and doesn't negatively impact your spouse’s rights.
Can the court prevent me from selling assets during the divorce?
Yes, in many divorce cases, courts issue an automatic temporary restraining order (ATRO) or similar orders once the divorce is filed, preventing either spouse from selling or transferring assets. This order remains in effect until the divorce is finalized or the court modifies it. Violating this order can lead to legal penalties such as fines or contempt of court charges.
How are proceeds from the sale of marital property divided in a divorce?
If marital property is sold during a divorce (with both parties’ agreement or court approval), the proceeds are typically divided equitably between the spouses. The division depends on whether the state follows principles of community property (50/50 split) or equitable distribution (fair but not necessarily equal split).
Can I sell assets before filing for divorce to reduce the asset pool?
No. The court views any reduction of the asset pool as suspicious and may consider it when deciding how to divide the remaining assets between divorcing spouses. There are, however, certain exceptions that would allow spouses to sell assets before their divorce is finalized. These are usually limited to situations where there is a need for money to meet necessary living expenses or pay off debts incurred during the marriage.
Financial issues in divorce are complex and often confounding. At Hello Divorce, we offer online divorce plans to help simplify the process as well as legal advice and financial planning assistance that can help you foster a fair division of property and other assets.
Want to sell your ring or other personal property after your divorce? Evaluate the cash worth.
