How Assets Are Divided in Divorce: A State-by-State Overview

One of the most significant aspects of divorce is dividing the property and assets you've accumulated during your marriage. How this division works depends largely on where you live. Understanding your state's approach, and the difference between marital and separate property, is essential for protecting your interests.

Two Systems: Community Property vs. Equitable Distribution

The United States has two main approaches to dividing property in divorce:

Marital Property vs. Separate Property

Regardless of which system your state uses, understanding the distinction between marital and separate property is crucial.

Marital Property (Subject to Division)

Generally includes all assets and debts acquired during the marriage:

• Income earned by either spouse during marriage
• Real estate purchased during marriage
• Retirement accounts and pensions earned during marriage
• Vehicles purchased during marriage
• Bank accounts funded during marriage
• Business interests developed during marriage
• Investments made during marriage
• Debts incurred during marriage

Separate Property (Usually Not Divided)

Typically remains with the original owner:

• Property owned before the marriage
• Inheritances received by one spouse (even during marriage)
• Gifts given specifically to one spouse
• Personal injury settlements (in most states)
• Property defined as separate in a prenuptial agreement

Dividing Specific Types of Assets

The Family Home

Often the largest marital asset, the home presents several options:

• Sell and split proceeds: The cleanest option is usually to sell the home and divide the equity
• One spouse buys out the other: One spouse keeps the home and pays the other their share of equity
• Continue co-ownership: Sometimes done temporarily for children's stability, with a plan to sell later

Consider not just the equity but ongoing costs: mortgage, taxes, insurance, and maintenance. Can you afford the home on a single income?

Retirement Accounts

Retirement assets earned during marriage are marital property. Dividing them requires care:

• 401(k)s and pensions: Typically require a Qualified Domestic Relations Order (QDRO) to divide without tax penalties
• IRAs: Can be divided through a transfer incident to divorce
• Valuation: Pensions especially require professional valuation

Business Interests

If either spouse owns a business, it can be one of the most complex assets to address:

• Professional valuation is usually necessary
• Distinguish between pre-marriage and during-marriage value
• Consider whether the business can be divided or if one spouse will buy out the other
• Address ongoing income from the business

Debts

Debts incurred during marriage are typically divided too:

• Mortgages
• Car loans
• Credit card debt
• Student loans (treatment varies by state)
• Tax liabilities

Important: A divorce decree assigning debt to your spouse doesn't change your obligation to creditors. If both names are on a debt and your ex doesn't pay, creditors can still come after you.

Hidden Assets: What to Watch For

Unfortunately, some spouses try to hide assets during divorce. Watch for:

• Unusual cash withdrawals
• Overpaying the IRS (to get a refund after divorce)
• Salary paid to a fake employee
• Investments in unfamiliar accounts
• Transfers to family members or friends
• Underreporting income (especially for self-employed)
• Cryptocurrency holdings
• Valuable items (art, jewelry, collectibles) moved out of the home

If you suspect hidden assets, your attorney can use discovery tools including subpoenas, depositions, and forensic accountants to uncover them.

Protecting Your Interests

Before Filing

• Gather and copy all financial documents
• Create an inventory of all assets and debts
• Understand your household income and expenses
• Check your credit report for unknown accounts
• Consult with an attorney about your state's laws

During the Process

• Be honest and fully disclose all assets (hiding assets can backfire badly)
• Don't make major purchases or transfers without consulting your attorney
• Keep separate property separate and document its source
• Get professional valuations for complex assets
• Consider tax implications of different division scenarios

Think Long-Term

Don't just focus on the total dollar value. Instead consider:

• Liquidity: Cash is more flexible than home equity
• Tax basis: $100,000 in retirement funds isn't the same as $100,000 in a savings account after taxes
• Ongoing costs: Keeping the house means paying for maintenance, taxes, and insurance
• Future growth: Some assets appreciate more than others
• Your needs: What do you need now vs. in retirement?

When to Get Professional Help

Consider hiring professionals beyond your attorney:

• Forensic accountant: For complex finances or suspected hidden assets
• Business valuator: If a business is involved
• Financial advisor: To understand long-term implications of settlement options
• Tax professional: To understand tax consequences
• Real estate appraiser: For accurate property values