Dividing the Estate in a Divorce

Once a couple has divided up any high-stress assets and other logical asset divisions have been made, the rest of the marital estate should be dealt with. This might include household effects, financial assets, and unsecured liabilities.

Assets in the Estate

Household effects are best dispensed with by dividing them by utility. The parties share those items that are necessary to live so that replacement costs are minimized. Financial assets that are equivalent to cash are usually the last assets to be divided. They are easily transferable between the parties and can be used to equalize the marital estate division or to effect whatever type of division the couple deems equitable. It is important to bear in mind that while the transfer of cash and cash equivalents between parties normally does not cause problems, the transfer of funds in deferred compensation plans or individual retirement accounts can create significant problems.

Credit Card Debt

Credit card debt will normally be the biggest component of unsecured liability. There are at least two schools of thought on how to handle unsecured liabilities. Some believe that the liabilities should simply be thrown into the pool of assets and liabilities and be divided equally between the parties. Others contend that these types of liabilities should be divided based on the parties’ ability to pay. In reality, the best approach has components of both. Your attorney will work with you on coordinating this.

It is true that the parties are equally responsible for the debt and, ideally, they should respond to the debt equally. Equal response to the debt only works, however, if the parties’ ability to generate income are roughly equal. If one party is operating at the poverty level and the other is significantly above it, saddling the first party with half of the unsecured debt makes little or no economic sense because that party has limited access to ready cash and inferior borrowing power.

Dividing the Debt

If a wife earns minimum wage and is given a car with $20,000 worth of equity and $20,000 worth of credit card debt,she has no reasonable way to respond to the debt she has been assigned. The husband, who is also given a car worth $20,000 and credit card debt of $20,000, makes $60,000 per year and is much better positioned to pay off the debt. Although the net division to both the parties is zero and, therefore, equal, the result is far from equitable. The wife cannot sell her car to resolve the debt, as it is required to keep her employment, and she does not have enough cash flow to meet the debt service.

Economic logic would dictate a proportional division of the debt based on the relative earnings of the parties or the husband taking on all of the debt to avoid having to support the wife by means of alimony. A family law attorney can help structure an equitable debt allocation.

To schedule a consultation with us, please contact Lisa Zonder at (805) 632-6459