How To Divide Assets in a Divorce

assets being cut apart

The Balance / Josh Seong

When you’re getting divorced, you don’t just need to figure out how to untangle your life from your spouse’s, but you also need to determine how to separate your finances and assets. The division of assets in divorce depends on a number of factors including your state’s laws, whether the property was acquired before or during the marriage, and the type of asset. 

Key Takeaways

  • Most property obtained during marriage is divided during divorce, but property obtained prior to marriage is treated as separate property and isn’t subject to division.
  • In equitable distribution states, the court attempts to divide marital property fairly, but that doesn’t always mean equally.
  • In community property states, property and debt acquired during marriage are usually subject to a 50/50 split.
  • Gifts and inheritances are generally considered separate property and not divided in divorce

How Is Division of Assets Decided?

The following factors will likely influence how your property gets split up:


The laws surrounding the division of property during divorce are complex. It is essential that you seek the advice of an experienced divorce attorney.

Marital Property vs. Separate Property

Marital property is property acquired during the course of the marriage. Separate property is property that belonged to one spouse prior to marriage or that was acquired after legal separation or divorce. It also includes inheritances and gifts left to one spouse during the marriage.


Only marital property will be divided by courts during a divorce. Separate property is not subject to division.

Prenuptial Arrangements and Division Consensus

A prenuptial agreement can outline the terms for many financial issues that may arise during divorce. These include the assignment of property owned prior to marriage, the division of assets or debt acquired during the marriage, limitations on spousal support, and who will pay attorney’s fees.

“When there is a prenup (or a postnup) which complies with the law's procedural requirements, the court is required to allocate assets as set forth in the prenup, no matter how one-sided the division may be,” said Carl O.Graham, a Colorado Springs-based family law attorney, in an email interview.

According to Graham, prenups often stipulate that jointly held property will be treated as marital property in divorce. In these cases, the court’s role is to determine the value of the marital assets and then divide those marital assets equitably, which is similar to its role when no prenup exists.


In the absence of a prenup, some couples may agree on how to divide assets. Still, the court will scrutinize these agreements when property isn’t divided equally, particularly if one person doesn’t have legal counsel.

“In general, spouses can usually get away with an agreement for a 60/40 split, and maybe 70/30,” Graham said. “But a greater disparity than that has a higher risk of being rejected. I have seen judges reject grossly unequal divisions of marital property and tell the spouse with less than an equal share to get a lawyer.”

Common-Law vs. Community Property

A major factor in the division of property during divorce is whether you live in a common-law state or a community property state. In the 41 states that have a common-law system, assets and debts acquired by each spouse are generally treated as their own. 

In community property states, however, each spouse is assumed to have a 50% interest in assets and debts acquired during the marriage. Nine states, plus the territories of Guam and Puerto Rico follow community property law. Alaska allows couples to voluntarily opt-in to community property rules.


Some property is commingled, meaning it is considered part-separate and part-community. For example, contributions made to a retirement plan by a spouse prior to marriage are separate property while those made after are marital property.

Law of Equitable Distribution

Non-community property states often follow a principle known as equitable distribution. Under this principle, courts aim for fair—but not necessarily equal—distribution of property. Equitable distribution is often based on factors such as how long the marriage lasted, each spouse’s contribution to marital property, and the earning potential of each spouse.

Some states also allow courts to consider marital misconduct, such as adultery, if it contributed to the dissolution of the marriage or the couple’s economic circumstances.

Dividing Bank Accounts

Bank accounts are divided like any other asset during divorce. It’s irrelevant whether the account is held in an individual’s name or jointly titled. 

According to Chicago-based family law attorney Thomas P. Miller, the division is determined by whether the asset is marital or nonmarital. If the account includes money earned during the marriage and isn’t subject to an exception to marital property (for example, if it contained a gift or inheritance that wasn’t commingled with other funds), the court will treat it as marital property.

“Of course, if the account is in your spouse’s name only, you have no access and there is an increased likelihood that the spouse will withdraw and dissipate the funds, but that is a practical issue, not a legal one,” Miller said.

Dividing Your Family Home and Real Estate

Deciding who gets real estate can be a complex matter during a divorce. It can also be an emotional matter, especially when it comes to the family home.

When One Spouse Owns the House

If one spouse owned a home prior to marriage, didn’t add their spouse’s name to the deed, and didn’t use marital money for housing-related costs, it will typically be treated as nonmarital property. In other words, if your spouse had a house before you got married and they used money earned before the marriage to pay for the house while married to you, the home will generally go to them, unless they added you to the deed.

Family homes can be part-marital and part-separate property. For example, if you don’t own the house but your contributions increased the home’s value, the appreciated value could be treated as marital property.

When There Is Joint Homeownership 

If the home is jointly owned, it’s considered marital property. The spouses need to consider whether either person can afford the property, as that person will be responsible for the mortgage, property taxes, insurance, and related expenses. Sometimes, a divorcing couple will decide that neither person can afford to keep the home and agree to sell it.

If a divorce case goes to trial, a judge will decide either to award the home to one person or order the parties to sell it. 


If the divorcing couple has minor children and the custodial parent is awarded the home, the judge can also delay the sale, usually until the youngest child has completed high school.

Dividing Credit Cards and Loans

If you have credit cards or loans, dividing debt during divorce will depend on several factors, including your state’s laws, when the debt was acquired, and whether the debt is jointly held or in one spouse’s name. Each person is responsible for paying debt that’s in their name, whether it’s solely theirs or it’s jointly held debt, such as a credit card or loan in both spouses’ names.

Generally, debt incurred before the marriage or after separation belongs solely to the person who took on the debt. But for debt taken out during the marriage, the rules depend on whether you live in a common-law or a community property state. 


In common-law property states, individual spouses are usually responsible for their individual debts. But in community property states, spouses are equally responsible for debt acquired during the marriage, even if it’s only in one person’s name. 

A divorce decree does not change the debt contract you have with a lender. Debt collectors can still take action against you for any account that has your name on it, regardless of who the divorce decree holds responsible for repayment of that debt. That’s why it’s essential to make the minimum payments yourself or monitor the account to be sure your former spouse is making payments. If you or your former spouse miss payments, it could impact your credit score.

It works similarly the other way around, too. Even when one spouse is liable for debt, judges can still assign responsibility for repayment to the other person. However, that won’t change the debt contract. 

Let’s say you own the debt. That means the creditor can still come after you, even if a judge ordered your spouse to repay it. But if your ex doesn’t pay up as ordered, you could sue them.

Important Tips for Division of Debt in Divorce

The rules around who can be liable for debt in divorce are not straightforward. The following tips may be helpful when you’re working towards division of loans and credit card debt:

  • Removing your name from the title of a home or a car will not remove your debt obligation towards the mortgage or car loan.
  • Removing yourself from a joint credit card account provides relief from responsibility of future charges only. You will still be responsible for past debt on that credit card.
  • Being an authorized user on your spouse’s credit card does not make you responsible for paying off the credit card debt.

Dividing Retirement Accounts and Social Security

The division of retirement accounts in a divorce comes with some unique rules. As mentioned earlier in this article, even if the accounts were created prior to marriage, money in the accounts earned during the marriage are considered marital property and will be divided. 

Retirement Accounts

To split a workplace retirement account, like a 401(k) or pension, a court-ordered document called a qualified domestic relations order (QDRO) is required. For individual retirement accounts (IRAs) and health savings accounts (HSAs), most financial institutions require a document called a “transfer incident to divorce” and a copy of the divorce decree.

Social Security Benefits

You may be eligible to receive Social Security benefits based on your ex-spouse’s earnings record when you become eligible for benefits. You’ll only receive the spousal benefit if it’s more than your own retirement benefit and if you meet all of the following criteria:

  • If you were married for 10 years or more
  • You have remained unmarried, even if your spouse has remarried
  • If your ex-spouse is 62 years of age or older

If you’re eligible for benefits on your own, but your ex-spouse’s benefit is higher, the Social Security Administration will pay you an additional amount on top of your benefit so that you’re receiving the higher amount. 

If you receive spousal benefits, it will have no impact on your benefit, nor will it affect the benefits of your current or future spouse.


If both you and your ex-spouse are eligible to receive Social Security benefits, you can claim the spousal benefit even if your ex-spouse hasn’t started taking them.

Dividing Investment Accounts 

If investments such as stocks and bonds are marital property,  a judge would determine the date of valuation, which could be the date of divorce or the date the mediation agreement was signed.

One way to divvy these assets up is for both spouses to agree to liquidate their holdings and split the proceeds. But that could have capital gains tax consequences if the investments are sold for a profit.

Another way would be to divide the investments themselves by transferring them equitably between spouses. For example, if 200 shares are considered marital property, each spouse gets 100 shares. To make the transfer more equitable, IRS rules say that the cost basis for the spouse receiving the transfer of assets is the same as the cost basis for the spouse transferring the asset.

The IRS also provides some tax relief for such a transfer. Property received from a spouse during a divorce is considered a gift and not taxable. However, if it’s an income producing asset such as a stock or a bond, the spouse transferring the property needs to report any income, gain or loss, or dividends on their tax return until the transfer occurs. Similarly, the transfer recipient must report all those details on their tax return after the transaction is complete.

Dividing 529 Plans

A 529 plan can only have one owner, but the account may be considered marital property. Ownership can only be transferred through a court order, such as a divorce decree. Often, spouses factor in the potential impact on financial aid when they decide who will own 529 plan assets.

Dividing Digital Assets and Cryptocurrencies

Cryptocurrencies are divided like any other financial asset during divorce. A bigger issue is the anonymity associated with cryptocurrency, which makes it easier for spouses to hide assets. If you suspect your spouse is using crypto to conceal assets, it may be necessary to hire a forensic CPA.

Dividing Life Insurance

Term life insurance has no cash value because it only pays out if the insured person dies during the specified term. But permanent life insurance, which builds cash value, may be considered marital property and subject to division with other assets.

What Assets Cannot be Split In a Divorce?

While there is a wide variety of assets that can be impacted by divorce, there are some assets that cannot be split:

Premarital Property

Premarital property generally is treated as separate property; therefore, it isn’t split during a divorce. But sometimes property acquired by one spouse before marriage can be treated as marital property if it has increased substantially in value due to the efforts of the other spouse or both spouses. 

Gifts Received During Marriage

If one spouse receives a gift during the marriage, it’s treated as separate property, so long as it isn’t mixed with marital property.

Inheritance Received During Marriage

Like gifts, inheritances are treated as separate property. As with a gift, an inheritance can become marital property if it’s commingled with other funds.

Assets Acquired After Decree of Judicial Separation

Usually, once spouses are permanently separated, any property acquired isn’t considered marital property. But in some states, any property issued before the divorce is finalized is treated as marital property.

Any Property Excluded Due to An Agreement

If an asset is excluded due to a valid prenuptial or post-nuptial agreement, it will be divided per the agreed-upon terms, instead of by the courts.

Frequently Asked Questions (FAQs)

How do you divide property in a divorce?

Dividing property in a divorce depends on a number of factors, including whether there is a prenuptial agreement, whether the property is marital property or separate property, and whether you live in a community property state.

How do you divide debt in a divorce?

Division of debt during a divorce depends on state laws and when that loan was taken out. In community property states, debt taken out during the marriage is considered marital property, and both spouses are 50% liable for repayment. If debt was taken out prior to marriage, it is considered separate property and is the responsibility of whichever spouse acquired the debt.

In non-community property states, judges try to determine equitable distribution of assets and debts. That means, a divorce decree may hold you responsible for repaying a debt that your ex took on—though usually in these cases, debts acquired during marriage are the responsibility of whichever spouse acquired the debt.

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