Divorce is a difficult time for most, but you can ease the transition by knowing what to expect and what your rights are in Florida.
While it is assumed that child-custody and alimony issues would be the most litigated aspects of divorce, Florida statistics show that property division causes the most requests for court-hearing time. However, if you and your spouse can agree on a split of your property ahead of time (called a “matrimonial settlement agreement”), and your agreement is reasonable, the court can approve your agreement as written. This can be a real financial and emotional cost-saver to you. Otherwise, the court will set the matter for a hearing, hold a trial, and impose its own decision on how to divide your property.
So what are the general principles of property division that the courts in Florida, by and large, follow?
Assets and Liabilities
Property includes everything that you have that could be considered an asset, such as your home, cars, vacation property, investment accounts, retirement assets, stocks, pets, bank accounts, equipment, your business, life-insurance cash-value, pension plans, accounts receivable, furniture, jewelry, etc.
You must also consider your liabilities. What do you owe? This must come into the mix too. Often, the parties fail to ensure that the person to whom the debt was assigned in the marital settlement agreement or divorce decree properly pays the debt. Remember: a creditor is not bound by the agreement between you and your ex or the court order. If it is a joint liability, they will look to you if not paid, regardless of any “agreement” or order.
After you’ve listed all your assets and liabilities, the courts look at whether your property is marital or non-marital. Marital property is subject to being divided by the court (or by the parties in a marital settlement agreement); non-marital is not.
Non-marital assets and liabilities include:
- Those acquired or incurred by either spouse prior to the marriage;
- Assets acquired by either spouse by non-interspousal gifts or inheritance;
- Income derived from non-marital assets during the marriage, unless the income was used or relied upon by the parties as a marital asset;
- Assets and liabilities excluded from marital assets and liabilities by valid written agreement of the parties
Marital assets and liabilities include:
- Those acquired or incurred by either or both of the spouses during the marriage;
- Enhancement of, or active appreciation in, value of non-marital assets as a result of the efforts of either spouse during the marriage or from the contribution to or expenditure of marital funds or other marital assets;
- Interspousal gifts during the marriage;
- All vested and non-vested benefits or funds accrued during the marriage in retirement, pension, profit-sharing, annuity, deferred compensation, and/or insurance plans and programs;
- Property held by the parties in tenancies by the entirety, or otherwise commingled, whether acquired during or prior to the marriage, is presumed a marital asset, although one spouse may claim the contrary and prove a special equity.
Let’s look at some examples of how marital and non-marital property division works.
John and Mary have been married for ten years. John is employed as a greeter for Wal-Mart. They have a joint banking account with a $1,000 balance and a credit-union account that John started two years prior to the marriage, which is now in their joint names. Every month, John places $25 in the credit union account from his wages. Mary has never deposited any funds into that account.
Mary’s mother died five years ago and left her $25,000; she used $5,000 to start a new business, which has been successful. Before starting her business, she had been a homemaker. Now she designs beach bags and matching sandals for the vacationers to Miami. A New York clothing designer has made an offer to buy her business for $85,000. With the remainder of her money from her mother’s inheritance, Mary bought John a new car to replace the old one that he had before they got married.
John has a pension from Wal-Mart, where he has worked for the past 20 years. He plans to retire in another 10 years. John and Mary have a joint credit card, which has a balance of $3,500. Mary also has a credit card in her name, which she uses for household purchases. It has a balance of $1,200.
In figuring out what property is marital and what is non-marital, it helps to determine when and where the asset arose.
The joint checking account arose during the marriage. It is presumed to be marital — even if it consists of commingled funds from non-marital property — where the funds have been used for joint expenses. However, non-commingled funds (even jointly titled) may be traced to establish that they are non-marital. The party trying to establish that they are non-marital funds would need to prove that a gift of the funds was not intended by the act of jointly titling the account.
The savings account started out as non-marital, as it began before the marriage. But wages during the marriage are marital property. John has commingled marital funds (his wages) with non-marital funds (the account balance before he married Mary) in addition to jointly titling the account. So these funds are presumed to be marital.
Mary’s inheritance is non-marital property. It arose from a source outside the marriage and was not a gift to both spouses or from one spouse to the other. Her business is marital property — less the original non-marital investment of $5,000. Her business is now worth $85,000, $80,000 of which is marital property. This $80,000 is the appreciation in the value of a non-marital asset (the original investment). Appreciation of a non-marital asset as a result of the efforts of one of the spouses during the marriage is marital property.
The car, which Mary purchased from her remaining inheritance, would have been non-marital if she had segregated it and not used it for the marriage. Instead, it became an interspousal gift during the marriage. It is marital property to the extent of its current appraised value.
John’s pension from Wal-Mart is part marital and part non-marital: he earned part of his pension before the marriage, some of it during the marriage, and he expects to continue to add to it after his divorce. For retirement pension plans that will be divided and disbursed at some time in the future, Mary would be entitled 50%, which is her half of the marital portion. Since John worked for ten years before marriage and ten years after marriage out of the total of 30 years of service with the company, under Florida law, the marital portion is one-third of the total frozen as of the date of division. Thus, Mary is entitled to 50% of one-third of the benefits from the pension plan, without appreciation for future gains after division.
For retirement assets that can be divided and disbursed now, such as 401(k)s and IRAs, Mary would be entitled to 50% of the value on the valuation date (which could be date of divorce, date of separation, or some other date agreed to by the parties). If the value of the 401(k) or IRA can be fixed as of the date of the marriage, that amount is often considered non-marital and subtracted from the total to determine the marital portion, which is subject to division.
The liabilities of the marriage are also subject to division. Normally, liabilities incurred during the marriage are deemed marital regardless of the lack of knowledge of one of the spouses. The court may, however, consider each spouse’s contribution to incurring the liability. If one party incurs the debt and primarily benefits from it, the court can make that person solely responsible for that liability.
John and Mary’s joint credit-card debt incurred during the marriage is presumed marital debt, and it is subject to division. Mary’s card in her sole name was used to purchase items for the marriage, so it is also considered a marital debt. However, if John and Mary agree to divide this debt and John later fails to pay on it, Mary could be left solely liable on the debt with the credit-card company. Her recourse would be to try to recoup from John the monies she has spent on his behalf.
Real property purchased during the marriage and titled in joint names is presumed to be marital property in Florida — even if it was only funded by one spouse with premarital or non-marital funds. The burden is on that spouse to prove that no gift to the other spouse was intended by the joint titling.
What if real property is titled only in one spouse’s name, but it was acquired during the marriage — or the real property was non-marital, but one spouse contributed labor or separate funds to enhance its value? “Special equity” is a judicial recognition that a spouse may have a vested interest in property either brought into the marriage or acquired during the marriage, but whose value was enhanced due to a contribution of services or funds over and above the marital duties. That spouse may have a vested right in property titled in the name of the other spouse or owned by the other spouse. Or that spouse may have more than a one-half interest in jointly held property in addition to and separate from any amount awarded in an equitable distribution.
When it comes to proceeds from the sale of the marital home, a whole set of specific rules comes into play. Whether a spouse is entitled to a credit or setoff against the proceeds is based on a set of factors, such as:
- Whether exclusive use or possession of the home is awarded, and the basis for such award;
- Whether alimony or child support is awarded to the spouse in possession of the home, and whether such alimony or child support is awarded to cover the mortgage, taxes, or other home-related expenses;
- The value of the use and occupancy of the home to the spouse in possession and to the spouse not in possession. The court will also look to which party will be able to claim any home-related tax deductions, including any capital gains event, and any other relevant factors in making its calculation of any right to a credit or setoff against the marital portion.
This is not an exhaustive list of possible property-division outcomes. Everyone’s situation is unique, but in general, you can determine most people’s asset and liability division in the event of divorce with some degree of probability by using the rules set out above.
Who should get what?
What is not clear is what property division is best for the parties. Now that we can predict what the court would most likely find to be the value of your marital estate, what should you do about it? Should your spouse take the car and the retirement funds while you keep the house? Or should you split it all down the middle to achieve an equitable distribution?
Unfortunately, most estates cannot be split straight down the middle due to the nature of the assets. And assets, even ones of equal financial value, do not have the same emotional value or the same tax ramifications. They can be inherently unequal, although of the same monetary value. If left to a court, the marital estate may be divided in ways that are not best for the parties, either financially or otherwise. What is an equitable distribution as far as you and your soon-to-be-ex-spouse are concerned? If your marital assets are not significant, then you may not have a difficult time divvying up the marital estate with your ex-spouse. However, if you have a pension plan or retirement account or a home, you could be talking about larger financial numbers than you may realize. Most individuals do not have the financial expertise or the time or inclination to obtain such expertise. A few hours with a Certified Divorce Financial Analyst (CDFA) may be worth the investment. A calm, rational approach is far better than living for years with the results of an inadequate division that failed to award you the assets to which you were entitled, or a poorly structured property division that did not utilize your assets to work to their best advantage for you.
Amy C. Boohaker (J.D., CFP¨, CDFA) is an attorney admitted to practice in Florida, Texas, and Louisiana. The Law Office of Amy C. Boohaker, P.A. is located in Sarasota, Florida. Ms. Boohaker specializes in bankruptcy law and in the financial aspects of marital dissolution (divorce), including property division and pension division through Qualified Domestic Relations Orders (QDROs). She can be reached at (941) 366-9690, firstname.lastname@example.org. For more information about how a CDFA can help you with the financial aspects of your divorce, call (800) 875-1760 or visit the IDFA website at www.InstituteDFA.com.