Divorce and Hard Assets
When a couple divorces there are essentially two categories of assets known as “hard assets” and “soft assets”. Hard Assets are assets defined as being “real or tangible”. Some examples are car, home, furniture, jewelry and land. Examples of the most common “soft assets” are retirement plans and stocks.
Divorce and the Marital Home- For most families, the home is the most valuable asset, but the appraisal you get will be the value if the property were sold. What if you want to keep the house? You may have to buy your spouse’s share outright, refinance, trade off other assets for the house or agree to sell the house later – after the youngest child graduates from high school, for instance.
Speak with a knowledgeable financial advisor about the pro’s and con’s of keeping, buying out, or flat out selling the marital home. Each one will have different tax consequences.
Things to consider:
- If you do choose to buy your spouse out then you need to refinance in your name only. Speak with your accountant to make sure you earn enough money and have good credit for a bank to move forward.
- If you have children still living in the home and you want to stay, you will want to discuss, in advance, how much the non live-in spouse contributes to home maintenance, repair, mortgage, property taxes and household expenses, etc.
- Know the market value of your house by having it appraised.
- Generally, the parent who has custody of the children stays in the marital home until the children are old enough to move out.
- Speak with your financial advisor about capital gains tax (capital gain is profit that is realized from the sale of an asset (your home) that was previously purchased at a lower price.)
- If both you and your spouse signed the mortgage note, both of you will continue to be liable on an outstanding mortgage on the marital home until it is paid in full. This may greatly effect whether or not the spouse not living in the home can purchase another home.
Separate Property, Marital Property & Transmutation- When two people marry they often have their own possessions such as car, furniture, boat and is some cases, a home. In most states property acquired prior to marriage stays separate and is not included in the “pot” of marital property. Property that has been inherited is also generally considered separate property. Marital property is property acquired during the marriage. Transmutation occurs when separate property is commingled with marital property, ie changes in title from separate ownership to dual or joint ownership.
Things to consider:
- Separate property that is brought into a marriage and is used by both you and your spouse, such as a vacation home, can fall into the marital property category. Money and effort placed into the upkeep and appearance of the property become considerations in how the property is divided.
- If one spouse did commingle property, it is up to them to prove that it was originally separate property.