Property division in a divorce
Asset Division/Property Settlement
Aside from child custody issues, the most frequently litigated issue in divorce or separation cases is how to divvy up what has been acquired during the marriage. Particularly for long-term marriages, deciding how to distribute the property and debt of the parties is fraught with emotion and rarely an easy thing for parties to do. Fortunately, in Nevada, we have a statutory process that makes it a little more manageable.
There are two general approaches in the United States to holding assets by married couples (and their division in divorce and separate maintenance): “equitable distribution” and “community property.” Nevada is a community property state, one of only 9 states to adopt this approach. Nevada’s community property laws essentially decide in advance how property acquired during the marriage will be divided upon legal separation (called “separate maintenance”) or divorce, theoretically simplifying the process of distributing what’s left. The approach begins with a legal presumption that all property held by the parties is as “community” in nature, but it allows a party to rebut that presumption by proving that a particular item is actually their “separate property.” Per Nevada law, all community property is to be divided equally, absent some “compelling circumstances” justifying something else.[1]
Separate Property
Separate property is that which is acquired before marriage, or received as a result of a gift, inheritance, or personal injury settlement. See NRS 123.130. Separate property that has retained its separate character remains the sole property of the person who holds it. It can, however, be converted—or “transmuted”—into community property. It is the burden of the party claiming a particular item is their separate property to prove that it is their separate property and that they took no steps to transmute it. This can be done by simply keeping the property apart from the community, the preemptive use of a prenuptial agreement, or by recording an inventory of all such separate property with the County Recorder. See NRS 123.150. The latter, however, is rarely done.
More often than not, parties neglect to protect their separate property. Whether through commingling or re-titling property when things are going well, parties often find that what used to be their separate property is divided as community property. One of the key policies of the community property scheme is the protection of the equal, undivided interests of each party to community goods and income. If a party takes any step that appears to demonstrate an intent to convert what was theirs alone into property to be owned by both, the court will assume that intent. For example, when a party has a bank account with money in it from before marriage, then after marriage puts their new spouse’s name on the account, or continues to deposit their income into that account, the account is considered to have been transmuted in two ways. First, by re-titling the account so that it becomes a joint account, the owning party has indicated an intent to make it the property of the community. Similarly, since all income earned during the marriage is community in nature (absent a prenuptial agreement stating otherwise), the fact that community property was placed into the previously “separate” account suggests an intent to commingle and thus transmute it to community property. Either act could be enough, but together, it is unlikely a party could later call it their separate property.
For a party to prove that any property retains its separate character, that party has to demonstrate that they acted to keep the property separate, that they took no steps to transmute it, and that any action or use during the marriage did not include an intent to change its character. Sometimes it’s as simple as showing bank records that demonstrate no commingling, or a pre-nuptial or post-nuptial agreement whereby the parties expressly agreed that it would be that party’s separate property.[2] Real estate that was purchased and paid off prior to marriage, for example, is typically considered to have retained its separate character.
Retirement Accounts
A similar but different process occurs with retirement accounts. Historically, retirement accounts were held by an individual from the start of their employment and held until retirement. Marriage often occurred after that party started with the company. As no employer will be expected to establish a new retirement account simply because an employee got married, the law has evolved to protect the party’s prior contributions as separate property, even though contributions made during the marriage are community in nature and would technically constitute commingling. The account is then divided according to the “time rule,” meaning that the portion of the account in which contributions were made outside of marriage are held separate, and only the period of time where contributions were made during the marriage are divided equally.
Community Property
Once any claims for separate property are made and proven, the balance of the property owned by the parties is divided equally. Obviously, most tangible property cannot be cut in half. What typically happens is the parties either enter into a Marital Settlement Agreement, or the court merely takes an inventory created by the parties and divides the items such that their values are approximately similar, then the person who ends up with more value pays half of the difference to the other in an “equalization payment.” Thus, each party gets exactly 50% of the value of the property they used to hold together.
Community Debts
Debts acquired during the marriage are also the “property” of the community. Debts acquired before marriage, or during marriage under specific circumstances, are a person’s separate debt. Debts are handled in much the same way as property, except that a person is usually trying to push the debt to the other instead of trying to keep it for themselves. If it was acquired prior to marriage, it’s theirs to take with them. If it was acquired during the marriage, the community is deemed to have benefitted from the money or asset for which the debt was undertaken, so each party has an equal, undivided responsibility to pay it back. Courts occasionally distribute the debt to the person best able to pay it, but if so, that person usually gets a similarly disproportionate distribution of the assets to offset it. At the bottom line, it’s still a 50/50 split of the combined assets and debts.
Marital Settlement Agreements
A Marital Settlement Agreement (“MSA”) is a contract between the parties that addresses how all of the assets and debts are to be divided. These are often used when a divorce or separation is amicable and the parties would rather keep their assets than to give them to their attorneys. MSAs are incredibly useful as it allows the parties to spell out their expectations, to decide in calm and rational ways what is fair and what they want to have happen, rather than to let a judge who has little interest or time to spend on deciding who should get what. If the parties know that everything is going to be divided equally, it’s usually a lot easier and cheaper to merely agree to how to divide it up.
MSAs are also useful in deciding how much alimony will be paid and for how long. The courts do not have any firm statutory calculations to follow in setting alimony amounts as they do for child support. Some judges are stingy with alimony, and others are generous. Parties often decide to negotiate for what they believe is fair, which can then be made part of the marital settlement agreement and adopted as an order of the court.
Intangible Assets
There are the occasional issues that arise, particularly in high-value divorce cases, or when businesses are owned and operated by one or both of the parties. Intangible assets are items such as stock options, celebrity value (in name or product), patents, copyrights, or the value of the business itself. While not having an actual “liquid” value like a dollar in a bank account, these items can still be valued by an appraisal. Much like an appraisal on a home, these appraisals are typically performed by experts, who will estimate the value based upon specific rules and practices. Unless the parties settle on the value to be used for purposes of distribution, these experts will determine the value to be used, and the courts will then simply apply that value as they distribute the overall assets and debts.
Assets Held in Jurisdictions Outside the State of Nevada
One issue that arises with some frequency is what happens when an asset (e.g. a second home) is held in a jurisdiction outside of Nevada. Generally speaking, parties who are subject to thejurisdiction of the Nevada court do not contest the Nevada court’s ability to determine how those assets are divided. The court has jurisdiction over the parties, and can order that party to do whatever is necessary to complete the divorce. There are times, however, that the laws of the jurisdiction in which the property is found could conceivably change how that property is divided or handled. It is important to investigate those issues in advance of the final property determination.
Let the Experts at Nevada Family Law Group Help You
Even though the principle of Nevada’s community property laws are intended to make the division easier at separation or divorce, no two sets of facts are identical, so getting things right can take some effort. The attorneys at Nevada Family Law Group can help you through the process to make sure you retain what you deserve after all you’ve invested in the marriage.
[1] Some attorneys will say that the “compelling circumstances” opens the door to some creative arguments, allowing for disproportionate distributions favoring one party over another. These are usually tactics to try to get your business. In reality, every court in Nevada tries to divide things equally if at all possible. Only under some very unusual circumstances, or in instances where one party has significant means and the other does not, does the court entertain something other than an equal division of the community property and debts.
[2] There is another way to prove separate property, and that is through an accounting process called “tracing.” Tracing is a process whereby an accountant can demonstrate how money included in an account never left that account, thus keeping that money’s separate character. This is a fairly complex and detailed maneuver, so it will not be discussed further here. If you have a question regarding tracing, ask one of the attorneys at Nevada Law Group to explain.
