Real Estate Distribution: Legal Separation vs. Divorce

If you’re contemplating divorce or legal separation, you may be concerned about real estate division, particularly if you’ve invested years of time, energy, and money into your home or other properties. The truth is that there’s no standard procedure for the division of property. Instead, how real estate will be divided depends on where you live. Generally speaking, states take two broad approaches to property division: community property and equitable distribution.

When Separation is Not Legal

In most states, the standards for property division during a separation are identical to the standards applied during a divorce. Indeed, the purpose of a legal separation in many states is to allow the court time to consider the evidence before it governing division of property and other matters.

Most states allow courts to issue a temporary order divvying up property during a separation, but the standards applied to this decision will be substantially the same as those made during a divorce. For instance, a woman who wants to remain in her family’s home as she and her husband contemplate whether to divorce will still have to prove that her proposal comports with her state’s standards governing property division. If she lives in a community property state such as Arizona, the court will have to divvy up all property acquired during the marriage, so her ability to retain the home will depend on what other property she and her spouse have. If she and her husband live in an equitable distribution state such as Nebraska, she’ll have to prove that it’s fair for her to remain in the house. She might do this by showing that she has custody of the kids, and that it’s in the kids’ best interest to remain in familiar surroundings.

In some states, legal separation is prohibited. Those states are:

  • Delaware
  • Florida
  • Georgia
  • Maryland
  • Mississippi
  • New Jersey
  • Texas
  • Pennsylvania

If you divorce in one of these states, you’ll need to seek a temporary order governing division of real estate until your divorce is finalized. You can also, of course, divide your property up by mutual agreement.

Temporary Standing Legal Orders

Whether your state allows legal separations or not, the fastest route to divvying up your property is a standing temporary order. These orders typically last 12 months, or until your divorce is finalized—whichever time period is shorter. Unless there are unusual circumstances in your case—such as that which occurs when one spouse is out of the country on an extended trip—the judge will apply the same standards for a temporary order as he or she will apply during a divorce. For this reason, the standards for real estate division during divorce and legal separation are almost inevitably identical.

Community Property States

Community property states are primarily located in the Western United Sates, where community property laws are an inheritance from Spanish common law. In these states, the division of all property—including real estate—is based upon which property was acquired during the marriage. For instance, if you purchased a home together during the marriage, you could expect that it would be divided 50/50. If your spouse purchased the home prior to the marriage, never added you to the deed, and you did not help pay the mortgage, you would likely have no claim on the property at all.

Nine states currently recognize community property laws:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

A tenth state, Alaska, changed its laws in 1998 to make it a community property state, but only by choice. Residents of Alaska can opt-in to community property laws by executing an Alaska community property trust. Without such a trust, property is divided by equitable division instead.

Every state is required to establish its own laws governing what community property means and which property can be considered community property. In strict community property states, such as California, all property acquired during the marriage is shared property. The only exception to this rule is for inheritances and gifts. If you live in California, then, the court will tally up all of the property you own, then split it evenly. In Texas, by contrast, the judge may opt to divide your property according to what’s fair, not what was acquired during the marriage. This makes Texas’s community property laws significantly weaker than California’s.

The Uniform Marriage and Divorce Act, initially enacted in 1970, never became federal law, and does not control legal precedent. It has, however, heavily influenced community property states, since it encourages judges to divide property according to what is fair and equitable. It advises judges to take into account factors such as the length of the marriage, age, health, and economic status of both parties, prospects for future employment of both parties, and any additional property owned by either spouse. Judges in community property states who think that a community property division is inequitable may make references to this Act when they apply equitable division standards.

The Division of Separate Property

In community property states, neither spouse has any claim to property obtained by the other spouse prior to the marriage. Thus, this property cannot be divided, and that includes real estate. For example, a woman who purchased a vacation home in Texas prior to marrying her husband would not be required to divide that home with him, unless he was put on the deed after the marriage.

Equitable Distribution States

All other states use equitable division standards to divvy up property during a legal separation. Equitable distribution takes into account both the couple’s marital property and separate property. Drawing upon this information, the court will then make a decision. Though separate property—such as inheritance from a grandmother or a gift from a mother—cannot be divided up in community property states, the court will consider how your separate property affects the fairness of the division.

For example, a woman in Florida wants to divorce her husband. She owns three houses independent of her husband. Together, the couple owns one house. In an equitable distribution state, the judge overseeing a legal separation may opt to give the entire house to the husband, since he has less property than the wife, and depriving him of the family home could make him homeless. Thus what’s fair comes into play in equitable distribution states, but might not ever be considered in a community property state.

Every equitable distribution state establishes its own criteria for determining what property can be divided, and what considerations the judge must undertake before agreeing to a specific division. In New York, for example, property—including real estate–is separate property that cannot be divided when:

  • It was acquired prior to the marriage.
  • It is compensation for a personal injury case; however, any money received beyond punitive damages and pain and suffering can be divided between the spouses.
  • It was a gift from another person, including the other spouse.
  • It’s part of an inheritance.
  • It was designated as separate property by a contract to which both spouses are parties, including a prenuptial agreement.

After judges determine which property counts as marital property, New York law permits them to consider many factors. Those include:

  • The parties’ income when they married, as well as when they initiated separation proceedings.
  • The length of the marriage.
  • The age and health of both parties.
  • Which parent has custody of the children; the primary custodian often gets the home.
  • The loss of inheritance and pension rights; this typically only becomes a consideration when one spouse would have received a large pension or inheritance by staying married.
  • Whether one spouse is receiving alimony
  • Any contribution either party made to the home; for instance, a wife who served as a homemaker may have a greater claim to the property than the husband who did not participate in daily home upkeep.
  • The liquidity of the marital property.
  • The financial future of both spouses. Spouses who have fewer income-generating opportunities may be entitled to a greater share of the property.
  • The tax consequences of dividing the property.
  • Any other factor the court deems relevant, so long as the court makes clear why that factor is relevant. For example, the court might determine that a history of spousal abuse entitles the abuser to a smaller portion of the family home.
  • Whether the property was transferred to any other party, for less than fair market value, in contemplation of future divorce plans.

In most cases, the court will award the entirety of a piece of real estate to one spouse. However, the court might also require one spouse to pay the other spouse for a portion of the house. For instance, if a court determines that a husband is entitled to 75% of a vacation home and the wife is entitled to 25%, it may require the husband to pay the wife a share of rental proceeds, or to buy her out of the home before transferring ownership out of her name.

Property Division by Mutual Agreement

You and your spouse always have the right to transfer property by mutual agreement. The only exception to this rule occurs when a third party is involved. For instance, if one spouse co-owns a vacation home with a family friend, that spouse owns only half of the house, and cannot transfer the other co-owner’s interest.

Dividing property by mutual agreement is inevitably a better outcome. Not only will it save you thousands of dollars in legal fees; it also gives you control over how your property is divided, protecting you from the whims of a judge who does not know you, your family, or your needs. You’ll still have to seek a judicial order finalizing the division, and if you disagree about the permanent division of the property, you’ll still have to litigate your divorce. Consequently, it’s wise to select a separation division that you can live with forever, both because judges often defer to the status quo and because avoiding protracted litigation can save you time, stress, and lots of money.

Deeds for Transferring Ownership

No matter what you intend to do or what the judge in your case orders, the transfer of property is not complete until you transfer ownership via a deed. If you have an outstanding mortgage on your home, note that the names on the mortgage sometimes differ from the names on the deed. This means you’ll either need to change the names with the assistance of your mortgage servicer, or that the spouse who takes over the mortgage will need to indemnify the other spouse against any costs associated with the mortgage. Your family lawyer can help you execute such an agreement.

Most cases involving the transfer of real estate during a legal separation include the use of one of two types of deeds:

  • A quit claim deed is commonly the best option for permanently transferring property after a divorce, or in anticipation of a divorce if you’re sure your separation will lead to one.
  • An interspousal transfer deed works well during a legal separation. However, it renders the property a gift, which may change its status as marital property. For this reason, you should only use this type of deed if you do not intend to later assert a claim to the property.

More and more, courts are automatically designating to parties to a separation or divorce which deeds they must complete as part of the paperwork. If you need help knowing which type of deed is right for your family, ask your family lawyer.

See also: Giving Up Ownership of Real Estate When You’re Still on the Mortgage

References:

Gallanis, T. P. (n.d.). Family property law: Cases and materials on wills, trusts, and estates.

Oliphant, R. E., & Steegh, N. V. (2013). Family law. Aspen.