How to Divide Money in a Divorce

By Wayne Thomas

Disputes over money can often lead to the breakup of a marriage, and when they occur, these disputes commonly persist throughout the divorce process. If you and your spouse can't come to agreement on your own, the court is tasked with figuring out where the money originated and how it should be divided after the divorce.

Classifying the Money

In a divorce, the first step in property division is to determine which assets are subject to division. Most states take the position that property acquired by either spouse before the marriage, as well as most property received as inheritance or gift during the marriage, is deemed "separate property" and not subject to division. All other property, regardless of which spouse holds title, is generally considered marital property and is subject to division.

Commingling

Sometimes separate property doesn't stay separate, however. If separate property is mixed with marital property so that the source cannot be traced, the court may assume the property in question is marital property. This is known as commingling, and it can easily occur with money. For example, if you received an inheritance during the marriage and deposited it into a joint checking account that you and your spouse both use, you may have difficulty showing what remaining cash is marital and which is separate, so the court will likely consider all the money in the account to be marital property.

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State Rules

Once the court has determined which property is subject to division, the amount of money each spouse receives depends on state law. Some states take the position that both spouses are co-owners in all marital property. In these states, the court generally makes an even 50/50 division of the marital assets between a couple. Other states look at both monetary and non-monetary contributions to the marriage, as well as the needs of the parties, in an effort to reach a fair division. In these states, the resulting division may or may not be equal.

Balancing an Award

Although cash is easy to separate during property division, some assets do not lend themselves to being split. Examples include real estate and other forms of personal property, such as cars, art, or pets. In these situations, money owned by the couple can be very useful in balancing out assets that only one spouse can take. For example, if one spouse takes a car worth $20,000, the other spouse might take an extra $10,000 in cash. Cash may be used to balance out extra marital debts that one spouse takes on.

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Commingling of Funds Law

References

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What Assets Are Protected From Divorce Settlements?

Divorce courts in all states recognize that some property is solely yours, immune from distribution in a divorce. If you must go to trial where a judge will divide marital property for you, the law protects these assets. If you and your spouse negotiate a settlement, you can usually do anything you like with your property and the court will approve your agreement. If you want to follow the letter of the law when you create your settlement agreement, several rules determine what constitutes separate, protected property.

Can She Really Take 1/2 of Everything in a Divorce?

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Proving Money Is Inherited

Each state has its own laws regarding the division of marital property in a divorce. Community property states, which stand in the minority, require courts to divide an estate equally, whereas equitable distribution states -- the majority -- seek to divide estates equitably, or fairly. In both types of jurisdictions, inherited money is usually considered separate property and not divisible in divorce. The burden of proving that certain funds represent your inheritance, however, will likely rest on you.

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