FrequentlyAsked Questions
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Property Division
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Overview
Property subject to division in divorce is quite expansive. Wisconsin law presumes that any property acquired before and during the marriage is not only subject to division, but also subject to equal division. The two main exceptions are
property acquired by gift of a third party, or
inheritance
But even that property can be subject to division if it was not kept separate from other marital property (i.e. the gifted or inherited property did not keep its “character” and “identity” as separate).
Generally, yes.
But the court can deviate from the presumption that the property should be subject to division, depending on a variety of statutory factors. One factor would be a prenuptial or postnuptial agreement signed by the parties classifying the premarital property as one spouse’s individual property. Another factor would be the length of the marriage. In a short-term marriage, the court may give more weight to the fact that the property was acquired before to the marriage than in, say, a 20-year marriage when it has likely been commingled with marital income and assets.
The applicable property division statute allows the court to deviate from an equal division of an asset or assets after considering the following:
The length of the marriage
The property brought to the marriage by each party
Whether one of the parties has substantial assets not subject to division by the court
The contribution of each party to the marriage, giving appropriate economic value to each party's contribution in homemaking and child care services
The age and physical and emotional health of the parties
The contribution by one party to the education, training or increased earning power of the other
The earning capacity of each party, including educational background, training, employment skills, work experience, length of absence from the job market, custodial responsibilities for children and the time and expense necessary to acquire sufficient education or training to enable the party to become self-supporting at a standard of living reasonably comparable to that enjoyed during the marriage
The desirability of awarding the family home or the right to live therein for a reasonable period to the party having physical placement for the greater period of time
The amount and duration of an order granting maintenance payments to either party, any order for periodic family support payments and whether the property division is in lieu of such payments
Other economic circumstances of each party, including pension benefits, vested or unvested, and future interests
The tax consequences to each party
Any written agreement made by the parties before or during the marriage concerning any arrangement for property distribution; such agreements are binding on the court, unless the terms of the agreement are inequitable as to either party. But the court will presume any such agreement to be equitable as to both parties
In addition to the above factors, the court could still deviate from the presumption of an equal division of assets if it finds another factor or circumstance to warrant a deviation.
It is not uncommon for parties to a divorce to lack the actual cash or funds to pay what is known as the property division payment to the other spouse. For example, if one spouse wants to retain the marital residence, but the parties have no savings or investment accounts, the question becomes how one spouse pays the other spouse’s share in the equity of the home. In most cases, the mortgage against the residence must be refinanced not only for the amount of the mortgage balance but also the property division payment. Another possibility is to transfer a greater share of the retirement accounts to the other spouse in lieu of the equity in the home. There are mechanisms available to most parties to a divorce that they may have simply not thought were possible to pay the former spouse’s interest in the marital property.
Unique Circumstances
It will depend on how you acquired the interest in the family business and whether you are actively engaged in the management or operations of the business. If your business interest was acquired by a gift or inherited shares, and preserved as such, the interest is likely not subject to division. However, any gifted or inherited asset must retain the asset’s “character” and “identity” as a separate, individual gift and inherited asset. In the context of a family business, if the owing spouse also works within the family business those efforts may be considered marital efforts, skills and labor thereby either converting the individual classification of the underlying business interest into a marital asset subject to division or the appreciation in value of the business as a marital asset.
For example, let’s assume Kevin and Andrea have one minor child. Andrea has primary placement of the child and Kevin has six overnights with the child every two weeks, or stated differently, 43% of the overnights a year. If Kevin earns $120,000 a year and Andrea earns $75,000 a year, under the shared time formula for child support, Kevin would owe Andrea $768 per month in child support. In contrast, if Kevin had fewer than 92 overnights a year with the child, his child support would be almost a $1,000 more per month at $1,700 per month. The additional overnight placement reduced his support obligation on the premise that he will be covering more of the day-to-day expenses for the child during his placement time.
When a person owns stock in a publicly traded company, it is easy to determine the value of that stock by referencing the applicable stock exchange. In the context of a closely held business, such as many family businesses, it is more difficult to determine the value of the shares or stock in the business since it is not part of the public market. Instead, the court will usually rely on an expert to determine the fair market value of the business interest. The “fair market value” of the interest reflects what a willing buyer would pay from a willing seller for the business interest when neither party must buy or sell, and when the willing buyer is aware of the relevant facts related to the business interest. A Certified Business Appraiser is an example of an expert that could provide a value for the business interest.
It depends on how the settlement was structured and what you did with the funds.
In most cases, settlement proceeds paid to compensate a person for pain and suffering will remain individual property to the person at the time of divorce. In contrast, settlement funds paid out to reimburse the person for lost wages and medical expenses will most likely be considered marital property subject to division. Finally, what the person did with the settlement funds will also determine whether it remains classified as divisible or nondivisible property at divorce. If it was commingled with other assets, accounts, or marital property, then it may have lost its “character” and “identity” as individual property.
Many couples do not dedicate enough time and attention to prenupital agreements, meaning that the agreement might not be enforceable at the time of divorce. Because most people do not expect their marriage to end in divorce, they try to save on legal fees by not hiring independent legal counsel for each party. They may concede on issues that make the agreement unfair or inequitable simply because of the romantic notion that the agreement will never be invoked.
CAUTION: Although uncomfortable at times, it is important that each party to a prenuptial agreement spend the time, attention, and legal fees to help assure that the agreement will be enforced.
The enforceability of the agreement will depend on whether the agreement met both the procedural and substantive standards of fairness. For the agreement to be procedurally fair, the court will look to see if there has been a meaningful opportunity for both parties to review the agreement in advance of signing it, whether each party had an opportunity to consult with independent legal counsel, and was there an exchange of financial information related to assets, liabilities of each party. No one factor may be fatal to the enforceability of the agreement, but these are factors the court will look for if the agreement is later challenged as being procedurally unfair.
As for substantive fairness, the court will want to determine whether the terms are fair under the circumstances of that particular marriage and whether each party understood his or her rights absent the prenuptial agreement. In addition to determining whether the agreement was substantively fair at the time of the marriage, the court will also determine whether the agreement should be upheld as being fair at the time of the divorce if an unforeseen circumstance in the marriage would make the agreement no longer fair and equitable.
Yes. Although a waiver of maintenance does make a claim for maintenance more difficult, it is only one factor the court weighs in deciding whether to award maintenance. The court can consider other factors that may still justify an award of maintenance such as the length of the marriage, the health and age of the parties, the contributions of the spouse to the other spouse’s education and career, and whether the spouse seeking maintenance could be self-supporting without an award of maintenance.
The law regards a waiver of maintenance in a Prenuptial Agreement differently from the provisions addressing property division. With property division, the applicable statute states that the court “shall” (e.g. “must”) consider those provisions binding on the court in the divorce. In contrast, there is no mandate with respect to the provisions regarding maintenance. With maintenance, the Prenuptial Agreement is simply one factor of many that the court may consider; with property divisions the Agreement is essentially the only factor the court is to consider, provided the Agreement if fair and equitable.
CAUTION: As of January, 2017, the state law regarding a waiver of maintenance in a Prenuptial Agreement may be changing so you will want to make sure you contact an attorney regarding the most updated information on this issue.
Yes and no. You can still enter into a Marital Property Agreement even after being married for many years, but it would a “Postnuptial Agreement” since it would be drafted after the marriage. In any event, most Wisconsin attorneys do not distinguish between Prenuptial and Postnuptial Agreements and instead title the agreements as simply “Marital Property Agreements.” A Postnuptial Agreement may be appropriate and effective if one spouse inherits a significant estate, purchases or receives a family business, or either spouse is sacrificing income or career for the marriage and wants some assurance of recompense if the marriage should terminate due to divorce.
Generally, no. A division of property is not modifiable. If you made a poor decision regarding the allocation of assets and debts, the court will generally not relieve you from that agreement. The only potential to revisit a property division is to request the court to “reopen the judgment of divorce.” The legal standard and consideration for reopening or vacating a judgment of divorce are applicable to all judgments entered by the court. Examples of when a court may reopen a judgment is when there is newly discovered evidence, fraud or misrepresentation, mutual mistake, or it is no longer equitable to enforce the judgment. Some of these factors have strict deadlines in which a person aggrieved can request a judgment be reopened or vacated. In general, it is difficult to reopen a judgment and this is especially true in the context of property division in a divorce.
However, provisions in a divorce judgment related to child custody, placement, and child support can be modified after a divorce is granted. Also, the amount and term of maintenance may be modified before expiration of the maintenance term. The only two aspects of a divorce that are generally nonmodifiable are property division provisions and a waiver of maintenance.
Employment Benefits
Yes. Most employment benefits are considered either an asset subject to division or income subject to a support order. The most common employment benefit subject to division is a person’s 401(k) or pension. The division of most of these retirement accounts is done by a special order called a “Qualified Domestic Relations Order.” When done properly, the employee spouse can transfer a percentage or set amount of retirement funds to the other spouse with no tax implications. The other spouse can decide whether to preserve the pretax basis of the funds by receiving the funds in a qualified retirement account. If the receiving spouse chooses to receive a cash distribution from those funds instead of depositing them into a retirement account, he or she can do so without the 10% penalty in some situations, although he or she will still pay income taxes on the distribution.
Individual Retirement Accounts (IRAs) do not require a Qualified Domestic Relations Order, and can be easily divided with the appropriate form. Unlike the 401(k) account, the receiving spouse does pay the 10% penalty if he or she receives the distribution of the funds outright or withdraws a portion of the account.
A parent can argue, or the parents can agree, that the amount of child support under the child support standards is so substantial that the court could deviate downward from that amount under the present circumstances. The problem arises if a parent seeks an order that prevents the other parent from seeking additional child support in the future by way of a permanent waiver or a “maximum cap” on the amount of child support.
CAUTION: As of January 2017, the Wisconsin State Legislature is considering legislation that would set a maximum cap on the amount of child support per year for high income payers. You will want to confirm with an attorney if this law has been enacted and how it may impact your own situation.
Unlike a 401(k) or IRA, a defined benefit plan does not have an account balance to divide. Rather, it is a right to a monthly benefit. In this context, the pension plan may be divided by a Qualified Domestic Relations Order and the receiving spouse would then be entitled to a portion of the monthly benefit upon his or her retirement. Or, in the alternative, the parties can determine the present value of the pension today (i.e. determine what the total account balance would be in today’s dollar) and the other party would receive his or her one-half share through other assets. The present value determination of a defined pension plan can be a very complex analysis and generally requires the assistance of an expert.
It will depend on a variety of factors specific to each case; however, the general rule regarding property division is that property acquired before and during the marriage is subject to division. The court may consider substantial property one spouse may have brought to the marriage which can include the retirement account of one spouse such as a pension.
The manner of how the court may give credit to the employee spouse in a situation such as this can vary greatly depending on the discretion of the court. In some instances, the court could determine the account balance of the 401(k) at the time of the marriage and divide only the growth on the 401(k) during the marriage. In other situations, the court could apply what is known as the “coverture fraction” which identifies the divisible marital portion of the retirement account with a fraction consisting of a numerator representing the number of years of the marriage and the denominator representing the total years of contributing to the retirement account. This fraction then is applied to the account and divided in half. Or, the court could simply decide that the entire account should be divided equally.
A person will receive an account statement that specifies a balance held in that person’s 401(k) retirement account. This is not necessarily the balance or value of the retirement account for purposes of a divorce. If the employee spouse is retaining the 401(k) in its entirety and electing to arrange for the other spouse to receive his or her share of the 401(k) through other assets or allocation of debt, then the court will want to determine the “present value” of the 401(k). The “present value” takes into consideration the tax consequences of the retirement account. If the employee was to liquidate that retirement account before retirement age and at the time of divorce, he or she would not receive the full balance of the account since taxes would be taken out of most retirement plans. Pursuant to our property division statute, the court may consider the tax consequences of the property division. As such, a reduction or discount of the retirement account balance can be applied to the retirement funds when allocating marital assets and debts. For example, if a party had a 401(k) with a $100,000 account balance, a 20% tax discount for present value, would result in the 401(k) having an account balance of $80,000 for purposes of the divorce only and when compared to other assets or debts of the marriage.
To further explain under this scenario, let’s assume that the 401(k) has a balance of $100,000 and the other spouse is retaining the marital residence which has $100,000 of equity. If the spouses should decide that the two cancel each other out, and neither party owes the other party an “equalization payment,” this does not take into account the tax considerations associated with the 401(k) plan. A court could discount that 401(k) plan by 20% so that in comparing assets, the employee spouse is receiving an asset of only $80,000 and the other spouse is retaining the real estate equity of $100,000. Under an equal division principle, the spouse retaining the marital residence would owe the employee spouse $10,000 to equalize the divisible assets.
NOTE: The 20% for the tax discount is merely an example and not a standard discount. The amount of what should be discounted for a retirement account can be as specific to the circumstances of that particular retirement account and party, or there are unofficial “standard discounts” that are applied in each jurisdiction within the state, if not specific to certain judges.
Stock options present two difficult issues in the context of divorce because they generally cannot be transferred to a spouse and the value is very difficult, if not impossible, to assess before the exercise date. This does not mean, however, that they are not an asset subject to division at divorce. The court may award one-half of the number of stock options owned at the time of divorce to the non-employee spouse but without transferring them. Instead, the employee spouse could be required to keep the former spouse informed of the vesting and value of the stock in the future and the former spouse can then elect when the employee spouse must exercise his or her share of the stock options. There are tax consequences to exercising stock options so the court or the attorneys representing the parties must take into consideration how the taxes will be paid and accounted for in the property division.
Debts & Liabilities
The debts and liabilities of the spouses are considered part of the property division of the divorce and therefore are subject to the presumption of an equal division of those debts, though there are exceptions to this presumption. Nevertheless, most debt will be shared equally. This does not mean that each credit card balance will be split and each party must pay directly to the creditor one-half of the balance. More commonly, the credit cards will be allocated between the parties and compared against the value of the assets each spouse is being awarded so that the “equalization payment” can be determined. (The equalization payment is the “cash payment” made between parties of a divorce so that each party leaves the marriage with the same value in assets and debts.)
For example, if the husband is retaining the marital residence with $100,000 of equity and also assuming the only credit card debt of the marriage which is $20,000, the equalization payment to the wife would be $40,000 instead of the $50,000 that would have been owed but for the credit card debt.
You can certainly show the credit bureau your divorce judgment, but it will likely not change your credit score or the late payment entries in your credit report. Your divorce judgment has no impact on your creditors. When you and your spouse received a credit card in both of your names, you both became jointly and severally liable for that debt. The family court has no jurisdiction or power over the rights of your creditor to seek payment or report late payments on both of your credit reports. The family court is limited to the rights and responsibilities as between you and your former spouse. In this regard, the court can order one party to be responsible for the payment of the credit cards but if that party defaults or fails to make the payments on a timely basis, the only recourse the other party has is to bring the former spouse back to family court under a contempt motion. The family court can then order certain remedies to “encourage” the defaulting party to make the payments on time.
To the extent that any credit cards are in both parties’ names, some settlement agreements will include a provision that requires the credit cards to be closed or the party who is assuming the debt must arrange to have the other party removed from any liability for any future purchases or charges on the credit card.
Most settlement agreements will also contain a “hold harmless” provision, which states that even though one party is agreeing to assume the debt, he or she will hold the other party harmless from payment. In other words, if the responsible party defaults on the credit cards, then the other party has the legal basis to file a contempt motion for not holding him or her harmless from the payment since the nonpayment is now negatively impacting his or her credit score or the creditors are seeking payment from the “nonassigned party.”
It is important to distinguish between being awarded real estate in a divorce and the responsibility to refinance the mortgage against that residence. A party who is awarded the marital residence, or any real estate, in a divorce is not required to remove the other spouse’s name from the mortgage unless there is a specific provision requiring the mortgage to be refinanced. It is also important to recognize that even if the spouse who is awarded the martial residence agrees to hold the other party harmless from the mortgage, this alone, does not remove the other spouse from the mortgage. The “hold harmless” provision simply states that the spouse receiving or retaining the marital residence agrees to make the mortgage payments on time and if the mortgage company should ever attempt to collect from the other spouse, the responsible spouse will reimburse that spouse for the loss incurred. The Marital Settlement Agreement or the Judgment of Divorce can include a provision that the spouse receiving the real estate must refinance, release, or obtain an assumption on the mortgage thereby removing the other spouse from the mortgage debt, but absent that provision, there is no such affirmative obligation.
Yes. You can request a deviation from the presumption that the debt be divided equally for certain debt considered “marital waste.” “Marital waste” is a legal doctrine that allows a spouse to argue that certain debt, which was solely accrued by one spouse with no family related purpose, should be the sole responsibility of the spouse who incurred the debt. Examples of marital waste include gambling, gifts to or vacations with someone a spouse is having an affair, criminal restitution or fines, or debt caused by a spouse’s refusal to seek treatment for drug and alcohol issues.
