Step 6: Divide the Assets
The judge does not divide each asset. In fact, judges prefer to leave each asset whole/undivided. This is common sense. Suppose you were the judge, and the only assets to divide were two bank accounts, each with the exact same amount on deposit. Wouldn’t you find it simpler to give the husband one of the accounts and give the wife the other account, rather than give each spouse one-half of each account?
Of course, it’s not just bank accounts. Imagine that instead of bank accounts, the two assets were a house and a retirement account. Assuming they are worth the same, would it not be simpler to award the entire house to one spouse and the entire account to the other, rather than directing the house and account be sold/liquidated and the proceeds split?
How do you physically divide assets? One way is to begin with a rough draft of the property division, in which each person receives what he already owns. The wife gets her car, the husband gets his car. The wife gets her accounts, the husband gets his accounts. The wife gets her credit cards, the husband gets his credit cards, etc. Big-ticket items, such as a business owned and operated by just one spouse, will go to that spouse.
Remember, this is just a rough draft — something to get us started. Once we complete it, chances are that it did not result in a 50-50 division of assets. Also, after we look at it, we might realize (for example) that it makes more sense for the wife to get one of the husband’s accounts, rather than the husband. Or the other way around. So now we take things off of the husband’s side of the ledger and add them to the wife’s side of the ledger. Or move assets from her side to his. Every now and then, we stop and see how these edits to the rough draft change the bottom line. Are we getting closer to a 50-50 split? Or further away?
Incidentally, this is where all of the hard work getting real numbers for the asset values pays off. It’s no good trying to divide assets in such a way that the total value that each spouse receives is equal if the values are all wrong.
So now the judge has to go back and rework his rough draft with a few goals in mind. One is to make sure that the division of assets is practical (there’s no reason to give one spouse a business that the other spouse operates) and more or less equal (assuming he intends to divide the marital estate 50-50).
At trial, both sides will offer the judge a proposed division of assets. You and your lawyer will explain why your proposed division makes more sense than your ex’s proposed division. There is an excellent chance that the final division actually ordered by the judge will bear no resemblance to your first rough draft.
The Equalization Payment
For reasons discussed below, there are times when the judge will divide assets in such a way that the value of one spouse’s “pile” is significantly more than the value of the other spouse’s “pile.” Having done that, the judge will then order the spouse with the bigger “pile” to pay cash (either all at once or over time) to the other spouse, so that the net result is that both receive an equal award. This cash payment is known as the equalization payment.
For example, suppose that the husband is awarded land worth $800,000, while the wife is awarded an investment account worth $200,000. Perhaps the judge could order the husband to sell $300,000 worth of land and give the proceeds to the wife. But that would require oversight of the sales process. The judge might find it less cumbersome to simply leave the property award “as is,” but order the husband to give the wife a $300,000 equalization payment by a specified deadline. How the husband comes up with the $300,000 is entirely up to him. He can sell land, borrow the money, or do whatever else he wants to do to come up with the $300,000 by the court-ordered deadline.
Sometimes, equalization payments are ordered because there is no other way to fairly divide the assets. For example, if there is just one big asset, say a house or a business, the judge might prefer to order an equalization payment, rather than order the house or business sold and the proceeds divided. Another reason that the judge might order an equalization payment is because he has already determined that the receiving spouse needs cash and that the other spouse can provide that cash. Of course, another way to provide cash is simply to award alimony.
