When going through a divorce in New York, one of the most important and often most contentious issues is how to divide assets and liabilities. Understanding equitable distribution, identifying separate versus marital property, and knowing when to bring in financial professionals can make the difference between a fair settlement and costly mistakes that haunt you for years.
What Is Equitable Distribution in New York?
New York employs a system known as equitable distribution to divide assets and liabilities in divorce proceedings. This is an important term to understand because 'equitable' does not necessarily mean 'equal' or 50/50. While many cases do result in roughly equal divisions, the law allows for different distributions based on various factors.
The process of equitable distribution requires going through each piece of property and identifying whether it's separate property or marital property. This distinction is crucial because it determines whether an asset gets divided or remains with one spouse.
In general, items that were earned or acquired before the marriage are considered separate property. Similarly, inheritance received by one spouse and trust monies and properties are typically separate property. These assets belong to the individual spouse and are not subject to division in the divorce.
Things that are earned or acquired during the marriage are typically marital property subject to division. This includes income, retirement contributions, property acquired during the marriage, and any increases in the value of assets during the marriage.
However, there's a lot of gray area between these categories. The complications arise when people come into a marriage with significant assets already and then use those premarital separate assets for marital purposes. Once you start commingling separate and marital money, things can get very confusing.
When Is It Simple and When Does It Get Complicated?
Sometimes, the determination of separate versus marital status is very straightforward. Parties are willing to sit down and acknowledge that they both recognize something as separate property, neither is disputing it, and they don't want to waste any more time or resources discussing it. When both spouses agree on the characterization of property, the process moves forward smoothly.
In other cases, there is a greater conflict over whether something is separate or marital. A mediator may be able to help parties make that determination by explaining the law and assisting them in understanding how courts would likely view the asset. However, when the mediator can't provide clarity, it's essential for them to acknowledge when they are unsure about something.
In these situations, it may be appropriate to bring in a financial neutral to help value an asset or determine the most effective way to divide it. Mediators are not financial professionals, financial advisors, CPAs, or tax authorities. Sometimes, bringing on someone with that background can be very helpful in determining the best way to divide an asset.
How Inheritances Are Treated in New York Divorce
Generally, in New York, an inheritance is considered separate property. The only way that your in-laws would leave you an inheritance is if they specifically name you in their will or trust document, thereby giving you access to that inheritance. Otherwise, the inheritance received by your spouse remains their separate property.
But where it gets complicated is when you take that separate inheritance and you commingle it with marital funds. If you put inherited money into an account in joint names, or you use it to purchase a piece of property that is then titled in joint names, the separate nature of those funds can be lost.
These issues can become particularly complex, especially since some transactions may have occurred years, if not decades, prior to the divorce. If you don't have the specific documentation to show the exact timeline and transition of those inheritance funds, then you will have no success in court maintaining your separate property credit to that inheritance.
The burden is on the person claiming separate property to trace those funds and prove their separate nature. Without bank statements, deeds, and other documentation clearly showing the path of the inherited money, courts will treat commingled assets as marital property.
In a mediation, there's more flexibility. You may be able to soften those strict tracing rules a bit and try to find a reasonable middle ground or solution for that particular issue. Mediation enables creative problem-solving that litigation often doesn't permit.
Why Retirement Assets Are the Trickiest Part of Divorce
The laws regarding retirement assets are the same whether you're in mediation or litigation. However, this is consistently the trickiest part of divorce practice and where the most malpractice occurs.
Many divorce attorneys are not familiar with and the details and intricacies of specific retirement plans. Each type of plan, whether it's a 401(k), pension, 403(b), military retirement, or government pension, has its own rules, valuation methods, and division procedures.
This is one area where it's strongly recommended to bring on a professional who understands these assets. You need someone who can help you not only understand the asset itself, but also understand how best to distribute that asset. Equally important is understanding how to draft a settlement agreement that properly addresses the retirement asset and aligns with the specific court order required to divide it.
These documents must all match and make sense together. For pensions and some other retirement accounts, you need a Qualified Domestic Relations Order (QDRO) or similar document. The settlement agreement and the QDRO must align perfectly; otherwise, you may face serious problems down the road. This is an area where even experienced mediators need to rely on professionals to ensure accuracy.
Offsetting Assets: Trading Pensions for Houses
Sometimes parties want to offset retirement assets with other assets rather than dividing each asset individually. For example, one spouse might say, "I'll keep my pension, and you keep the house." This can work, and sometimes parties want to make it that simple because it seems fair to them.
However, it's important to understand that you're comparing apples to oranges. A proper valuation of the pension and a proper valuation of the property are essential. The equity in a house and the value of a pension are calculated differently and may not be equivalent, even if the numbers appear similar.
You need to understand how those dollars might not make sense when you're offsetting and how to offset them in a fair way. Usually, you'll need to bring in professionals to properly value each asset, allowing you to make informed decisions about whether the trade is actually equitable.
The Beauty of Mediation for Complex Asset Division
When asset division is complicated and people want to offset different assets, there are numerous ways to approach it. In mediation, clients can consider all these options and bring in professionals to demonstrate what different approaches look like.
If you divide assets in one way, the professional can illustrate the financial implications. If you do it a different way, they can show what that alternative looks like. Being able to see multiple scenarios side by side helps couples make informed decisions.
That's the beauty of doing this in mediation: taking the time to really thoroughly consider all of the options. You're not under pressure to make rushed decisions. You're not in a courthouse hallway trying to finalize an agreement without complete information.
A Cautionary Tale: Why One Attorney Switched to Mediation
One compelling reason for choosing mediation over litigation comes from an attorney's personal experience. Years ago, this attorney represented a wife in a case that dragged on for years. The husband constantly got new attorneys, working with one for a while, then firing that person. This meant delays and taking time to bring a new attorney up to speed. The pattern went on and on.
The case involved a home and different retirement assets. After years of this going on, the court pushed them into a trial. Instead of actually trying the case, they ended up settling over the course of a few days, literally sitting out in the hallway in a busy courthouse.
Under that pressure, without having all the information readily available, they drafted language about what would happen with the home and retirement assets. The agreement was not thorough and detailed, and the parties did have problems with it in the years to come.
That situation still bothers and haunts the attorney who experienced it. It made clear that there is a better way of doing divorce, and that better way is mediation or collaborative divorce.
Why Mediation Is Ideal for Asset Division
Mediation is an excellent way to handle asset division in divorce. It provides you with the opportunity to consider all your options, consult with the appropriate financial professionals, and make informed and smart decisions.
You can create an agreement that is thorough and detailed, addressing all the nuances of your particular assets. You're not rushing through decisions in a courthouse under pressure. You're not creating documents without having all the necessary information.
Instead, you're taking the time to understand what you own, what it's worth, how it can be divided, and what the tax and financial implications of different approaches might be. This thoughtful and informed process leads to better outcomes and agreements that actually work in the long term.
Taking the Next Step
If you're facing divorce in New York and have concerns about how your assets will be divided, whether you have questions about protecting separate property, dividing retirement accounts, or understanding equitable distribution, professional guidance can help you navigate these complex issues.
Mediation offers a better path than rushed courthouse settlements, giving you time to make informed decisions with the help of appropriate professionals. Contact us at Joseph Law Group, P.C. today to get the guidance and clarity you need moving forward.
