9: Introduction to Property Division

1. Identifying and Locating Property

Helping a client identify all the property owned by the client and by the client’s spouse is one of the most difficult and time-consuming tasks in a divorce matter. The existence of physical property is sometimes “forgotten” and/or concealed by one or both spouses. Although the client should be the starting point of information gathering (see Chapter 3), legal practitioners also should plan to investigate

• Public real property, personal property, and business records for both spouses
• Income tax records for both spouses
• Social media

Using interrogatories, depositions, and requests for production (written requests for copies of documents or to inspect computers or premises) is essential to locating property owned by the other spouse. Suggested topics and document requests include

• Copies of federal, state, and local income tax returns and supporting schedules and documentation for the individual and any business in which the spouse has an ownership interest
• Detailed description of any residences or other real property, including
  • Location, address, and legal description
  • Description of interest, including nature (ownership, possession, lease, etc.), when, from whom, how, and why it was acquired
  • Source and amount of funds or other consideration used to acquire the interest
  • Description of improvements made (new or renovated structures, repairs, etc.) including when, by whom, and how they were made, as well as source and amount of funds or other consideration expended
  • Liens or loans associated with the property, including lienholder, amount owed, and source of payment toward principal
  • Value, including market value at the time of acquisition, tax-assessed value, and current value
  • Income generated by the property
  • Current condition of the property, including repairs or other improvements needed
  • Documentation relating to all of the above, including titles, loan applications, loan statements, tax records, etc.
• Detailed description of interests in personal property (similar questions and documentation to that for real property) including
  • Vehicles of any kind
  • Bank accounts, annuities, mutual funds, securities, stocks, retirement accounts, educational accounts, or financial investments of any kind (include monthly statements)
  • Personal property such as jewelry, art, collectibles, furnishings, appliances, tools, etc.
  • Intellectual property, including licensing and royalties
  • Trusts created by the other spouse or in which the spouse has an interest of any kind
• Detailed description of all debts, liabilities, or other obligations under contracts, promissory notes, and loans of any type (including purchase, private, or government loans), using questions and documentation requests similar to those above
• Detailed description of outstanding judgments and pending or potential lawsuits against the other spouse. Include all case information and documentation
• Insurance policies (life, property, disability, annuity, etc.), including copies of policies and descriptions of claims made in the past 5 years

2. Determining Value of Property

The value of a property needs to be determined at several points in time: the date on which the property was purchased/acquired, the date of the spouses’ separation, and the date of the divorce. Purchase documents, account statements, and the like are a good starting point. Some types of property can appreciate (increase in value), or depreciate (decrease in value), or are subject to fluctuations in market value. In those circumstances, hiring a financial expert such as an accountant, appraiser, or other advisor is recommended.

Classifying Each Item of Property

In other classes, you may have learned about different classifications of property, such as real property (land, permanent buildings, permanent fixtures, permanent plants/trees) and personal property (all other items of property including tangible things, money, and intellectual property). In the context of divorce, property is classified as either divisible or non-divisible. Whether an item of property is divisible or non-divisible depends on a variety of factors relating to how and when the property was acquired and what happened to the property during the marriage.

Under Wisconsin’s Marital Property Law (Chapter 766 of the Wisconsin Statutes), all property owned or acquired by a couple during their marriage is presumed to be marital property. Marital property is generally divisible.

Individual property is defined as

• Property a spouse owned before the marriage
• Property given by a third party to only that spouse during the third party’s life or as a disposition at the third party’s death (for example, under a will, trust, or a life insurance policy)
• Any increase in value (appreciation) of individual property (unless it became mixed with marital property)
• Money received as a result of injury claims unless the recovery relates to repair or replacement of marital property or marital income/earnings
• Property removed from the marital property law pursuant to an “opt-out” agreement that the couple signed

Individual property generally is not divisible unless it has been commingled (mixed or combined) with marital property. There are several ways individual property can become commingled with marital property. For example, suppose one spouse had a financial investment prior to the marriage, like a mutual fund, that the spouse inherited from the spouse’s parent. It remains the individual property of that spouse unless it becomes mixed with marital property. This can happen if, after the marriage, the spouse makes additional contributions to the mutual fund out of the spouse’s paycheck; the same is true if the spouse receives money from the mutual fund to pay family expenses. Another example would be a spouse who owned real property with a small cottage on it prior to the marriage (and there was no lien or mortgage on the property). After the marriage, if marital funds or labor are used to significantly upgrade or build an addition to the cottage, the increased value would be marital property (though the value of the land and cottage prior to this activity would remain individual property).

In Wisconsin, all property in possession of the spouses is presumed to be divisible (in the absence of a marital contract to the contrary). If a spouse wants to claim any item of property as non-divisible property, that spouse must be prepared to provide detailed information regarding

• Date the property was acquired
• The manner in which the property was acquired (gift from a third party, purchase, exchange for other property interest, etc.)
• Source of funds used to purchase the property
• The market value of the property when acquired
• Appreciation of the property’s value, and whether the appreciation was passive or active
• Source of funds used for capital improvements

If marital property of any kind (including income, other property, or even labor of one of the spouses) was used to purchase, maintain, or improve individual property, there is a possibility that the individual property may have become commingled with marital property and thus be treated as marital property to some extent. A spouse wanting to claim commingled property as non-divisible will need documentation allowing all or part of the property to be traced to individual property.

Applying Equitable Distribution Factors

The goal of property division is equitable distribution: the fair and just – but not necessarily equal – distribution of property between the spouses. Similar to spousal support, the equitable distribution of property depends on many factors, such as:

• Length of the marriage
• Contribution of each spouse to the acquisition, preservation, or increase/decrease in value of all assets (including contributions of stay-at-home spouses)
• Contribution of each spouse to the other spouse’s education, training, or increased earning power
• Income and property of each spouse at the time the marriage was entered
• Current and future sources of income (including ordered spousal support) for each spouse, including employability and vocational skills, as well as retirement, insurance, and other benefits
• The amount of spousal support awarded to either spouse
• The desirability of keeping any asset (for example, a business) intact and undivided
• The importance of allowing one spouse to keep the marital home, especially if there are minor children
• Intentional and improper reduction or waste of marital assets (dissipation) by a spouse
• Age, physical condition, mental/emotional state, and financial situation of both spouses
• Standard of living established during the marriage

In Wisconsin, the court is required to presume that all divisible property should be divided equally between the spouses. Also, Wisconsin Statutes allow the court to consider the following factors in addition to those listed above:

• Whether one of the spouses has substantial non-divisible assets
• Whether refusal to divide a spouse’s non-divisible property would create a hardship for the other spouse or for the children of the marriage.

Thus, it is possible that even individual property may be divided in some circumstances.

What About Debts?

In most cases, when it comes to division at divorce, debts are treated the same as property. Debts existing at the time of separation are presumed to be martial debts and can be assigned to either spouse (or both) upon divorce. Courts will apply the same classification rules and equitable distribution factors to debts. One important caveat: assignment of debt pursuant to a property division order or judgment of divorce is not binding on creditors. Thus, if one spouse is ordered to pay off debt owed on a credit card issued jointly to both spouses, the creditor can choose to take action against either or both spouses if the debt is not paid. If a spouse ends up paying a debt that was assigned to the other spouse, the remedy is to seek reimbursement through court action against the spouse to whom the debt was assigned.