Dividing the Marital Estate When Assets vs Income Is Lopsided
The longer a couple is married, the harder it typically is to divide property acquired during marriage if divorce becomes a reality. Couples tend to accumulate a wide variety of assets and liabilities over time, but in some relationships, there may be a distinct lack of valuable assets to divide. This situation, while not ideal, may be acceptable as long as the income of both spouses is roughly equal. However, when one spouse has multiple or high-earning income streams, getting a fair portion of this money is not so easy. Alimony is one way to seek financial support that represents the differing resources each party has, but alimony is rarely permanent, or awarded in amounts that would equate to the level received by a spouse through a property settlement. Courts do not necessarily treat assets and income streams the same in a divorce, which can affect how judges view the equitable division of assets and alimony awards, and their evaluation of each party’s respective financial situation. Depending upon how the income is generated, it may be possible to award one spouse a certain annual percentage of the other spouse’s earnings, an arrangement that occurred in the divorce of prominent television actor Kevin McKidd. Twenty percent of his earnings over $3 million now go to his ex-wife, in addition to the monthly alimony he must pay. A discussion of the difference between assets and income, and how courts are likely to structure a divorce settlement in the situation described above, will follow below.
Assets vs. Income
Assets are pieces of property with discernable values. They can be tangible or intangible, such as the marital home and vehicles versus the value of life insurance policies and memberships. Because the value of these properties can be quantified and is somewhat fixed, they are associated with the division of the marital estate. Income streams, on the other hand, are anything that produces regular income, including:
- rental property;
- home businesses; and
- pensions or retirement accounts.
Income streams can be difficult to divide because the amount of income can vary from year-to-year. Thus, trying to assign a value and divide a stream of income based on its worth at a single moment in time is not truly representative of what it will provide over a period of time. This revenue is most relevant to divorce cases when determining child support and alimony.
Obtaining a Fair Settlement
Marital assets are divided on an equitable, or just, basis, which means the percentage each party receives should be reflective of what is most fair under the circumstances. Determining the value of all marital assets is central to fairly dividing the marital estate, which based upon the fair market value of each asset at the time the divorce was filed. If one spouse wants a particular asset, which is usually the case with income-producing property. courts will attempt to give the other spouse another asset with an equivalent value so that each walks away with a fair and known amount. However, this fails to address the future income the other spouse will never receive. To overcome the limitations of division for income streams, courts will commonly award a spouse a continuing percentage of the income generated so that the other spouse does not solely reap the benefits provided by this investment.
However, when an item has characteristics of both an asset and income stream, with rental property being a prime example, the analysis is more complex. In this situation, courts are supposed to consider the property for purposes of both equitable division and the allocation of an alimony. Given how critical these issues are to obtaining a fair outcome, hiring an experienced divorce attorney to ensure this issue is properly assessed by the court is crucial.
Contact an Orlando Divorce Lawyer
Each divorce is unique, and identifying any hidden or partially unconsidered issues is important to negotiating the best possible outcome. Orlando’s Donna Hung Law Group offers the experience and solid legal advice divorcing clients need to make informed and prudent decisions. If you have questions or concerns about divorce, contact the office at (407) 999-0099 to schedule a confidential consultation.