Client Compass, Divorce Law Monitor

For spouses contemplating a divorce, the issue of which assets will be divided is a significant consideration. In the United States, some states are “community property” states, meaning that most property acquired during the marriage, excluding gifts, inheritances, and assets owned prior to the marriage, is considered “marital” and accordingly divisible in the event of divorce. Other states, including Massachusetts, are “equitable distribution” states, meaning that assets held by either party acquired either before or during the marriage, including assets received via gift or inheritance or assets held at the time of the marriage, are “equitably” divided at the time of divorce.

In Massachusetts, absent a prenuptial or postnuptial agreement, the vast majority of assets are “touchable” (i.e., divisible) in divorce. Massachusetts law has a very broad definition of “marital estate” or “marital property” in the context of divorce. The marital estate includes all property to which either party holds title, whenever and however acquired, and wherever situated. The marital “pot” includes everything a divorcing party owns. This does not mean that a judge will necessarily give one spouse’s beloved autographed baseball collection to the other, but that the value of that collection will be taken into account in dividing the marital estate overall. In other words, the value of that collection to the spouse who keeps it may be offset by assets of similar value kept by the other spouse. This post will discuss several different types of assets, whether those assets are “untouchable” in divorce, and outline some specific considerations for certain classes of assets.

Real Estate

Real estate interests are divisible in divorce. The judge has the power to order real estate to be sold or to prohibit a party from selling real estate held as security for support obligations. If a divorcing party owns real estate outside Massachusetts, including in foreign countries, provided the Court has personal jurisdiction over the party who holds the real estate, the judge can order the real estate to be transferred or sold. Under certain circumstances, beneficial interests in a trust holding real estate can also be included in the marital estate and divisible in divorce.

Bank Accounts, Cryptocurrency, Stocks and Bonds

In general, bank accounts, cryptocurrency, stocks, and bonds are included in the marital estate and thus divisible. Stocks and bonds should typically be valued at the time of divorce. Stocks are typically valued using the applicable share price multiplied by the number of shares. A limited exception is bank or investment accounts held in trust for others, including the parties’ children, which would not be considered part of a spouse’s marital estate subject to division. In addition, since stocks and bonds earn income with very little “work” on the part of the person who owns them, in a short-term marriage, a divorcing spouse may be able to successfully argue that because the other spouse did not contribute to the increase in value of stocks or bonds held before the marriage, which were solely the result of prudent investments the spouse holding the assets, and thus should not be divided in divorce.

Retirement Accounts and Pensions

Retirement accounts and pensions are divisible in divorce, regardless of whether the fund or pension has matured or vested at the time of divorce. These assets may be assigned a present value and retained by the spouse holding the pension or account, who would then buy out the other spouse’s interest in it with cash or other assets. Alternatively, the division may be postponed until the pension benefits are received in the future, and the spouse who does not own the pension may be allocated a fixed proportion of those benefits to be received at the time the benefits are received.

Stock Options

Stock options received or earned during the marriage, including options that are unvested at the time of divorce, are marital property and divisible in divorce. Unvested stock options are usually divided according to a formula or “time rule” in Baccanti v. Morton, 434 Mass. 787 (2001). Under the Baccanti time rule, if a grant of options is closer to being fully vested at the time of divorce, the portion of that grant that will be considered a divisible marital asset is larger.

Honor Prizes

“Honor” prizes, such as those received for a scientific discovery (such as a Nobel Prize), for an athletic competition (such as an Olympic medal), or another major award, are marital property and divisible in divorce.

Royalties, Copyright and Patent Interests

Royalties, such as royalties relating to income-producing shares, the right to receive income from a published book, or compensation for the use of property, are divisible in divorce, as are copyright and patent interests. Typically, it is possible to assign a value to such assets. However, in rare cases, their value may be so speculative or uncertain that the Court does not consider them when dividing marital property.

Business Interests

Business interests are divisible assets in a divorce. Since the business is also often the source of income for the spouse who holds the interest, the Court often permits that spouse to retain the business interests and assigns other assets, such as real estate, bank and/or retirement accounts, to the other spouse to offset the business interests held by the spouse who operates the business. Suppose both spouses have an interest in the business. In that case, it is usual for one spouse to buy out the other spouse’s interest so that the spouses are not attempting to operate a business together post-divorce.

Choses in Action

A “chose in action” is a legal term meaning the right to bring an action or to recover a debt or money. Although this type of asset is somewhat unusual, it is divisible in divorce.

Personal Property (including Pets)

Personal property of all types is divisible in divorce. Personal property includes personal items, clothing, jewelry, household items, collections, pets, and more unusual items. For example, winning lottery tickets are marital assets and divisible if the right to collect accrues prior to divorce, as are burial lots, ownership of season tickets to athletic or musical events, credit card points, and frequent flyer miles.

Proceeds of Personal Injury Actions

Damages relating to tort claims, such as personal injury actions, are marital property and divisible in divorce. This can include damages relating to future (including post-divorce) lost wages, future lost earning capacity, and future medical expenses. However, it is an open question under Massachusetts law whether damages awarded for pain and suffering, disability, disfigurement, or loss of consortium should be considered marital property.

Gifts and Inheritances

Gifts and inheritances received before and during the marriage are marital property and typically divisible. However, gifts or inheritances may also be excluded, depending on the factual circumstances of the case. If the gift or inheritance was received toward the end of the marriage or even post-separation, it might be more likely to be excluded from the marital estate. If the gift or inheritance was totally unexpected and something like a windfall, it might be more likely to be excluded from the marital estate. But suppose the gift or inheritance was relied on by the couple during the marriage (for example, they planned, once they received the inheritance from Uncle Jimmy, to renovate the kitchen, pay off the home equity line, go on a vacation to Aruba and put the rest in the kids’ college funds). In that case, it might be more likely to be included.

This may also include gifts and inheritances that have yet to be received by a party, although it is not usual for a spouse to be required to transfer a portion of a gift or inheritance received post-divorce to the other. Rather, if one spouse is expected to receive a significant gift or inheritance in the future, she may receive a disproportionately lower amount of assets in the divorce. This unequal division is on the basis that the spouse who receives the gift or inheritance has a superior opportunity to earn or receive assets in the future than the other spouse by virtue of that gift or inheritance, which is an important factor[1] considered by the Court in determining how to “equitably” divide marital assets.

Trust Interests

If a divorcing spouse has a present, enforceable, and valuable beneficial interest in a trust, that interest is often considered marital property and is divisible in divorce. However, whether the interest is present, enforceable, and valuable can be a difficult question and will often require analysis by an attorney experienced in divorce and trust-related issues.

Assets in Short-Term Marriages

Massachusetts mandates an “equitable,” not “equal,” division of marital assets. In long-term marriages, assets will typically be divided equally. Still, in short-term marriages, especially marriages of under five years, divorcing spouses’ arguments that they should retain, for example, assets held prior to the marriage or gifts and inheritances received during the marriage, are stronger. In a short-term marriage, in other words, it is more likely that the spouses will leave the marriage with the assets they held at the time of the marriage, or at least the bulk of such assets, particularly if one spouse held significant assets at the time of the marriage that the other spouse did not contribute to in any way. However, “equitable” division always requires a fact-specific analysis of the circumstances of each divorcing couple, and there are few hard and fast rules.

Educational Degrees and Professional Licenses

A few states treat educational degrees and professional licenses earned or awarded during the marriage as marital property subject to division in divorce by awarding the non-degreed spouse a share of future income earned by practicing in that profession. Massachusetts, together with the significant majority of states, does not treat educational degrees or professional licenses as marital property. However, the Court does consider the spouses’ vocational skills, employability, and opportunity to earn or receive assets and income in the future in determining how to equitably divide the marital estate. Educational degrees and licenses may come into play indirectly in dividing the marital estate as a result.

Social Security Benefits

Due to federal law prohibiting state courts from assigning a right to collect social security benefits as a form of property in divorce, in Massachusetts, as in all other states, social security benefits are not marital property divided in divorce. However, social security can be considered income for child support or alimony purposes.

Property of the Children

Property belonging to the children of divorcing spouses cannot be assigned to a divorcing spouse because it is not considered marital property. This is because the statute applicable to property division refers to the estate of “each of the parties,” which does not include the children. However, if a divorcing spouse has transferred assets to a child with the intent of fraudulently depriving the other spouse of a claim to the assets in divorce, the Court has the power to reverse the transfer.

So, How Do I Protect My Assets in Divorce?

Suppose you are married or contemplating marriage and concerned about your assets in the event of divorce. In that case, one fairly foolproof way to protect your assets if you eventually get divorced is a prenuptial or postnuptial agreement. A valid and enforceable prenuptial or postnuptial agreement can specifically define which assets are to be considered separate property and thus not divisible in divorce and which assets are to be considered marital property. A prenuptial or postnuptial agreement can also specify, for example, that marital property is to be divided equally, “equitably,” or in some other way. If you’re already married, a postnuptial agreement is appropriate, while if you’re looking to marry in the future, you’ll need a prenuptial agreement. An important factor in determining whether a prenuptial or postnuptial agreement is valid and enforceable is whether the parties had independent counsel in connection with the negotiation of the agreement. You should hire experienced counsel to draft and negotiate it. Ensuring that assets are “untouchable” in divorce is worth it!

[1] The full list of factors considered in “equitably” dividing marital assets is in G.L. c. 208, § 34: “In fixing the nature and value of the property, if any, to be so assigned, the court, after hearing the witnesses, if any, of each of the parties, shall consider the length of the marriage, the conduct of the parties during the marriage, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties, the opportunity of each for future acquisition of capital assets and income, and the amount and duration of alimony, if any, awarded under sections 48 to 55, inclusive. In fixing the nature and value of the property to be so assigned, the court shall also consider the present and future needs of the dependent children of the marriage. The court may also consider the contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates and the contribution of each of the parties as a homemaker to the family unit.”