As readers of this legal blog likely know, our state uses the equitable distribution theory in the divorce property division process. This means that instead of dividing marital property as close to 50-50 as humanly possible (like in a community property state), Michigan family courts determine a fair split, but what does that mean for your investment portfolio?
Prior to and during the divorce process, courts in Birmingham and throughout Michigan encourage couples to find resolutions themselves. This includes with property and investments. As such, if couples can agree on a fair distribution of assets, the family law judge will likely accept it and incorporate it in the final divorce decree.
What is fair?
For most divorces, a fair split is mostly equal, meaning a 50-50 split. However, Michigan family law judges have the ability to determine what is fair, and if they find some fault in ending the marriage (cheating), wrongdoing (fraud, gambling debts, etc.) or a greater need on the part of one of the spouses (stay at home mom for decades, etc.), the judge may offer a larger portion of the marital estate to one spouse.
Brokerage accounts are relatively easy to partition. Those stocks purchased during the marriage are usually marital property, even if they are paid for with dividends from stocks purchased prior to the marriage.
Retirement accounts and pensions
Generally, that part of the retirement account or pension that accrued and received contributions during the marriage is part of the marital estate. This means that both spouses are entitled to a portion of that account, even if only one spouse contributed.
Retirement accounts can be a complicated calculation because, depending on when you marry and divorce, there may be contributions before and after the marriage that affect the ultimate payout. And, sometimes, you cannot liquidate or transfer funds until you reach retirement age.
To solve this dilemma, a financial expert can be used to calculate the amount of the ultimate payout each spouse would be entitled to based on the percentage of accrual during the marriage.
Stock options can be tricky as option accrual and stock receipt occur at different times. Couples can agree to buy out the option or use a constructive trust.