Division of Assets Attorney in Louisville
The division of property in a Kentucky divorce case involves much more than the family home. It also encompasses cash, retirement accounts, debts, bank accounts, personal property, and the other marital assets of the divorcing couples.
In Kentucky, courts divide the marital property of divorcing spouses fairly (equitably). Kentucky law mandates a fair (equitable) division and not necessarily equal division of property in a divorce case. This is not the same as community property laws that warrant an equal division of marital assets.
The distinction between Separate and Marital Assets in KY
A KY court must first determine whether any asset is owned individually by one spouse, i.e., non-martial, before dividing property in a divorce case. Upon awarding separate assets and property to a certain spouse, the court will then equitably split the remaining marital assets between the divorcing spouses.
Separate (non-marital) property is not divided in a divorce case. Due to this, there is usually a contention between spouses in court whether a specific martial property can be deemed separate. In general, separate property usually includes the following:
- Property acquired prior to the marriage
- Property acquired in the course of the marriage through inheritance or a third-party gift (but not from the other spouse)
- Property acquired in the course of the marriage through selling or exchanging separate property, and
- Property determined as separate under a prenuptial agreement
Under divorce laws in Kentucky, marital property is subject to fair (equitable) division. Any property that is not separate is deemed marital property. Marital property generally includes:
- Property obtained by either spouse in the course of the marriage that is not separate (such as money, real estate, and retirement accounts)
- Property obtained prior to the marriage where the title is held by both parties or commingled, such as a real estate property held by both spouses jointly, and
- Property obtained prior to the marriage that has increased significantly in value owing to marital contributions, such as a separate home or business that was not worth much before marriage but increased substantially because of labor-driven or financial initiatives made by the spouses during the course of the marriage.
The Division of Assets in Kentucky
Kentucky law allows divorcing couples to decide on the division of their assets outside of court, with or without the assistance of a lawyer. Regardless, a court will still assess the property division agreement and usually approve such an agreement as long as it is documented, and each party has had a chance to consult a lawyer.
In case the spouses cannot agree on the division of property, they must bring the case to court, and a judge will rule on the property division.
The division of property is equitable in KY, which may mean an unequal division after the court assesses all pertinent issues, such as:
- The duration of the marriage
- The value of assets awarded to each spouse
- The contribution of each spouse (if any) to the acquisition of marital assets
- The economic requirements and circumstances of each spouse
The Division of Debts in Kentucky
In a Kentucky divorce case, a court will also divide marital debts on the basis of the following factors:
- The liabilities and debts of each spouse
- The economic condition of each spouse
- The reason for incurring the debt (whether the debt is the result of reckless spending by one spouse, such as debt acquired due to gambling)
Irrespective of whether a judge orders your spouse to be fully responsible for paying off a joint debt, a creditor may still approach you for payment. In such cases, you could take further steps to protect yourself. If possible, use the court orders to erase your name from the debt account.
List of Statutory Guidelines for Establishing Property Division in Kentucky
In Kentucky, there is a list of factors determined by statute that lay out the guidelines that the court will use to ensure a fair division of property. Some examples of factors that are usually considered in cases of property division are as follows:
Courts in states that allow at-fault divorces may justify awarding a higher percentage of the assets to the injured spouse due to the other party being at fault.
Income and Earning Capacity
In cases of property division, the court may take into account the relative incomes and earning capacity of both spouses, which may be a function of factors such as education, age, and health. The spouse who has lower economic aspects may be awarded a higher percentage of the assets.
In case one spouse has full child custody after the separation, it may be likely that they will be given a larger percentage of the marital assets, or specific marital property, such as the family home.
Consideration of Non-Monetary Contributions
Kentucky law requires that judges deciding on property division cases take into account the non-monetary contributions of both the spouses when establishing the division of assets between them.
This usually means that the judge will account for the value of the efforts of a stay-at-home spouse. The following activities may encompass non-monetary contributions:
- Cooking, household tasks, homemaking
- Caring for the children
- Offering support to their spouse professionally
The non-monetary contributions to the marriage by one spouse may be viewed by the judge as grounds for granting a higher percentage of the marital assets.
Consideration of a Spouse’s Monetary Misconduct in Property Division Cases in KY
There are no laws in Kentucky that require courts to consider economic misconduct (such as accumulating debt through gambling) by either spouse when deciding on the division of the marital assets. In several other states, monetary misconduct can lead to a larger percentage of marital assets being given to the aggrieved spouse.
The Impact of a Pre-Marital Agreement on Property Division in KY
A pre-marital agreement (prenuptial or prenup agreement) refers to a binding legal agreement that both spouses sign prior to getting married in KY. A prenup that contains an agreement on the division of property can take precedence over KY’s asset division laws by establishing what is considered as separate property versus marital property.
A valid prenup agreement can prevent a KY court from having complete control over the determination of the division of assets between the spouses. Instead, the court will divide them in a manner that was agreed upon by the couple before the marriage.
Tax Implications of Property Transfers During a Divorce
In a divorce, property transfers between the couple do not always carry a tax implication for either party. However, several factors such as the value of the property, income brackets of the divorcing spouses, etc.; play a role in deciding the tax impact of such transfers during a divorce. You must consult a taxation expert to find out the tax consequences in your case.
If your divorce involves high-value property transfers, taking well-planned financial decisions with the help of your divorce attorney and financial planner can save a substantial amount, both in terms of money and potential frustration.
Property Transfer During and After Divorce Decree
The IRS regulations allow the spouses to transfer assets to one another and divide the property in a fair manner during a divorce agreement. They can do so without taking tax hits in the next year as the IRS allows them not to recognize any losses or gains on the transaction.
For taxation purposes, the IRS considers all property transfers from the time of divorce decree to the one-year anniversary of the decree, as divorce-related transfers. Even after the one-year anniversary and up to six years from the date of the decree, transfers can be deemed as related to divorce if they are listed as such in the divorce decree.
After the completion of six years from the date of the divorce decree, the IRS regulations do not consider property transfers to be divorce-related in any way.
Property Transfer as a True Sale
In certain situations, it might prove favorable to treat the property transfer as a true sale as opposed to a divorce-related transfer. Taking this decision depends on several factors, like the property value, the duration for which the recipient plans to hold on to the property, and the gains on the property value.
You must intentionally devise a taxable event by constructing the transfer as a true sale after the one-year anniversary of your divorce decree. In doing this, the spouse who buys the other spouse’s share can benefit due to an increased cost basis.
Property Transfer in Case of a Prenuptial Agreement
Only when a property transfer described in the divorce decree takes place within one to six years of the divorce, the law considers it divorce-related. Sometimes, if the transfer of property is listed in a prenuptial agreement, the divorcing couple may divide the assets without noting it in the divorce decree.
If the transfer takes place more than a year after the decree, the law may not consider the transfer as divorce related. One or both the ex-spouses stand to suffer tax penalties for a transfer not listed in the divorce decree even if outlined in a prenup.
Contact a Qualified Marital Property Rights Attorney in Kentucky
It can be traumatic to experience the ending of a marriage, whether it is through a divorce or the passing away of a spouse, particularly when you are uncertain about the future. While marital assets and inheritance can be a reason for uncertainty, it does not necessarily have to be the case.
At the law offices of John H. Ruby & Associates a skilled and compassionate marital property rights lawyer can apprise you of your rights and guide you on the next steps. Consult with an experienced attorney at (502) 895-2626 today.