Michigan Property Division Rules
This is a basic orientation to property division in divorce cases in Michigan. It is not an exhaustive discussion of property law. What may occur in your case may be different in ways from what is described here. These are rules of thumb.
Most divorce cases are settled. Therefore, the ultimate property division is usually something upon which the parties agreed. The Judge must also agree to any property settlement. However, Judges will rarely question the terms of a property settlement entered into by the parties. Judges decide relatively few property disputes directly.
The law of property division and how Judges apply the law is indirectly important, however. When we negotiate a property settlement, the "bottom line" is usually: what would the Judge probably do, and is it worth the expense of a trial to find out exactly what the Judge would do? The case will generally settle near what the parties' attorneys believe the Judge would order at trial.
In Kent County, there will be a settlement pretrial conference before there is a trial. The Judges will usually get involved in the settlement negotiations, and will allow a case to proceed to trial only if the Judge is convinced the case cannot be settled. If there is no fact dispute, only a disagreement regarding what the Judge would do with a given set of facts, the Judge’s input at the settlement conference will often make a trial unnecessary.
Step One: Identify Property Available for Division
Before you can work out a fair property settlement, you must know what property is available for division.
You may already know what property is owned by you and your spouse, and may need merely to list all your property. Use the property checklist as a starting point to list property owned by either you or your spouse.
Your spouse could have property you do not know about. Perhaps you trusted your spouse to handle all the family finances. Perhaps your spouse has a retirement benefit at work that you were not aware of. Maybe your spouse has hidden assets from you in anticipation of the divorce. (An unfortunately common occurrence.)
The court rules permit discovery of assets in the possession of the other party. Discovery may be done informally (your lawyer asks your spouse to produce wage stubs, pension statement, etc. by letter), or may be done formally. Formal discovery is generally done by serving the other party with Interrogatories: written questions which must be answered under oath. There are other methods of discovery as well: among them, requests to produce documents, inspection of property, subpoena, and depositions.
It is less expensive in attorney fees to do discovery informally. One of the types of divorce cases which tend to be most expensive are cases requiring extensive discovery due to failure of a party to fairly disclose assets, resulting in the expenditure of much attorney time to nail down the assets which are available for division.
It is unlawful for a party to fail to disclose requested information. Failure of a party to disclose an asset is fraud. If you prove to the Judge that your spouse concealed an asset, the Judge may award all of that property (not just your half of the property) to you. Conversely, you have a legal obligation not to conceal assets from your spouse, and to truthfully answer requests for information made by your spouse. Failure to do so can result in your being held in contempt of court, requirement that you pay your spouse’s attorney fees, and loss of the concealed asset to your spouse. You will also incur additional attorney fees to your own attorney for the extra time all this takes.
Step Two: Determine the Value of the Property
Property in a divorce can be divided “in kind” or “by offset”. If a particular piece of property is divided in kind, the property is split. For example, you might agree to sell the house, and divide the proceeds evenly. If property is divided by offset, you each get different pieces of property, hopefully of equal value. For example, you might agree to take the house and your spouse keeps the retirement benefit. If you are going to offset property, you need to know the value of the property. If the house equity is $20,000, and the retirement benefit is $20,000, then you know this is a roughly equal trade. (It isn’t really equal, because there are different tax consequences which go with these properties which you should take into consideration. A house and a 401(k) aren’t really the same things, so they can’t really be even.) If you divide the property in kind, you don’t necessarily need to know the value before you negotiate, because you are each getting the same amount. An example would be where you agree to sell the house and split the net proceeds evenly.
To determine the value of property, appraisals may be required. Experts may appraise real property, valuable personal property, pension benefits, or the family business.
Step Three: Determine Which Assets Are Included in the Marital Pot
The law makes a distinction between marital assets and non-marital assets. As a general rule (but there are exceptions), marital property is divided by the Court, and non-marital property is not.
Marital property is generally property which was acquired during the marriage. It usually does not matter who earned it or saved it. If neither of you had it before you were married, and now you do, it is probably marital property. It does not generally matter who has the title to the property. For example, it is a very common misconception among parties getting divorced that retirement benefits belong to the party who worked for them. (People who come to see me often say “I have a retirement benefit at work” or “My spouse owns a retirement benefit.” If it was accumulated during the marriage, it is not his or hers; it belongs to both.)
Non-marital property is generally property owned by a party before the marriage, or property which was a gift to, or inherited by, only you or only by your spouse. Premarital property is more likely to be a significant issue if you have not been married very long. If you owned all the furnishings in your apartment before you were married, you will not generally include those in the pot to be divided. Gifts and inherited separate property may become joint property when co-mingled or re-titled. The rules on this are complicated. Always run this type of issue by your attorney if the amount is significant.
Your spouse’s premarital assets, gifts or inheritances may (but not necessarily will) be included in the pot for division if either 1) you contributed to the acquisition, improvement or accumulation of the property, or 2) the marital property is insufficient for your suitable support and maintenance. For example, a house owned before marriage may be awarded to the party who owned it, but the increase in its equity from the date of marriage to the date of divorce may be divided as a marital asset on the theory that the non-owning spouse contributed to its increase in value.
Issues concerning which assets to include as marital or non-marital assets often wind up in Court because the rules give Judges pretty broad discretion to do what they think is fair, and the standards are so vague that the parties may legitimately disagree as to whether a particular item of property should be included in the division. If you have property which you think might be considered your separate property, be sure to disclose and discuss that issue with your attorney.
Step Four: Decide What Percentage of Property Each Should Receive
Net worth (property value less debts) is generally divided 50/50. However, Judges have the discretion to divide property unevenly if required by fairness. When Judges do depart from an even division, they will rarely go beyond a 60/40 split.
Factors which determine split
Some factors which a Judge must take into consideration when dividing property are:
- The source of the property.
- The parties contributions toward the acquisition of the property, as well as the general marital estate.
- The duration of the marriage.
- The needs and circumstances of the parties.
- The ages, health, life status and earning abilities of the parties.
- The cause of the divorce, including the conduct of the parties.
- General principles of fairness.
- The interruption of the personal career and education of either party.
It should be apparent that these listed factors are pretty vague, which means that the law gives Judges a lot of discretion to do what they think is fair under all the circumstances.
As a practical matter, the property will be evenly divided unless there is a good reason for the Judge to believe that would be unfair.
The factor which is most frequently argued by parties for an uneven division is serious fault. The Court may take serious fault for the divorce into consideration in dividing property. In most cases there is some fault on both sides or the fault will not be considered serious. The most frequently raised fault issue is adultery. This issue often presents a “which came first, the chicken or the egg” problem. The faithful spouse will say the adultery was the cause of the breakdown, and the adulterous spouse will say the marriage was already broken down and that is why he or she strayed. Adultery is raised as a issue often, but usually does not affect the outcome. Other fault issues which are sometimes raised are spouse abuse, alcohol abuse, drug abuse, gambling away marital savings, or other activities which impose a real burden on the innocent spouse which in fairness should be compensated.
Another practical consideration in raising fault as an issue is that it will usually increase the cost of the divorce. Parties who are at fault rarely see themselves as at fault, usually have an excuse (however lame), and will not agree to an uneven property division if they can avoid it. Therefore, cases in which fault will be a factor will be more difficult to settle and more likely to end up in trial.
Step Five: Decide Who Gets What
Having decided what assets are available to divide, their values, whether they are excluded from the pot as non-marital, and what percentage division is fair, the last step is to decide what to award to each party. There are some general rules regarding how you divide the assets. Again, if you and your spouse agree, the Court will likely rubber stamp your agreement. If you don’t agree, here are some general rules on dividing particular assets:
If the parties own a home, and there are minor children, the Court will generally award the home to the custodial parent. The non-custodial parent will generally receive a lien upon the property for his or her share of the equity, payable generally when the property is sold, when the custodial parent remarries, dies, or cohabits with another adult, or when the youngest child reaches adulthood. Often, the parties decide to offset the value of house equity against other assets, such as retirement benefits. The different taxable status of the assets should be kept in mind. The party who is awarded the house will be required to pay the mortgage, but this does not release the other party from the mortgage. Often, it makes sense to also negotiate a re-financing of the mortgage by the party receiving the house. If you do not have minor children, the house is usually sold and the proceeds are divided, unless one party negotiates a buy-out of the other parties' interest in the house. The party who wants the house most will make a higher offer to the other party for their share of the equity.
Pension and retirement benefits are divided "in kind" or by "offset". An "in kind" division would involve a court order dividing the benefit 50/50 (or some other ratio). The spouse then would have the same right to the funds that the employee spouse had; generally, this means a wait to spouse's retirement before collecting a pension, though some plans allow earlier withdrawal. If "offset", the employee spouse receives the retirement benefit and the non-employee spouse receives other property to balance out the value of the retirement benefit.
If there is property with a lien for debt on it, the party awarded the property will also generally be responsible to pay the debt. Thus, whoever gets the house gets the mortgage; whoever gets a car gets that car loan. You don’t generally want a property division, for example, where your spouse is to pay your car payment, and then the payment is not made and your car is repossessed.
Since the creditors are not parties to the divorce case, the Court cannot change the creditor’s rights. The Court may order one party to “hold harmless” or “indemnify” the other party on a debt. For example, you have a joint MasterCard, and the Court orders your spouse to pay it. It isn't paid, and MasterCard sues you for the balance and collects from you. You then have a right to sue your spouse for what you had to pay.
Some problems with “hold harmless” debt agreements are that 1) you still might have to pay, 2) you might have the cost and hassle of having to sue to collect from your ex-spouse, and 3) even if you win the suit, your spouse might file bankruptcy, which would control over the “hold harmless” agreement.
Due to these problems, you will generally want to allocate debts to the party in whose name the debt is held (i.e., don’t require your spouse to pay debts in your name). If you then have to assume more debt than your spouse, you should bargain for more property so the overall division of debt and property comes out even. Alternatively, re-finance credit cards and other debts so only the party responsible for the debt will be sued by the creditor if the debt is not paid.
Furnishings and other Personal Property Items
It makes little sense to pay attorneys $250 or more per hour to argue over who gets the toaster. If you need a Judge to divide personal property, you will wait a very long time; the Courts are too overcrowded. I believe the fairest way to divide personal property is for the parties to simply take turns selecting property until it is all divided. Unfortunately, you can’t force your spouse to be reasonable in dividing personal property fairly. Personal property division can be part of the overall property settlement negotiation if necessary. If you need the attorneys to settle this, the attorneys are going to need a least a list of the property, with current values, and how you want to divide it. Depending on the overall values, and the differences of opinion about values, an appraisal may be helpful. (You would not get an appraisal if you are arguing over a toaster; you would if arguing over valuable antiques or jewelry.)