Property Division

General Information

Property division is an aspect of every divorce. In some divorces, both parties may affirm that they have no shared or marital property. Most often, however, there are some items which must be assigned to their respective owner and others that must be somehow divided because they are jointly owned.

The property division aspect of a divorce is a three-step process:

  1. The court characterizes each item of property as marital or non-marital
  2. The court assigns each party’s non-marital property to that party
  3. The court equitably divides the marital property between the parties

Under Kentucky law, it is presumed that all property acquired during the marriage is marital unless it falls within a few narrow statutory exceptions. See KRS 403.190(3).

Purpose/Necessity

The purpose of hiring an attorney for a divorce and its property division issues is to ensure all non-marital property is retained and to obtain the best possible distribution of marital property.

The most contentious property-related issue in a divorce involves classifying certain property as marital or non-marital. The court must return each spouse’s non-marital property at divorce, so a determination that certain property is non-marital guarantees the return to the owning spouse. However, often property takes a different form throughout the duration of a marriage. For example, the wife’s $30,000 inheritance may be used to purchase a car. In that case, the property ownership must be traced so the wife could receive the car as her non-marital property. Tracing is a fact-intensive process and usually involves some research into the parties’ finances and supporting documentation.

The other hotly litigated property-related issue is the equitable division of marital property. According to KRS 403.190(1), the court must divide marital property “in just proportions”. It may consider “all relevant factors”, but marital misconduct/adultery may not be considered. Kentucky legal decisions have routinely held that a property division “in just proportions” does not mean an equal, or 50-50 division. See, e.g., Croft v. Croft, 240 S.W.3d 651 (Ky. Ct. App. 2007). Because the division need not be equal, attorneys often argue for a division that is better for their client given “all relevant factors.” The court is to consider, for example, the “[c]ontribution of each spouse to acquisition of the marital property,” so an attorney may argue his or her client contributed more and is therefore entitled to more at divorce.

In addition to these issues, property division and settlement of the marital estate also involves the division of debts. Furthermore, there may be significant tax consequences to a particular property division arrangement. That is why it is important to discuss a proposal with an experienced attorney and/or accountant.

Frequently Asked Questions

  • Is Kentucky a community property state or a separate property state?
    • Kentucky is a separate property state. In Kentucky, rights to property only arise or are legally determined upon legal separation or divorce. In a community property state, property acquired during the marriage (aside from gifts or inheritances to a single spouse) is presumed marital upon its acquisition.
  • How will the value of property be determined?
    • The parties are free to agree as to the value of certain property. If there is no agreement, assets without a readily obtainable valuation must be appraised. This will usually require the use and potentially testimony of experts, such as real estate appraisers or business valuation specialists.
  • Will property division affect an award of maintenance or vice versa?
    • In a divorce action, property division must occur before maintenance is considered. After that occurs, the maintenance award will be calculated. A spouse may be granted maintenance if he/she lacks sufficient property, including marital property apportioned to him/her, to provide for his/her reasonable needs. The maintenance amount and duration will be determined by all relevant factors including the financial resources of the party seeking maintenance, including marital property apportioned to him/her. See KRS 403.200.Thus, property division may affect the amount and/or duration of a maintenance award but a maintenance award will have no effect on property division.
  • Does property division depend on how a particular piece of property is titled?
    • No, according to KRS 403.190(3), how a property is titled will have no effect on its classification as marital or non-marital. For example, if the spouses own a home purchased after marriage with money earned by either or both of them, the house is marital property whether it is held in the name of one spouse or of both spouses as joint tenants, tenants in common, or tenants by the entirety.That being said, the way property is titled still has some relevance. For example, a parcel of land purchased with the husband’s separate funds may be titled in both his and his wife’s name, and this may demonstrate the intent and use of the parcel as marital property rather than separate. An attorney familiar with Kentucky property division law may assist on these close calls.
  • What is property tracing and when is it necessary?
    • Tracing is the process of tracking property’s ownership or characteristics from the time of its origin to the present. In many cases, a particular asset will be sold or exchanged for money or another asset. When considering whether a particular asset is marital and subject to division or non-marital and subject to return to the owning spouse, tracing may be necessary to determine how the particular asset was acquired.According to KRS 403.190(3), all property acquired during the marriage is marital unless it is shown to fall within one of the statutory exceptions. Therefore, to be awarded non-marital property which is no longer owned, the non-marital property must be tracked from its original to its current form. For example, a wife may have received an inheritance, part of which was used to purchase a car. To claim the car as non-marital property, the wife would be expected to demonstrate the inheritance and the use of those particular funds to purchase the car.
  • Is a particular asset considered “property” that can be divided?
    • Sometimes it is difficult to determine if an asset would qualify as “property” under the Kentucky Revised Statutes. As a general rule, an asset that is transferable from one person to another is considered property subject to division.Whether a particular asset is considered property may be already determined by a prior case decision. For instance, Kentucky courts have ruled on the status of advanced degrees, business goodwill, intellectual property (e.g., trademarks, copyrights, patents), workers’ compensation awards, and pension benefits. An attorney familiar with Kentucky marital property division should be able to answer specific questions.
  • What is considered “marital property” that must be divided?
    • Aside from the exceptions listed in KRS 403.190(2), “[a]ll property acquired by either spouse after the marriage and before a decree of legal separation is presumed to be marital property…” KRS 403.190(3). The exceptions – or the types of property that are non-marital – are:
      1. “Property acquired by gift, bequest, devise, or descent during the marriage and the income derived therefrom unless there are significant activities of either spouse which contributed to the increase in value of said property and the income earned therefrom.”
      2. “Property acquired in exchange for property acquired before the marriage or in exchange for property acquired by gift, bequest, devise, or descent.”
      3. “Property acquired by a spouse after a decree of legal separation.”
      4. “Property excluded by valid agreement of the parties.”
      5. “The increase in value of property acquired before the marriage to the extent that such increase did not result from the efforts of the parties during marriage.”
  • Is a particular asset generally considered marital or non-marital property?
    • Whether a particular asset is considered marital or non-marital property may be already determined by a prior case decision. For instance, Kentucky courts have ruled on the status of deferred compensation/pension benefits, ownership interest in a business, social security benefits, personal injury awards, and loans given by one spouse to the other. An attorney familiar with Kentucky marital property division should be able to answer specific questions.
  • What is a Qualified Domestic Relations Order?
    • A Qualified Domestic Relations Order (QDRO) is a legal order entered in a divorce or legal separation which splits or changes ownership of a retirement/pension plan. It is used to provide a divorced spouse with their share of the benefits in an employer-based plan subject to the Employee Retirement Income Security Act (ERISA). The former spouse may be awarded all or a portion (via percentage or set amount) of the plan benefits, depending on the property division agreed to by the parties or ordered by the court.To transfer such pension/retirement funds, a QDRO must be included in the divorce action. It is important that the QDRO complies with all relevant federal and state laws. It is therefore advantageous to have it drafted with an attorney experienced with Kentucky property division and the relevant portions of the federal acts including the Internal Revenue Code. If the order is not “qualified”, the plan administrator need not comply, or an unintended result may occur (for example: the giving spouse will remain subject to all taxes on the plan even though it has been assigned to the receiving spouse).
  • Will a Kentucky court be able to divide real property located in another state?
    • Maybe. A Kentucky court with personal jurisdiction over a party may compel that party to convey real property located in another state. However, the Kentucky court would not be able to issue an order conveying the property itself. Alternatively, in the situation where property exists elsewhere, a Kentucky court may simply dissolve the parties’ marriage without dividing the marital property.The easiest scenario for property division is, obviously, to bring the action in the county where the property is located. This is most common, as a divorce action “must be brought in the county where the husband or wife usually resides.” KRS 452.470.
  • Will a Kentucky court be able to divide marital property being held by a non-resident spouse?
    • Probably. If the parties had a marital domicile in Kentucky within one year before the legal action was filed, the court may resolve all property distribution claims because it will have personal jurisdiction over both parties. See KRS 454.220. To have a “marital domicile” is to have a marital relationship in Kentucky, as intended and believed by the parties themselves.
  • May a certain property division entered into via a divorce decree be modified or revoked?
    • According to KRS 403.250, “[t]he provisions as to property disposition may not be revoked or modified, unless the court finds the existence of conditions that justify the reopening of a judgment under the laws of this state.” Thus, if a major change of circumstances occurs (loss of job, severe injury, award of large inheritance, etc.), a client should contact his or her attorney to determine if changing the property division is possible.If the property division arrangement was defined in a Separation Agreement, you must look to the terms of the Separation Agreement itself to see whether and how it may be modified. The Separation Agreement may specify that the terms pertaining to property division cannot be modified. However, despite this, a Separation Agreement may be modified if it is found to be unconscionable (e.g., fundamentally unfair). KRS 403.180.

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Property Division

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