Divorce Basics: Dividing Your Property and Debt

You and your spouse probably own property together. You may own a house, cars, furniture, and other things. Property you and your spouse own together is called marital property.

You and your spouse may also have joint debts, such as your mortgage, car loans, credit card debt, and personal loans. Debt that you and your spouse are both responsible for is called marital debt.

Dividing your property and debt is an important part of your divorce.

Who Gets What Property?

Marital Property Is Divided Fairly

If you and your spouse can't agree how to divide your property, the judge will decide. Michigan law requires judges to divide property fairly. Fair usually means that each person gets about half of everything. But in some cases, a judge could decide it is fair to divide marital property in a different way.

Your property might be divided unequally if one person is more at fault for the marriage ending or if one person needs more property. Sometimes one person gets more marital property but also takes on more marital debt.

What Is Marital Property?

Marital property gets divided in your divorce. Most property you or your spouse got during your marriage is marital property. If there is a title or deed, it does not matter whose name is on it. It is still marital property unless it was a gift or inheritance. If something is marital property, it is owned by both of you. Two types of marital property, marital homes and retirement plans, are discussed briefly below.

The Marital Home

Your marital home is the home where you and your spouse lived together during your marriage. You and your spouse should think about who can afford to keep the house. Usually the person who keeps the marital home takes on the costs of owning it. This can include the mortgage payments, property taxes, and upkeep. Sometimes only one person can afford these costs, so it makes sense for that person to keep the home. Sometimes neither party can afford the house on their own, so the only option is to sell the home and divide any money from the sale. You and your spouse may be able to agree about what should happen with the home. If you can’t agree, you may need a mediator or lawyer to help you.

If your case goes to trial and the judge decides how to divide your property, one of two things may happen. The judge may either award the home to one of you or order you to sell the home. If the judge orders a sale, any money from the sale will be divided between you and your spouse. Or if you owe more than the home sells for, the debt will be divided between you.

It is common for one spouse to move out of the marital home before a divorce is final. Sometimes people think they give up their property rights by moving out. This is not true. A spouse who moves out of the marital home before a divorce still has a property interest in the home.

Pensions/Retirement Plans

In general, the part of a pension or retirement plan accrued during a marriage is marital property. In a divorce, the non-employee spouse is entitled to part of their spouse's pension or retirement plan. Sometimes parties agree not to divide their pensions or retirement plans, and each keep their own.  Another possibility is to give the non-employee spouse different assets equal to half of the retirement benefit accrued by their spouse during the marriage.

What Is Separate Property?

Things that are not marital property are called separate property. If one spouse owns property before the marriage, it is separate property. If one spouse gets a gift or inheritance during the marriage, it is separate property. If a spouse has separate property and it gets more valuable on its own, the increase in value is separate property.

For example, a wife owns a rental home before the marriage. Neither she nor her husband does any work on the home during the marriage. An increase in the home's value is her separate property.

Spouses usually keep their separate property in a divorce. However, separate property can be divided in certain situations (read below).

When Separate Property Is Divided

Separate property usually goes to the spouse who originally owned it. However, separate property can be divided if:

• The other spouse contributed to getting the property, improving it, or growing it; or
• The other spouse's share of the marital property is not enough to meet that spouse's needs.

For example, your spouse owned a home before your marriage. During the marriage, you made home improvements that increased the home's value. You may be entitled to part of the home's value, or at least part of the increase in value.

Separate property can also become marital property if it is regularly used for marital purposes or placed in a joint bank account.

Examples:

• If you transferred inherited money to a joint bank account with your spouse, that money likely became marital property;
• If you regularly used money your parents gave you to pay down the mortgage on the marital home, that gift likely became marital property.

Determining whether property is marital or separate can be complicated. You may want to speak to a lawyer about it. If you have low income, you may qualify for free legal services. Whether you have low income or not, you can use the Guide to Legal Help to find lawyers in your area.

Who Will Pay Our Debt?

Marital Debt Is Divided Fairly

Each spouse is responsible for a fair share of the marital debt. This usually means each person has to pay about half of the total debt. In some cases, a judge could decide that it is fair to divide debt in a different way.

An unequal division of debt could happen in these situations:

• One person is more at fault for the marriage ending,
• One person is able to pay more, or
• One person is responsible for incurring debt without the other spouse's consent for a purpose that did not benefit the household (example: one spouse's gambling debt)

Sometimes one spouse takes on more debt and gets more property.

Marital Debt or Separate Debt

Debts that one spouse acquired before the marriage are separate debts. In general, all debts acquired during the marriage are marital debts. It doesn't matter who made the purchase or whose credit card was used.

There are some exceptions to this rule. Gambling debts, money spent on extramarital affairs, and money spent for restitution in a criminal case are usually not marital debt. Student loans taken on during the marriage are separate debt if they were used only for one spouse's education. But if student loans were used to support the household, they can be treated as marital debt.

Debt Usually Stays with the Property

The person who is awarded a piece of property normally takes on the related debt. Sometimes only one person can afford to pay the related debt, so that person keeps the property.

Creditors Are Not Bound by Your Debt Division

The judge assigned to your divorce case does not have authority over your creditors. Creditors are those you owe money to. Your Judgment of Divorce can assign each debt to you or your spouse. However, creditors may continue to treat debts that are in both of your names as joint debt.

It is important that all debts in both of your names are included in your Judgment of Divorce. That way, if the person ordered to pay the debt doesn’t do so, the other spouse can get the order enforced by the judge. If you end up paying a debt assigned to your spouse, you can file a motion asking the judge to order your spouse to repay you.

Who Decides How to Divide Our Property and Debt?

You and Your Spouse Can Agree On Your Own

Lawyers, mediation, and court hearings are expensive ways to divide your property and debt. If your assets and debts are easy to understand, you and your spouse can try to work out your own property settlement. This will help keep costs low.

If you and your spouse can safely negotiate, sit down together, list all of your property and debts, and agree on how to divide them. The judge will review your settlement to make sure it is fair, but will usually approve it if you have agreed.

You may want to talk to a lawyer if you cannot safely negotiate or if your assets and debts are complicated. If you need a lawyer and have low income, you may qualify for free legal help. Use the Guide to Legal Help to find lawyers and legal services in your area.

You and Your Spouse Can Agree in Mediation

Mediation is a process where a neutral person helps you and your spouse settle the issues you do not agree on in your divorce case. Mediation may help you agree on property and debt division and other issues. It is an alternative to going to court and having a judge decide what will happen. To find information about mediation services, see Community Services.

Mediation and other forms of alternative dispute resolution are not recommended in situations involving domestic violence. Threats, fear, and control are common in domestic violence situations and can make it hard for you to reach a fair agreement. Mediation may be an especially bad idea if you are a survivor of domestic violence and you don’t have a lawyer. To learn more about mediation, read Mediation and Other Forms of Settlement. To learn more about domestic violence, read Overview of Domestic Violence.

If You Can't Agree, the Judge Will Decide

If you and your spouse can't reach an agreement on how to divide your property and debt, the judge will decide for you. The judge will consider these factors:

• How long you were married
• What each spouse contributed to the marital estate
• Both spouses’ financial needs
• How much money each party can earn
• Why you are getting divorced, if one person is more at fault
• Anything else the judge thinks is important

Under the second factor above, contributions to the marital estate are not just financial. For example, if one spouse did not earn money but took care of the children and the home, those are also contributions. 

Using the Do-It-Yourself Divorce Tool

If you use the Do-It-Yourself Divorce tool, you will be asked for information about your marital property and debts. You will be asked how you want to divide them. If you and your spouse agree on how to divide all the property and debt, include those terms. After you answer all the questions, you will get a Judgment of Divorce that includes your agreement. The Do-It-Yourself tool may also create attachments for dividing things like vehicles and real estate, if you have them.

If you are not ready to divide your property and debts while using the Do-It-Yourself tool, you can leave that information out. The Do-It-Yourself tool will create a Judgment of Divorce that doesn’t include property and debt division. Save your answers on the LawHelp Interactive site so you can return later.

When you go back to your saved answers, enter your property and debt information. Enter the terms that you and your spouse agreed on if you reached a settlement. If you ended up having a hearing in front of the judge, enter the terms that the judge ordered. You can then print a Judgment of Divorce that includes a division of your property and debts.

Documents You May Need to Transfer Property

Even though your Judgment of Divorce will award certain property to each party, you may need additional legal documents to effect the transfer of property. 

For example, a pension or retirement account can only be divided by a special order called a QDRO (Qualified Domestic Relations Order) or an EDRO (Eligible Domestic Relations Order). You will need an attorney to draft a QDRO or EDRO for you.

If the Judgment awards real property (a house, building, or land) to one spouse and the deed is in both your names or only in the name of the spouse not keeping the property, you will need a quitclaim deed.

If the Judgment awards a car to one spouse and the car is titled in both your names, or only in the name of the spouse not keeping the car, then you must transfer the car's title.

To learn more, read Finishing Your Michigan Divorce without Minor Children or Finishing Your Michigan Divorce with Minor Children.

Finding a Lawyer

You might decide you want a lawyer to help you with your case. If you have low income, you may qualify for free legal services. Whether you have a low income or not, you can use the Guide to Legal Help to find lawyers in your area. If you are not able to get free legal services but can’t afford high legal fees, consider hiring a lawyer for part of your case instead of the whole thing. This is called limited scope representation. To learn more, read Limited Scope Representation (LSR): A More Affordable Way to Hire a Lawyer. To find a limited scope lawyer, follow this link to the State Bar of Michigan lawyer directory. This link lists lawyers who offer limited scope representation. You can narrow the results to lawyers in your area by typing in your county, city, or zip code at the top of the page. You can also narrow the results by topic by entering the kind of lawyer you need (divorce, estate, etc.) at the top of the page.