Divorce: Private properties and assets

I know nothing about law (or economics) and have recently tried to understand (personal curiosity, not a homework) the basic laws concerning the separation of goods in case of divorce.

Scenario

Alice and Bob got married. Bob had absolutely no private property before the wedding and Alice has a private property of `P` dollars from her parents before the marriage.

During the first 15 years of their marriage, Bob and Alice worked hard and in between both of their income (and eventually the income from Alice's private properties), they manage to spare some money. With it this money, they bought together (under both of their names) an apartment for `y` dollars.

After buying this apartment Alice and Bob felt like they have enough goods and money to stop producing wealth. They diminish their income and increase their expenditure. In 5 years, they consumed the extra money they managed to spare together plus a ratio `r` of the private property `P`. As a consequence, at the term of these 5 years, Alice and Bob only have `(1-r)P` dollars and an apartment worth `y` dollars (assuming no loss/increase of value through time) left.

Question

Bob and Alice decide together to divorce!

1. Who gets what?
2. Does the answer to this first question depends on whether Bob and Alice's acquests were equal or higher than the value of the appartment (`y`) or not?

Simplifying assumptions

We will assume for simplicity that `y > rP` so that `y + (1-r)P > P`. In words, in between the appartment and what is left from Alice's private properties exceeds Alice's private properties before the wedding. We will also assume Alice and Bob are both residents of Canada!

My thoughts

I can think of two ways things may go.

First possibility

Alice must receive the private properties she had before the marriage plus half the acquests.

• Alice gets `P + (y-rP)/2`
• Bob gets `(y-rP)/2`

Second possibility

Alice gets back whatever is left from her private properties plus half of the appartment.

• Alice gets `(1-r)P + y/2`
• Bob gets `y/2`

This depends entirely on which law applies to the divorce.

For example, if this happens under Australian law then it falls within the jurisdiction of the Family Court (a Federal court as the Commonwealth has power over marriage, not the states). They say:

1. You can agree and not involve the court.
2. If you agree you can, but are not required to, have the court formalise the arrangement.
3. If you cannot agree, then you can apply to the court for financial orders.

In general, the court is happy to allow couples to agree on whatever they want - for your example this extends from "Bob gets everything" to "Alice gets everything" and anything in between those extremes.

If the parties don't agree (which is the most common situation) then the court will hear the evidence and make a decision:

There is no formula used to divide your property. No one can tell you exactly what orders a judicial officer will make. The decision is made after all the evidence is heard and the judicial officer decides what is just and equitable based on the unique facts of your case.

Factors the court is required to consider are:

• working out what you've got and what you owe, that is your assets and debts and what they are worth

• looking at the direct financial contributions by each party to the marriage or de facto relationship such as wage and salary earnings

• looking at indirect financial contributions by each party such as gifts and inheritances from families

• looking at the non-financial contributions to the marriage or de facto relationship such as caring for children and homemaking, and

• future requirements – a court will take into account things like age, health, financial resources, care of children and ability to earn.

So, for your example, the answer to how property will be divided up is: Nobody knows until it is agreed or the court rules on it.

Your example is very specific and mathematical. So I don't think I can answer it. But I can give you the general principles in play to guide your further research and study.

If you are in the United States, there are two systems for dividing marital property during a divorce. The system that will apply depends on what state you live in.

The two systems are:

1. Community Property
2. Equitable Distribution (a/k/a Common Law)

List of Community Property States

http://www.bedrockdivorce.com/blog/?p=296

There are nine Community Property States: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Couples living in Alaska can “opt in” for community property, and Puerto Rico is a community property jurisdiction.

Community Property Theory

http://www.bedrockdivorce.com/blog/?p=296

In a Community Property State, both spouses are typically considered equal owners of all marital property. In other words, if you live in a Community Property State, whatever you earn or acquire during the marriage is co-owned by both parties, regardless of who earned it or whose name is on the title. That means whatever you earn or acquire during the marriage is spilt 50-50 during a divorce.

Conversely, if the assets were not earned or acquired during the marriage, they would not be considered community property. In your example, the wive's inheritance of P dollars would be excluded from community property.

Equitable Distribution Theory

http://www.bedrockdivorce.com/blog/?p=296

If you live in an Equitable Distribution State, the law “sees” assets somewhat differently. In an Equitable Distribution State, if your name appears on an asset (the deed to a house or the title to a car, e.g.), you are considered the owner. However, in an Equitable Distribution State, your spouse has the legal right to claim a fair and equitable portion of those assets in a divorce.

So, in a nutshell, the court is empowered to split the assets any way it deems fair. Regardless of who acquired it or when.

Complicating Factors

Under either system, many factors can complicate the settlement analysis and decision. For example:

• Commingled funds
• Moving between states
• Definition of what is equitable.