Marital Property Division
How Assets Are Divided in Michigan Divorces
In Michigan, the marital property division follows the rule of “equitable distribution.” It’s important to note, this does not mean that the property needs to be divided down the middle in a 50/50 fashion. This simply means that there’s a presumption that the property will be fair and divided in an appropriate fashion with equity in mind. A court may depart from this presumption in a divorce property settlement, but must explain the reasons on the record.
This page provides information on how assets are divided in a Michigan divorce.
Separate Property v.s. Marital Property
Before discussing how the court determines who receives which assets, it’s important to understand the difference between which assets are considered “marital property” and which are considered “separate.”
Separate Property – Involves assets that a party owned before the marriage, any gifts or inheritances, assets received after separation or filing, or assets or appreciation traceable to these items. This would include things like owning a car before the marriage, or inheriting money from a family member while married.
Marital Property – Marital property begins at the wedding and continues until the judgment of divorce, regardless of when the parties cohabited or separated. If property is received after the judgment, but earned during the marriage, it will be considered marital property in many jurisdictions including Oakland County.
How Separate Property is Divided
Generally in Michigan divorce cases, separate property will be awarded to the individual party unless the non-owner spouse can prove that they contributed to its acquisition improvement or accumulation or that absent a division of the separate property, the marital property would be insufficient for their suitable support in a Michigan divorce.
This means that if one spouse brings property into a marriage, and the other spouse does something to improve it’s value, they will be entitled to a share of that property in Michigan. If the assets owned as part of the marriage are not enough to provide suitable support to the other spouse, a Michigan court could make the owner share some of their “separate property”.
The non-owner spouse can contribute to the value of the separate property either directly (a wife contributing to the improvement of her husband’s separate property) or indirectly as a wife contributing as a homemaker, which allowed the husband to grow the value of his business. Under both circumstances, the wife might be entitled to a portion of this “separate property” as part of a divorce settlement.
How Marital Property is Divided
Marital property division can be difficult to determine due to the accumulation, appreciation and depreciation of property. A Michigan divorce court will use a date of valuation that is supposed to encourage rational economic behavior. The goal of the court is for the value to remain high, without either party having an incentive to affect the value.
Michigan courts will use a number of factors for dividing the marital property. The court will look at the length of the marriage, the needs of the parties, the needs of the children, the earning power of the parties, the source of the property, where the contributions toward property acquisitions came from, and the cause of the divorce, including the issue of fault in the breakdown of the marriage. Although fault can play a role in the court’s decision, it cannot be the sole reason, and cannot be used as a means to punish a party for their actions. The court may also consider other factors that may be relevant to the division of marital property in Michigan.
Determining The Value of Property
In a Michigan divorce, the value of different properties must be determined. When splitting up different property in an equitable fashion, the Michigan divorce attorneys and judge must be able to place a value on each individual piece of real or personal property. A party must be able to prove the value of a property to a court if a settlement cannot be reached and there is contention about the value between the parties. It may be necessary to bring in experts to determine the value of complex or rare assets like business interests, antiques, collectibles and certain real estate and other personal property in a Michigan divorce.
It is very important to take into consideration the tax consequences of real and personal property. If one party receives property with carries a large tax bill or other debt, the value is decreased. In Michigan divorces, marital debts are considered to be negative assets. It’s important to note that if one party takes on a debt of the marriage as part of the settlement, the holder of that debt (third party) can still go after both parties for satisfaction of the debt.
Division of Retirement Benefits
Retirement benefits are usually the largest asset of a marriage, and can provide for both parties for the rest of their life. In Michigan every judgment of divorce must determine the rights of each party as it pertains to any vested pension or retirement benefit, any accumulated contributions in any pension, annuity, or retirement system, any non-vested pension, annuity or retirement benefits.
Any vested retirement benefits accrued during the marriage must be considered with the property settlement in Michigan while non-vested benefits don’t necessarily need to be considered where it is considered “just and equitable” by the court.
Retirement benefits can be divided in two different ways. First, there is what is called the offset method, which isn’t actually a division of the benefits, but gives the person non-employee spouse other assets of the marriage that are equal to the value/possible interest in the retirement benefits. The second method is called the deferred division method, which allows a domestic relations order to give the non-employee an actual interest in their spouse’s retirement benefits as part of a Michigan divorce.
If there are no other sufficient or equal material assets, then method #2 might be a couple’s only option. When a couple gets divorced and has to share in the benefits of a retirement plan, it could cause a lot of tension or conflict, which the parties would rather have behind them; this is where method #1 might be the better choice if possible.
Retirement benefits under the deferred division method, can be broken into two different forms of payment. The benefits can be dispersed as a shared payment, meaning the actual benefit payments are divided as they are made, between both spouses, or as a separate payment, which essentially creates two distinct benefits for two separate participants. The type of method available in divorces is subject to the type of retirement plan, and the status of the plan at the time of the division.
Payments on retirement plans can also be periodic or lump-sum depending upon the plan, and the stage of the retirement benefit. A non-employee spouse may be able to call their own shots with disbursement or may have to adhere to the restrictions of the particular plan.
Non-employee spouses are usually limited to the benefit of their spouse’s retirement plan by the period of time, which the couple was married. If the employee had the plan before the marriage, a calculation will be conducted to see how much the plan has grown during the course of the marriage; this is not an easy process, and it is really a case-by-case calculation depending upon the type of plan, and the circumstances of the marriage as part of a Michigan divorce.
How Other Benefits Are Divided in a Divorce
Workers Compensation – Workers Comp is considered marital property in a Michigan divorce because it’s considered substitutes for earnings and is intended to benefit the worker and their dependents. After 10 or more years of marriage, an ex-spouse may collect benefits equal to half the benefits being paid to the other spouse, but this does not limit a court or parties from using one spouse’s social security payments to provide additional child or spousal support as part of a divorce in Michigan to the other spouse.
Social Security Benefits – Social Security benefits are subject to the Social Security Act, which is a federal law, because Michigan family courts do not have the power to divide Social Security benefits in a divorce. Under federal law, a divorced spouse of a worker covered by Social Security may qualify for about 50 percent of the worker’s primary insurance amount while the worker is alive.
In Michigan the divorced spouse must be 62 years old or age 60 if a surviving spouse, the divorced spouse is not remarried and the divorced spouse was married to the worker for 10 years.
Stock Plans and Payment Options – Stock options are divisible marital assets in a divorce in Michigan. Once divorced the parties may buy each other out of the option or use a constructive trust for the non-owner who will receive half of the value of the options. Employee stock ownership plans and unvested rights are also divisible in divorces.
Vacation Days and Sick Days – If an employee could receive cash payment for vacation and sick time, the benefits can be divided as assets of the marriage.
Personal Injury Settlements – Depending on the type of award, personal injury settlements can be divided in a Michigan divorce. Specifically, an injury award for lost income are considered marital property, but a personal injury award for pain and suffering is personal to the injured party. Although an award for pain and suffering is marital, a court may take this property into account when dividing the property.
Military Pensions – Military pension plans are subject to the Uniformed Services Former Spouses’ Protection Act (USFSPA), and allows state courts to award military retirement pay to a spouse in an Oakland County divorce. The Department of Defense will enforce payment by withholding income if necessary. If the serviceman is still active, the action will be subject to the Servicemembers Civil Relief Act, which provides for some specific protections for the serviceman.
In order for a former spouse to receive a military pension in a Michigan divorce, the servicemember and spouse must have been married for at least ten years, and the serviceman must have served for at least ten years; this is known as the 10/10 rule. This 10/10 rule does not apply for issues like child support or spousal support payments. A former spouse can receive up to 50 percent of the servicemembers disposable retirement pay, and 65 percent if child support and alimony are involved.
Federal Pensions – Federal government workers (non-military) receive retirement benefits under three different systems. There is the thrifts savings plan (TSP), which is similar to a 401(k) plan, Social Security benefits and the Federal Employees Retirement System or Civil Service Retirement System. A Michigan divorce order can affect employee annuities, refunds of employee contributions and survivor annuities.
State and Local Government Pensions – Government pensions differ from private company pensions in a number of ways, but the benefits are still subject to division at the time of an Oakland County divorce. In Michigan retirement benefits of a state or local government must be divided by an Eligible Domestic Relations Order Act (EDRO) or a Domestic Relations Order (DRO).
Are Michigan Property Settlements a Public Record?
No, many divorcing couples in Michigan will come to an agreement on property division before finalizing their divorce due to a waiting period or delaying the divorce for tax purposes. A benefit of a property settlement in Michigan is that it is not a public record like the divorce judgment. A Michigan divorce judgment can simply incorporate and reference the separate property agreement without reciting all of the terms. This is done to keep the parties financial private.
A Michigan property settlement agreement can be merged or not merged with the judgment of divorce. When a settlement is merged in the judgment, it becomes part of the court order and is enforceable as an order of the court. If the settlement is not part of the divorce in Michigan, it is simply a free-standing separate contract.