With certain exceptions, everything you and your spouse have acquired during your marriage is marital property: the marital residence, retirement benefits, vehicles, bank and investment accounts, stocks, and tangible personal property such as furniture.
Hawaii is an equitable distribution state—this means that a court will try to divide up marital assets and debts in a way that is fair, reasonable and equitable.
How does the court decide what’s equitable? It factors in things like how long the marriage lasted, what each person brought into the marriage, how much each can or does earn, responsibilities for children, job retraining, tax consequences, and debt. If you have a marital agreement signed before or during marriage, you will have more control over how your assets are divided.
Hawaii has adopted the economic partnership model. Marital assets and debts are divided in a similar way to the division of assets and debts when a business partnership is dissolved.
When a business partnership is dissolved the partners are first entitled to a return of their “capital contributions.” Capital contributions in a marriage are any pre-marital assets brought to the marriage, or any gifts or an inheritance received during the marriage. When marital assets are divided at the time of divorce each “partner” first receives a credit for his or her pre-marital property and for gifts or inheritance received during the marriage.
Assets acquired during your marriage are subject to division. It doesn’t matter who owns the asset or who paid for it. All assets acquired by either party during the marriage are divisible marital assets.
The court can elect to deviate from equitable distribution principles and use its discretion to decide not to just split the assets and debts according to these set rules. For example, a court may decide to allocate 60% of the income-producing marital assets to a spouse who earns less and who has few prospects for increasing earnings. An unequal allocation of assets is often done in lieu of alimony.
In Hawaii the division and allocation of marital assets and marital debts is governed by Section 580-47 of the Hawaii Revised Statutes:
- Division of property. (a) Upon granting a divorce,…the court may make any further orders as shall appear just and equitable (1) …. to provide for the support, maintenance, and education of the children of the parties; (2) compelling either party to provide for the support and maintenance of the other party; (3) finally dividing and distributing the estate of the parties, real, personal, joint, or separate; and (4) allocating, as between the parties, the responsibility for the payment of the debts of the parties and the attorney’s fees, costs, and expenses incurred by each party by reason of the divorce.
In making these decisions, the court must take into consideration these factors:
- The respective merits of the parties,
- The relative financial abilities of the parties,
- The condition in which each party will be left by the divorce,
- The burdens imposed upon either party for the benefit of the children of the parties,
- The concealment of or failure to disclose income or an asset, and
- All other circumstances of the case.
What marital assets get divided in a divorce?
- Real Property. Marital real property includes the net equity value in the marital residence and rental income or investment property, if any. Typically the spouse who receives the marital residence takes it subject to the mortgage and must refinance to secure a release of mortgage for the other spouse.
- Retirement Assets. Pensions and 401k plans are divided in Hawaii by a formula known as the Linson formula. The party who does not own the retirement account is awarded a percentage. It’s calculated by dividing the number of years credited to retirement during the marriage by the total years credited to retirement and then divided in half. In order to divide most pension or 401k accounts, a separate order must be prepared and signed by a Judge called a Qualified Domestic Relations Order or QDRO. A QDRO is not required to allocate individual retirement accounts (IRA’s).
- Business Assets. A business is a marital asset and the value must be divided but in Hawaii “goodwill” is not subject to valuation and division. Typically a “business valuation” is necessary.
- Trust Assets
- Household Effects. Furniture, appliances, electronics and the like are typically divided by mutual agreement in most divorce cases. If the party’s just can’t agree, it can done by the lottery method.
- Bank and Investment Accounts
- Income and commissions earned but not yet received including deferred compensation.
- Debts incurred during the marriage are also divided. Mortgages, home equity lines of credit secured by a mortgage on the marital residence, debt consolidation loans, auto loans, credit cards and student loans. Typically debt incurred prior to marriage is paid by the party who incurred the debt. A good example is a student loan.
Assets can be “traded”. If the marital assets and debts are to be divided equally, assets can be traded to make certain the parties receive an equal allocation of the value of the assets. For example if wife wishes to keep the marital residence and the equally divisible net equity is $400,000 wife could “buy-out” husband’s ½ or $200,000 by agreeing in the divorce to let husband retain her $200,000 share of an asset he wants to keep, like a retirement account.
How are marital assets and debts divided in a divorce?
In Hawaii each party files an Asset and Debt Statement with the Court. These statements are combined on a Property Division Chart which identifies and lists the present value of each asset and the balance due on each debt.
Each asset and debt is then allocated to either husband or wife’s column. To the extent possible, each party retains the assets titled in his or her name, but assets can be split if needed to equalize the net marital equity each party receives in the divorce.
The allocation of each asset and debt is identified in the divorce decree. After the court approves a decree and the decree is filed, the assets and debts are divided.
Do you need a lawyer?
If you have just a few bank accounts and autos, property division is fairly simple, and an uncontested divorce may be appropriate. However, if there is a marital residence or retirement assets it’s wise to consult an attorney.