Alabama Property Distribution Laws
In Alabama, the property and debt issues are typically settle between the parties by a signed Marital Settlement Agreement or if the parties cannot agree, the property is divided by the Circuit Court within the Judgment of Divorce. Alabama Property Distribution Law requires an “equitable distribution” of marital property. This system attempts to divide the property, assets and debts between the spouses in a fair and equitable way. This does not mean equal. The trial court will divide the marital property based upon the particular facts and circumstances of each case.
In dividing the property, the court first categorizes property as marital or separate assets, then assigns a monetary value for each piece of property, and finally distributes the property between the spouses.
Alabama Marital Property v. Separate Property: Typically, anything acquired from the date of the marriage through the date of separation is considered a marital asset and will be included in the “marital estate”. Separate property can include property each spouse had before the marriage or acquired during the marriage by gift or inheritance. In order to establish that something is separate property, it must have stayed within the exclusive ownership and control of the spouse claiming the separate property. If such property has been combined with joint property for the benefit of both spouses, it may be included as a marital asset.
What is Property? In Alabama, property, for the purposes of divorce and equitable distribution, can be more than just what a couple owns. In addition to the obvious things like houses, automobiles, jewelry, clothes and bank accounts, property also includes pensions and retirement accounts, investments, cash value of life insurance policies, family owned businesses, tax refunds, tax credits, trademarks, etc.Factors Considered by Alabama Equitable Distribution Courts: In deciding how to divide the property owned by divorcing couples, Alabama judges will consider a number of factors, including:
The Family Home: In Alabama, the equity in the marital home is often one of the biggest assets to divide between the parties. This equity is established by determining what the current market value of the home is at the time of separation. A paid real estate appraisal can be done, or a real estate agent can prepare a market analysis for free. Once the parties have agreed to a current market value, any debts associated with the property are deducted (mortgage, taxes, home equity loans, etc) from the market value to arrive at the equity to be divided.
Three basic options exist with regard to how to divide this equity:
Family Owned Businesses or Self-Employed Spouses: In Alabama, if one or both of the parties owns a business, or part of a business, this is a marital asset to be divided. The spouse who actually runs the business will generally be awarded the business, while the other spouse receives other assets in exchange.
Valuation of a business can be complicated. A closely held business does not have a readily ascertained value, as a business on the stock exchange would. If the business is large enough, it may be worthwhile to hire experts such as accountants and business consultants to evaluate the business. If the business is smaller or does not have any significant positive value, it may not be worth the expense to pinpoint a value.
In assessing the value of a business it is helpful to consider financial statements of the business (identifying the business’s assets, liabilities, income and expenses), tax returns and checking account records, loan applications made by the business, any recent offers to buy the business, and any purchase prices of similar businesses of a similar size.
Pensions and Retirement Accounts: In Alabama, the court may include the retirement benefits and plans earned by both spouses as marital assets available for division. Retirement benefits vary greatly but can generally be divided into two groups:
Qualified Domestic Relations Order (QDRO): In Alabama, if spouses agree to or are awarded a share in each other’s retirement or pension plan, a Qualified Domestic Relations Order must be completed. A QDRO (“qua’ dro”) is a written set of instructions that explains to a plan administrator that two parties are dividing pension benefits due to equitable distribution. The instructions set forth a method for the plan administrator to determine how much of the benefits are to be paid to each party, when such benefits can be paid, how such benefits should be paid, etc.
The division of retirement and pension benefits can be complicated and result in a myriad of tax consequences. Consultation with a tax attorney or accountant is recommended when determining whether and how to divide such benefits.
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