Debt and Property Division in Minnesota

Is Minnesota a Community Property State?

In a divorce, courts can follow one of two methods when dividing property: community property standard or equitable distribution. A small number of states like California and Texas, follow the community property standard, which provides each spouse equal ownership to all property either spouse acquired during their marriage.

However Minnesota, like most states, follow the equitable distribution method—meaning, the court will divide all marital property between the spouses a way it decides is equitable or fair, but not necessarily in an equal 50/50 split.

How Do Minnesota Courts Divide Property in Divorce?

When a couple divorces in Minnesota, the law requires judges to "make a just and equitable division of the marital property." (Minn. Stat. Ann. § 518.58 (1).) Minnesota is a no-fault divorce state, so it doesn't matter who's responsible for the breakdown of the marriage; the judge still has to divide the marital property equitably. (Minn. Stat. Ann. § 518.06 (1).) A "just and equitable" division is one that's fair, but not necessarily equal.

Minnesota courts look at all of the following factors to decide how to divide marital property:

• the length of the marriage
• any prior marriages
• the age, health, station, occupation, amount, and sources of income of each spouse
• vocational skills, employability, estate, liabilities, needs, the opportunity for future acquisition of capital assets, and income of each spouse
• the contribution of each spouse in the acquisition, preservation, depreciation or appreciation in the amount or value of the marital property, and
• the contribution of a spouse as a homemaker.

Settlement Agreements

Of course, divorcing couples can and do reach out-of-court settlements all the time. If you're going through a divorce in Minnesota, you and your spouse can agree to divide marital property in whatever way you want. It's always wise to settle if possible because that way, you control the outcome of your case. Otherwise, it will go to trial, and a judge—who won't know nearly as much about your personal situation as you do—will be in charge. If the settlement agreement is fair to both spouses, the court will typically approve it.

What Kinds of Property Can Minnesota Courts Divide?

There are two basic types of property: real and personal. "Real property" is connected to land and consists of things like homes, cabins, commercial property, and acreage. "Personal property," on the other hand, is everything else. Bank accounts, clothing, automobiles, retirement interests (401(k) or pension plans), jewelry, furniture—these are all examples of personal property. Minnesota's divorce laws provide for the division of real and personal property alike. (Minn. Stat. Ann. § 518.58 (4).)

In a divorce you must determine whether assets are marital and nonmarital. Marital property, which is what the court must divide in a divorce, consists of everything a couple acquired while they were married.

Nonmarital (or, separate) property, by contrast, is not divided by the courts. Nonmarital property is the property that the spouses acquire separately, usually before they're married. It belongs to them as individuals, independent of the marriage.

Minnesota law applies a presumption (a legal assumption) that any property a spouse acquires during the marriage is marital. To overcome this presumption and lay claim to nonmarital property acquired during the marriage, a spouse must prove to the judge that the property is nonmarital by a "preponderance of the evidence" (meaning, it's more likely than not that the disputed property is nonmarital).

Who Gets the House in a Minnesota Divorce?

It depends. In most cases, judges categorize the marital home as "marital property" and will divide it between the spouses. Unless you and your spouse agree otherwise, the judge may do any of the following when dividing the marital home:

• award the home to one spouse and order that spouse to "buy out" the other's portion (typically, the spouse remaining in the house will need to pay half the equity, if any, to the other spouse, minus the existing mortgage)
• order exclusive use of the home to the spouse who is primarily responsible for the couple's children, or
• order the spouses to sell the home and split the profit. (Minn. Stat. Ann. § 518.65.)

Retirement Accounts in Divorce

Like other property in a divorce, if either spouse contributed or earned retirement assets (a 401k or pension plan, for example) during the divorce, the court will divide those assets (at least, the portion earned during the marriage) as marital property. Typically, any amount earned before the marriage qualifies as the earning spouse's separate property, and the judge will not divide it.

Aside from real property, retirement assets are often the most significant asset in the couple's marital estate. The court will use the same methods to divide retirement accounts as it does to divide personal and real property. However, dividing benefits is complex and often requires additional court orders and experts to assess the value of the assets. If you or your spouse has an interest in any retirement account, speak with your attorney to learn about the extra steps you'll need to take in your divorce.

How Do the Courts Treat Gifts and Inheritances?

Gifts, inheritances, and property that a spouse receives during the marriage are all subject to a "tracing" requirement. For example, it's common for one spouse to receive a monetary gift or inheritance from a family member, then apply it to the mortgage on the marital home. When that happens, the gift is gone—the spouse spends the money on the house. But the spouse who received the gift and used it on the marital property still has a nonmarital interest.

Minnesota law requires that in these situations, the spouse claiming a nonmarital interest must "trace" the gift to a marital asset for the court to credit that spouse for the nonmarital interest. In other words, if you received a gift and can furnish proof that you spent it on the marital asset (the house), like bank statements or canceled checks, then the court will make sure to reimburse the spouse appropriately.

What About Debts?

The law in Minnesota doesn't require judges to only divide assets. Judges must also divide up the marital debts, too. Similar to dividing assets, judges must decide whether debts are joint or separate before moving forward. Even if one spouse accrued debt during the marriage, the judge could still decide that it was an individual debt that benefitted only one party and order only that party responsible for repaying it. Minnesota judges have much latitude in determining how to apportion debt. Overall, judges must be fair when allocating debt to each spouse.

How Do Courts Determine the Value of Property?

Minnesota courts welcome expert testimony to help them decide what different kinds of property are worth. Although experts aren't always a necessity, it can be beneficial and can assist the judge in making an informed, accurate decision. For instance, a certified public accountant could explain the current and future value of a retirement account, and a real estate agent or appraiser could testify to the value of a building as compared to similar properties.

One thing to remember is that expert witnesses don't testify for free, and their services can be expensive. You and your lawyer (if you have one) will have to decide whether the expense is worth it.

When it comes to household goods and furnishings, however, Minnesota law assumes that the property owners know the worth of their belongings. So, you will be able to testify and tell the court what you think the value of these items—like clothing, furniture, appliances, computers, and dishes—should be.

Because spouses tend to become sentimental about many of these items, it's common for Minnesota courts to order the spouses to do any of the following:

• sell the marital property and divide the proceeds equally
• assign the spouses a compromise value and split it down the middle, or
• allow the spouses to keep some, but not all, of the items they requested.

What Date Should We Use to Value Our Property?

Minnesota law indicates that unless the spouses agree otherwise, the date of valuation of marital property is the day of the initially scheduled prehearing settlement conference, which is mandatory.

A settlement conference is an opportunity for both sides to come together with the judge and hammer out their differences in a last-ditch effort to avoid a trial. (Minn. Stat. Ann. § 518.58 (1).)

If you have questions about dividing property in a divorce, contact a local family attorney for advice.