Last Updated on: 27th July 2023, 11:13 pm

When Is It Legal to Sell Assets During Divorce?

As with most legal questions, the answer is complicated. Two systems of law determine what assets may be sold. In some circumstances, the sale of an asset must be approved by the court. This article covers the circumstances where it is legal to sell assets and when it is illegal. As with other parts of the law, definitions and rules vary in different states. What may be permissible in Missouri may not permissible in Alaska.

Community Property versus Separate Property:

The law recognizes two types of property. Community property is anything acquired by either spouse during the marriage. Separate property is owned entirely by one spouse, and is not generally divided in divorce. Examples of separate property include:

• Property acquired before the marriage
• Property that was inherited or was a gift
• Businesses owned prior to the marriage
• Pension proceeds that were vested before the marriage

In most states, gifts are exempt
Income or property acquired after separation are usually exempt

If the couple had treated an asset as an investment, rather than a fashion accessory or a gift, it is probably illegal to sell it without the court’s permission. Selling assets to cover other expenses may be illegal without the court’s permission. For example, you almost certainly need the court’s permission to sell stocks or a car. If one spouse started a business before the wedding, but the other spouse contributed to the growth and profitability of the business, then the business is probably community property.

In summary, separate property may be sold to pay legal bills but communal property may not be. If you have any question about whether it is legal to sell a piece of property, it is wiser to consult an attorney.

Examples of Communal and Separate Property:

If you bought a car before the wedding or were given a necklace as a gift, it is considered separate property and may be sold to pay legal bills or any other bills. Anything that might be considered community property should not be sold to pay legal bills. Even if you sell the item and pay a bill, the court may compel you to pay half the value to the other spouse because the item was sold improperly. If you bought a collectible as a couple, for decoration, this is probably communal property. Not all gifts are exempt in all states, so if there is any question about selling that piece of jewelry, check with your attorney before selling it.

Other Considerations in Asset Sales:

State laws on marriage and property of the married couple, fall into one of two categories. You probably live in a common law state. Most states use a common law system of property ownership. In those states property is owned jointly if both parties have their name on the relevant legal document, such as a title or deed. If only one person is named on the document, the property belongs to them. If there is no title or similar document, the item simply belongs to whomever paid for it or received it as a gift.

The community property states are Alaska (by agreement), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In Alaska, certain items may be made community property by agreement between the spouses. In those states, the law makes things somewhat more complicated. In general, the rules for dividing assets in a community property state are as follows:

• Spouses share equal ownership of all property acquired in the marriage regardless of whose name is on the title.
• Half of each spouses income belongs to the other spouse, and
• debts incurred in marriage belong to both spouses.

The following types of property are considered separate property:

• gifts given to one spouse by the other
• property either spouse owned before the marriage and kept separate, and
• inheritances whenever the individual receives the money

In short, if you live in a common property state, you may not sell any common property to pay legal bills, but you may sell separate property. This rule seems to cover most personal property, investments, and even intellectual property like a book manuscript.