how does sweat equity affect divorce

Sweat Equity And Divorce Settlements

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Every month, our founding partner, Rick Jones, heads up the way and appears on 102.5 KZOK FM on The Danny Bonaduce & Sarah Morning Show. He answers questions from callers on a variety of topics.

On a recent show, a man called in asking about protecting assets and sweat equity when dividing property. Here’s what the caller had to say:

“I got married when I was 19-years-old and recently found out that she wasn’t the ‘One,’ what a surprise. My side hobby is I build cars and I have five or six registered, running, titled vehicles.

“We didn’t sign a prenup because we were so madly in love and now she wants to get these cars from me in the divorce because they’re worth a good amount of money…

“Is there something I can do to keep her from getting her hands on them? Can I give them to my friends, have them put their names on the title?”

Now 24, the caller bought these cars all for less than $1000 and fixed them up. They’re now worth much more than what he initially paid for them. Through his work, the value increased.

What Is Sweat Equity?

This topic of sweat equity comes up fairly often in situations like this. It also frequently arises when discussing shared homes.

For example, you purchase a house, do improvements, and ultimately increase the value. Your sweat equity makes these items more valuable. Through work, the value increased.

Who does this increased value belong to? Does it belong to one spouse or the other? Both? Is there a way to protect your investment of time and effort?

The short answers are, it belongs to both and there isn’t really a way to shield them. It is, of course, more complicated than that, as most things are in divorce.

Related Reading: How Is Debt Divided During A Divorce?

Community Property

Washington is a community property state. This means the courts generally view assets acquired during a marriage as marital property belonging to both spouses.

In the caller’s case, most of the cars were purchased and repaired during the marriage. Because of this, the court will most likely view them as a shared asset to divide in the divorce.

Even if you own something before marriage, the court may still consider it community property. Does he get a larger share because he did work? Again, the answer is generally no.

For example, if the caller bought a car before tying the knot but used marital funds to make the improvements—for parts or paint or that sort of thing—that added value becomes a shared asset.

The presumption is that even while he was working on the cars, his spouse is also there, providing support. She may not have actually changed a carburetor, but she still played a part. As such, it also becomes community property.

* A Note on Hiding Assets

First off, hiding assets in a divorce is generally a bad idea, not to mention illegal. Unless you’re remarkably clever, judges and lawyers know all the tricks and have seen it before. You’re unlikely to come up with anything they don’t know.

It also creates a paper trail that’s not hard to track. Oh, really, right before you filed for divorce you just gave your car to your brother? That’s not going to fool anyone.

In some instances, there are things you can do to protect assets. But definitely consult an attorney to make sure everything is above board.

If you get caught hiding assets, it can come back to bite you and damage your case. Not only does your credibility take a direct hit, but you may also face other consequences as well.

Related Reading: Can You File For Bankruptcy During a Divorce?
Related Reading: How Is Debt Divided During A Divorce?

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