Equitable distribution is a principle in divorce law governing the allocation of marital property between spouses. In states that use equitable distribution, courts try to achieve a fair allocation of property based on a list of factors or guidelines set forth by state law. The equitable distribution of marital property is distinct from an equal division of marital property, which is usually used in community property states.
Some factors that a court may consider include: the duration of the marriage, the value of the marital property, each spouse’s contribution to the marital property, the spouses’ respective sources of income or earning capacities, and the economic circumstances of each spouse upon the division of property.
You can review the New Jersey and Pennsylvania statutes for some examples of equitable distribution factors. Some states, such as South Carolina, consider marital misconduct such as adultery to be a relevant factor if the misconduct contributed to the dissolution of the marriage or affected the economic circumstances of the parties.
How Does the Court Decide on Equitable Distribution?
The role of the court in an equitable distribution case is to perform four basic functions regarding the property of the parties: identity, classify, evaluate and divide. This is much more challenging than it appears at first glance.
First for identification, the process of settling property division (or going through an equitable distribution trial), it is first essential to identify the property. Determining whether it is separate or marital property, what is it, and who has it? Is it a house, a pension, or a potted palm?
Next is Classification, which means labeling the property as separate, marital, or mixed. Classifications are done as of the date of separation. Separate property is, by definition, known as nondivisible property. It can be taken into account in negotiating or ordering a division, but it cannot be divided since it is not marital property.
The most common examples of separate property are:
- Property acquired by either party before the marriage;
- Property acquired by one party during the marriage through gift or inheritance;
- Professional or business licenses which cannot be transferred; and
- Anything outside of these is, as a general proposition, marital property.
Property can have both aspects marital and separate. For example, if Mr. Adams inherits a parcel of land before his marriage to Mrs. Adams, and then he improves the land by building the marital residence on it during his marriage to Mrs. Adams, the land would retain its separate character but the house would be marital property.
Furthermore, once the classification has taken place, then the property must be evaluated. Evaluation is as of the date of separation, although the court must, at the request of either party, take into account increases or decreases in value as of the trial date. The court and the parties must utilize the net value after liens, not the gross value of the property.
For example, a house worth $100,000 that has a mortgage of $80,000 remaining is only worth $20,000 in divisible marital equity. A car purchased for $10,000 will probably be worth $8000 after a few months of being driven. If it has a lien on it from the finance company of $7000, then the net value for equitable distribution purposes is only $1000.
Sometimes evaluation poses a real problem. This occurs in the case of certain “collectibles” such as guns, coins or stamps, or closely held investments. It also includes private business interests. In such cases, an appraiser should be hired to make an independent evaluation of the particular item.
Additionally, it is common practice to hire an appraiser for the marital real estate of the parties to pin down a value for the homeplace. Problems also arise when a substantial period has elapsed after the date of separation, and the court in these cases may consider post-separation appreciation or depreciation of property, as well as payments made on property and debts after the DOS (Date of Separation).
The final task is to divide the property. The court can do an unequal division based on enumerated factors, such as the physical or mental health of a party, substantial separate assets, wasting or squandering of marital property, having custody of minor children, etc. Marital fault cannot be used as a ground for an unequal division of marital property. Sometimes the court uses a distributive award, which is a lump sum paid at interest over no more than six years, to equalize the parties’ shares of the marital property.
Since there is an easy way to remove every asset down the middle, a settlement involving the division of marital property generally involves allocating items to each party with the final result that the total net values in each one’s “column” are approximately equal. Great care should be taken to avoid the unnecessary sale of assets when this will greatly reduce the value of the property.
For instance, selling the homeplace during a period when residential sales are slow or the market is depressed, or when the sale will result in a penalty such as liquidating an Individual Retirement Account or a tax-deferred savings plan.
In an equitable distribution proceeding, a court cannot consider marital fault (for instance, adultery, or domestic violence) when it divides the property. However, it may consider the efforts a spouse has made to waste, neglect, or devalue marital property after the couple has been separated. If a court has discovered a spouse to have acted in such a reckless or malicious manner, then it will appropriately penalize that spouse when making an uneven division of marital property. In contrast, courts will reward a spouse who has shown fiscal responsibility to marital property and has protected or increased the property.
What are the Divorce and Property Rights under Equitable Distribution?
The New York City Bar discusses your divorce and property rights under the equitable distribution doctrine. When you married your spouse, you may have already owned property or had cash savings or investments. Your spouse also may have entered the marriage with property, cash, and or investments.
This is called separate property. You and your spouse most likely obtained more property and cash during the marriage. The property and cash you obtained during the marriage will be presumed to be marital property. The marital property obtained during the marriage is called the marital estate. You and your spouse may exclude certain property from the marital estate by entering into a marital agreement, such as a prenuptial or postnuptial agreement.
Without such an agreement, there is a presumption that property acquired during the marriage is defined as marital property, except for inheritances, personal injury or worker’s compensation awards for pain and suffering, and third-party gifts.
When Do I Need To Contact a Lawyer?
If you are undergoing a divorce, it is crucial to understand some basic legal issues that might arise when it comes to the division of your property.
It is recommended to seek out a local divorce attorney in your area to assist you with your case if further assistance is needed. Your attorney can provide legal advice and represent you in court.
