How does equitable distribution work?
What Is Equitable Distribution?
In most states, the division of marital assets is typically based on what is known as “equitable distribution.” Equitable distribution is essentially the division of property between spouses according to factors that the state courts deem relevant. It is different from community property, where spouses get an equal distribution of property.
What is equitable is not necessarily an equal division of assets. Depending on the circumstances, a list of factors will typically be used to determine what each party in a divorce receives. Characteristics can include the length of the marriage, whether minor children are involved, the employment status of each spouse, and what each party brought into the marriage.
It’s important to note that the specific laws governing equitable distribution vary by state. We’ll give a general overview below, but double-check your state’s guidelines for more information.
What Factors Influence Equitable Distribution?
Below is a common list of elements used in determining the division of assets.
- Age and health
- Each party’s contribution and other’s expenses
- Education
- Employability
- Financial needs
- Future medical and living expenses
- Income and spending
- Standard of living during the marriage
- Tax consequences
Age and Health
Each spouse's age and health will influence the equitable distribution process. If a spouse is unable to work due to health issues or is incapable of work due to age, they may be rewarded a greater amount of marital assets.
Each Party’s Contribution to the Other’s Expenses
Contributions or efforts of either party in a marriage can impact the value of marital assets. Contributions or efforts can include labor, support, or money. It can also have help made by either spouse to support the increase of the other spouse’s earning potential.
Education
Spousal education level can be a common factor when determining the division of marital assets. For example, one spouse may have more education than the other, and therefore it would possibly result in that spouse receiving fewer assets in the divorce since they could easily earn more following the split.
Employability
The employment status of each spouse and their respective careers can also be a factor when determining the distribution of assets between both parties. It is often a debate on the value in which each spouse’s career contributes to the marriage.
The court will normally consider earning potential, job skills, and the time it’ll take for either spouse to get training or education to become employed. Benefits from one spouse’s career can also be subject to distribution, such as IRAs, retirement accounts, stocks, etc.
Financial Needs
The financial needs of each spouse, including debt, student loans, and general financial assistance needed following a divorce, are also commonly taken into account. Spousal support is often an initial step after filing toward a spouse becoming financially self-sufficient. After the finalization of a divorce, alimony is often a common form of financial support from one spouse.
Future Medical and Living Expenses
Alimony may be distributed to help with both future medical and living expenses. Many factors may determine alimony, such as the length of the marriage, dependents, or ability to pay. It is important to note that money from alimony is considered taxable.
Income and Spending
The sources of income available to each party are also a component when it comes to equitable distribution. The court will look at passive and immediate incomes such as investments, capital gains, career earnings, and rental properties. Both spending and saving habits are also taken into consideration.
Standard of Living During Marriage
The standard of living is determined by looking at the lifestyle of both parties throughout the marriage. Both spouses’ contributions to the marriage, including housework, childcare, and assistance with education, help to determine the division of assets. A spouse’s behavior is relevant if it has impacted the other spouse’s finances.
Tax Consequences
Income tax liability incurred during the marriage is generally considered marital debt. Courts will most likely distribute tax liabilities between both parties. It is important to remember that a tax liability may be associated with assets allocated to each spouse. This tax liability can impact the value of assets awarded through equitable distribution.
What Property Is Exempt from Equitable Distribution?
Property is often divided into two categories: separate or marital.
Separate property is the property that belongs to one spouse. Examples include assets acquired or inherited before the marriage or assets acquired during the marriage through a gift or inheritance. Some states allow the separate property to be excluded throughout equitable distribution unless it was put in the name of both parties.
Marital property is property acquired during the marriage, such as lottery winnings, real estate, investments, vehicles, life insurance policies, etc. This can also include separate property that has increased in value due to the efforts of one or both spouses.
Which States Have Equitable Distribution?
The majority of states utilize equitable distribution. This means the court considers each party's assets their own unless the couple has decided to share or divide them.
All states utilize equitable distribution in case of a divorce except:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
To read more on this topic, visit our in depth blog on equitable distribution.