We have two different types of Family Law in our country, “Equitable Distribution” and “Community Property.” These laws are the basis for which divorce financial settlements are settled, or ordered, so it is important to understand how the specific state law applies to the facts in your case.
What is Equitable Distribution Law?
When the court follows equitable distribution rules, it divides assets and allocates debt based on the premise of “Fairness.” This means that if your divorce case goes to court, there is no specific formula; the judge has a lot of latitude as to how to determine what is fair. And remember, fair or equitable does not always mean 50/50. (This applies only to assets and debts; Spousal Support, or Alimony, and Child Support is handled differently. Specificity on that to follow.)
What is Considered a Fair Division of Assets?
There are three steps in determining what is fair:
- The determination of what property will be part of the equitable distribution
- The valuation of the property that is part of the equitable distribution, and
- The actual distribution of the property
So, how does the court determine what is fair? The court determines what is fair on a case-by-case basis after considering a number of factors including:
- Length of marriage
- Future earning capacity of the spouses
- Children’s special needs
- Separate property
- Appreciation of separate and joint assets
- Tax consequences
- And several other factors
How is Separate Property Handled under Equitable Distribution Law?
It is important to remember that the rules of Equitable Distribution do not apply to separate property -- only property that was acquired during the marriage. However, the existence of separate property, is considered when determining the couple's net worth and what would be a fair settlement for both spouses.
Separate Property is defined as any asset, such as real estate, vehicles, artwork, retirement accounts, cash, etc, that was owned by one spouse before the date of marriage, as well as all gifts and inheritances received during the dates of marriage. Separate property can also apply to a debt such as a student loan and credit card debt that was acquired prior to the date of marriage.
Three points of clarification:
- If there was a contribution to a mutually owned asset from separate property funds belonging to one of the parties, such as the down payment for a house, then that amount would constitute a separate property claim from the contributing party, but without any increase in value.
- The manner in which the separate property asset is managed and/or used during the course of the marriage can alter its character, for example, if the asset is a bank account and it is co-mingled with other marital funds or used to defray marital expenses, it can be difficult to defend the separate property claim.
- The spouse who claims an asset as separate property has the burden to prove it. Without agreement between the spouses or sufficient documentation, often the claim will not be upheld.
How to Successfully Prepare you Case in an Equitable Distribution State
To sum it all up, "Equitable" in Equitable Distribution doesn’t mean a 50/50 split. The fair division of assets is subject to interpretation based upon judicial review of the factors. This is where identifying and detailing the background and financial facts in your case, and obtaining legal advice about your county laws, is so important.
Understanding how your court would likely rule -- based on the facts of your case --can help you create a strategy that minimizes the amount of time, expense, and emotion you need to invest into achieving a creative settlement in mediation, the collaborative process, or between attorneys. (Remember, in most cases, a settlement means that you and your spouse agreed to terms that you both can live with as opposed to having those terms forced upon you by the court.)
The case profile and financial tools we have designed at dtour.life will help you to document your marital and financial information in a way that will more efficiently enable a lawyer to give you specific legal advice based on all the facts in your case.
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