Dividing property is usually a big part of most divorce cases. What assets and debts you end up with will depend on several factors, but most importantly, where you reside. If you live in an equitable distribution state, it's important that you understand the basics of this property division system.
Most couples acquire a lot of property during a marriage. In a divorce, the term “property” isn’t limited to real estate, it includes everything from personal property—like a DVD collection, knick knacks, furniture, furnishings, and automobiles—to bigger investments, like homes, boats, savings accounts, stocks, or even a family business.
Property owned jointly by the couple is called “marital property” and is usually divided between the spouses. By contrast, separate property belongs to one spouse. This typically includes any property a spouse owned separately, before the marriage. In most states, separate property also includes any property one spouse acquired before, during, or after the marriage through a gift or inheritance. So, if one spouse received an inheritance from a parent or a gift from the other spouse, a family member, or a friend during the marriage, those assets would be considered separate property of the spouse that received them.
Occasionally, one spouse’s separate property can become marital if it's value increases through the other spouse’s contributions or improvements to the property. For example, if spouse A spent years working for and growing spouse B's premarital business, spouse A may have a claim to some of the company's value. Even though the business was spouse B's separate property when the couple married, the other spouse’s efforts during the marriage resulted in a portion of the business being treated as a marital asset.
Community Property Versus Equitable Distribution
Generally, state property laws fall into one of two categories: equitable or community property. Only a few states take a community property approach. In these states—Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington—marital property (also called community property) is usually divided down the middle in a divorce. Spouses living in these states are entitled to one-half of all community property.
The remaining states follow an equitable division approach where a court divides property fairly, even if it’s not equal. Judges following the equitable distribution property scheme must consider each spouse’s financial needs. Specifically, a needy spouse living in an equitable distribution state may end up with a larger property award to offset the other spouse’s assets.
How Will a Court Value Marital Property in an Equitable Distribution?
An important aspect of dividing property is assigning a value. Spouses can provide a court their own opinions of what certain assets are worth, but these must be based on "fair market value" (FMV), which means how much the property would sell for on the open market. You can determine FMV by doing a some online research. People won't pay full purchase price for used items, so in a divorce, property is assigned what it's worth today. For example, if you paid $17,000 for a 2009 Honda CRV, you won't be able to get that same amount seven years later, in 2016. You'll have to check a reliable source, like Kelly Blue Book, to determine how much your car would sell for today. That will be the number the court uses to value the car.
Typically, divorcing couples are able to agree on property values and then submit those numbers to the court, so a judge can calculate a property award. However, when spouses can't agree, a judge may require evidence underlying the proposed values, including bills of sale, receipts, or business records. If there's still a dispute, a judge might require the spouses to obtain professional appraisals for real property, jewelry, collections, or one-of-a-kind items like artwork.
A judge will consider the following factors when deciding value:
- when the property was purchased
- when the property was used
- the property’s current resale value
- the property’s condition
- the couple’s separation date
- the trial date of the equitable distribution itself, or
- the date of the divorce decree.
Because property values often change over time, the date used to determine value can be very important. A court can base its valuation using a date that’s different from the one specified in the divorce decree if it would fairer to the spouses. For example, if the marital home was worth substantially more at the time the couple separated than it was at the time of trial, the court might be permitted to use the trial date (and the lower value) even if the law states that the date of the distribution is supposed to be used, so that the final division is fair.
What Factors Will a Judge Consider in an Equitable Distribution?
The goal of an equitable distribution is fairness, not an equal division. With fairness in mind, a judge will evaluate several factors to come up with a property division that meets both spouses’ needs, including:
- each spouse’s financial condition
- each spouse’s income
- each spouse’s work history, employability, and earning capacity
- each spouse’s responsibility for minor children
- each spouse’s medical needs
- which spouse acquired certain marital debts
- each spouse’s marital misconduct, if any, and
- each spouse’s separate property.
A judge’s “fair” distribution of property is subjective and will depend on the unique circumstances of your case. If you have specific questions, you should contact a local family law attorney for advice.
Questions for Your Attorney
- My spouse received a large inheritance shortly before our divorce. Do I have a claim to that money?
- My spouse racked up a lot of debt during our marriage. How do I ensure that I don’t get saddled with those debts?
- I earn more than my husband. Does that mean I’ll end up with less in the divorce to even things out?