Equitable Distribution 101

Equitable-Distribution-101

Equitable Distribution, how you divide your property, assets and debt, is one of the most important decisions to be made in a divorce after creating a Parenting Plan.
For instance, many people worry about what to do with their home, which is often a couple’s biggest asset.  “Well, that’s easy,” you might say.  “Just sell it and divide the proceeds fifty-fifty.”

But it may not be so simple.

• What if one of you contributed funds for the down payment – shouldn’t that person be repaid before you divvy things up?
• What if you both agree that one of you should stay until the kids graduate from high school?  Should you wait to sell and then divide things up?
• What if one of you has an inheritance and doesn’t need the money as much as the other?
• What if one of you put his or her heart and soul – and sweat equity – into improving the property?

What is fair?  Of course, as with many things in life, the answer is not black and white.

Two Systems – Community Property and Equitable Distribution

There are two basic approaches to division of property in the United States – about 10 states (mostly in the southwest) look at all of the property acquired by either spouse during the marriage as “community property.”  The other states use an “equitable distribution” model.  In community property states, all marital property is divided in equal shares.  In equitable distribution states, a judge distributes property “equitably,” which is what he or she thinks is fair.  There are several factors to consider.

What is Property?

First, identify which property is to be considered.  “Property” includes the things you would automatically think about, like real estate, funds, and tangible items like cars, jewelry, artwork, and furniture.
But it can also include things somewhat less obvious – retirement plans (even if you are not yet using them), professional licenses and degrees, royalties, deferred compensation, and stock options earned during the marriage.
It also includes things that may have more sentimental than financial value, including pets, photographs, and heirlooms.

Separate vs. Marital Property

Second, determine which property belongs to each of you separately, and which is marital or jointly-owned.  Separate property belongs to that spouse 100%, while marital property will be divided between spouses.

Separate Property

Separate property includes:
• property you owned before the marriage and kept separate (in that spouse’s name) during the marriage
• gifts given to one spouse only
• inheritance
• personal injury awards
Marital Property
Marital Property includes:
• property acquired during the marriage by either or both spouses
• property in joint name (e.g. joint bank accounts)
• gifts given to both of spouses

In certain circumstances, property may be considered marital even if only one person’s name is on the title!  For instance, a house titled only in the name of the husband might still be considered to be marital property if it was bought during the marriage.

Dividing it Up Fairly

In an equitable distribution state, marital property is divided fairly.  But how do you know what is fair?  Here is a list of the factors a court would consider in New York when determining equitable distribution of property:

• the assets and income of each spouse at the time they got married
• the length of the marriage, the age and health of the parties
• the need for one parent to stay in the marital home with the kids
• the loss of rights to inherit from the other spouse
• the loss of health insurance benefits from the other spouse
• spousal support payments
• the indirect contributions made by a spouse who does not have title (e.g. to a business)
• the liquidity of the assets
• the probable future financial positions of the spouses
• the difficulty in valuing a particular asset (e.g. a business)
• the tax consequences
• whether one spouse wastefully dissipated any assets
• a transfer of assets to a third person
• any other factor the court may find useful.

If you and your spouse are negotiating your own settlement through mediation or collaborative divorce process, these are some factors you might take into consideration.    Remember, “equal” does not always guarantee fairness – and what’s fair may not always be equal.  Marriage is an economic partnership, and both spouses contribute to that partnership.

Consult with your attorneys and with each other, and figure out what is right for your family in your particular circumstance.

 

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About Joy Rosenthal

Joy S. Rosenthal, Esq. is an experienced, caring New York City-based Family and Divorce Professional Mediator and Attorney. Joy founded Rosenthal Law & Mediation in 2006 to use both law and mediation as a tool to help families as they move through transitions. Her services include Divorce Mediation and Elder (adult sibling) Mediation, Adoptions, Collaborative Divorce, and representation in custody and visitation disputes. She also offers wills and estate planning. Visit Joy at www.joyrosenthal.com.

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