Family courts divide property in one of two ways: equitable distribution or community property. Most states divide marital property according to what’s fair, or equitable, for both parties during a divorce. This isn’t the same as equal distribution, however, as the goal of equitable distribution is to consider the needs of each party and the facts of the case.
The equitable distribution of marital assets is determined on a case-by-case basis. It is subject to negotiation between the two parties and the discretion of the judge. If you’re getting divorced in a common law property state (where equitable distribution is recognized), you’ll want to understand how property division will be determined.
This article addresses the two ways in which assets are divided between a couple during their divorce.
Community Property vs. Equitable Distribution: The Basics
In the nine community property states, which include California and Texas, marital property (generally, all property acquired between the date of the marriage and the date of separation) is generally divided fairly equally. This is done regardless of who contributed more to the marriage (whether in regard to money, housekeeping, etc.), who has more separate property, or whether one of the spouses is largely to blame for the divorce.
Generally, anything purchased with money earned by either spouse during the marriage is considered community property. Community property is subject to a roughly 50/50 split in a divorce. However, separate property may be established through a written contract. Examples of such contracts are prenuptial agreements or postnuptial agreements, sometimes called antenuptial agreements.
In equitable division property states, courts take a much more delicate approach to property division. Instead of automatically dividing marital property down the middle, these states take a step back and consider what would be the fairest to both parties. This includes consideration of separate property as well as marital property, and the needs and means of each spouse.
For example, consider if one spouse gave up their career in order to stay home and raise children. They now have a difficult time earning a living after the divorce. In this instance, the court may award that party a larger cut of the marital property. Conversely, if one spouse was abusive or otherwise at fault for the failure of the marriage (even in a “no-fault” divorce), the court may award them a smaller percentage of the marital property.
Determining What’s Equitable: Factors Considered
Like community property states, in equitable distribution states, the divorcing couple has an opportunity to reach an agreement on their own (subject to court approval) before the courts intervene. This may take place in a collaborative environment or through the parties’ attorneys. If the parties are unable to reach an agreement about the division of marital property, the courts will use their discretion (within the parameters of state marital property law) in order to reach a resolution.
When courts are tasked with determining the division of assets, they’ll generally consider the following factors under equitable distribution laws:
- Duration of the marriage;
- Which spouse has primary custody of minor children;
- The financial needs and liabilities of each spouse, present and future (for instance, one party may need to invest in a college degree in order to earn a decent wage);
- The financial well-being and earning power of each spouse, present and future;
- Amount contributed by each spouse to the combined marital property;
- Pensions earned by either spouse;
- Non-monetary contributions to the family (such as child-rearing, unpaid work on the home, etc.);
- Marital debt accumulated during the duration of the marriage (such as credit card debt);
- Age, health, and special needs of each spouse;
- Child support (and/or spousal support) obligations of either spouse for previous relationships;
- Total fair market value of separate property (again, this isn’t subject to division, but does factor into the overall determination); and
- Marital misconduct by each spouse (such as gambling debts, extramarital affairs, or instances of domestic violence).
Note that premarital property is not included in equitable distribution. This is because personal property acquired before the marriage is not considered part of the marital estate. Only assets acquired during the marriage are considered part of the marital estate and are subject to equitable distribution.
Individuals often decide to get married after falling in love and realizing they have similar values and life goals. But, romantic ideals aside, marriage is at its core a merger of two entities into a single unit, with shared assets and liabilities. And just as a business merger results in the commingling of assets, so too does marriage (to a degree).
But the question of who owns what typically is addressed only when a married couple decides to call it quits and go their separate ways. Marital property is that which is subject to division upon divorce, but what is separate property in a divorce?
Marital Property vs. Separate Property: The Basics
In order to define separate property in the context of a marriage, we also need to cover the meaning of marital property. Most assets (and debts) acquired during the marriage are considered marital property and thus subject to division in divorce. The way in which marital property is divided depends upon the laws of your state, with a handful of states using the “community property” approach (generally, a 50/50 split).
All other property is considered separate property, which means it belongs to just one of the parties in a marriage. When a couple gets divorced, separate property is not subject to division.
Assets Considered Separate Property
Unlike marital property, separate property (sometimes called “individual property”) belongs to just one individual before, during, and after the marriage. This mainly consists of that which was acquired before the couple gets married, with a few notable exceptions. Debt also follows these rules; someone who enters a marriage with a heavy debt load typically will be responsible for that debt after the marriage ends.
State laws determine what’s considered separate property, but they’re fairly consistent with one another. Generally, the following is considered separate property:
- Property owned by one spouse prior to the marriage;
- Gifts or inheritances received by one spouse prior to or during the marriage;
- Property acquired by one spouse (in that individual’s name only) during the marriage and not used by the other spouse or for the benefit of the marriage (unless it’s a community property state);
- Property/debts designated as separate in a legally enforceable contract, such as a prenuptial agreement;
- Personal injury awards, minus any compensation for lost wages (unless it’s a community property state); and
- Any property obtained by one party using their separate property assets (such as inheritance funds) with the clear intention of maintaining the acquired property as separate.
Separate property that’s been so commingled with marital property that it’s virtually impossible to identify will be considered marital property (and subject to division) in a divorce. For instance, if marital property (shared income) is used to pay off a car originally purchased by one spouse before the marriage, the car (or a portion of its value) will be considered marital property.
Separate Property: Community Property vs. Common Law States
It’s important to understand how community property states and common law property states differ in how separate property is distinguished. Common law property states, for the most part, automatically define that which is registered in one spouse’s name only as separate property. This isn’t the case in community property states (such as California), where an express, written agreement is required for such a determination.
Additionally, common law property states will take into consideration each spouse’s separate property when determining how to equitably distribute marital property during a divorce. Since community property states split marital property in half, they don’t consider each party’s separate property.