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Thursday, April 23, 2009

Equitable Distribution

Years ago, ownership of title to property was the determining factor as to which spouse would receive the property after a divorce. For example, if the marital residence was purchased during the marriage but only one spouse was listed on the title to the property, that spouse would always receive the house in the divorce, regardless of which spouse contributed the money to purchase the home. Similarly, a bank account, pension account, 401K plan, or business that was titled in one spouse's name would be awarded to that spouse in its entirety.

During the 1970's and 1980's, the philosophy of "marriage as an economic partnership" began to develop. As a result, many states passed legislation modifying divorce laws so that title would no longer be the determining factor in the distribution of marital property during a divorce.

Today, in most states where Equitable Distribution is the law, property is defined in one of two ways:

  • Marital property
  • Separate property

Any property acquired during the marriage, regardless of who holds the title, is considered marital property. The only exceptions to this are:

  • Gifts
  • Inheritances
  • Personal injury awards

The above exceptions as well as any property or assets acquired prior to the marriage and kept separate (not co-mingled) are considered separate property.

Some assets can be partly marital and partly separate. For example, if a husband was enrolled in his employer's pension plan for 5 years prior to the marriage and then for 20 years during the marriage, then 80% of the pension would be considered marital property and 20% would be considered separate property. The 20% would be distributed to the titled spouse, while the 80% would be distributed equally to each party.

Equitable Distribution does not necessarily require equal distribution. For example, if a business was established during the marriage but was worked exclusively by one spouse, the value of the business does not necessarily have to be split equally. If the husband worked the business with no contributions from the wife, the court can look to the wife's other contributions to the marriage (i.e. homemaking, child rearing, entertaining clients) and determine an "equitable" percentage of the business to award to the wife. That percentage will often be less than half.

Normally, assets such as homes, cars, boats, bank accounts, pensions, IRAs, 401Ks, and other forms of savings and investments will be distributed equally. Businesses where there is unequal active participation of each spouse will generally be distributed unequally, similarly to businesses where only one spouse participated.

As a result of Equitable Distribution laws, couples entering a marriage should consider a prenuptial agreement, especially in situations where there has been an unequal accumulation of assets prior to the marriage.


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