When dividing marital property and debts in most state jurisdictions, the court applies the doctrine of equitable distribution. Property and debts are not divided equally – “fifty-fifty – but rather based on fairness, which is determined by the financial situation of each spouse, including earning capacity. The system is intentionally flexible, but it can also be subjective. In a minority of states in America, the community property doctrine is applied, and all property acquired by each spouse during the marriage is divided in half, with property owned before the marriage goes to the original holder.
There are some key factors that may impact equitable distribution, including educational attainment, employability, income and spending, standard of living during marriage, financial needs, age, health, tax consequences, and foreseeable medical or educational costs for a spouse or children.
Generally, marital property includes assets acquired during the marriage, while separate property includes assets owned by each spouse before the marriage or acquired through inheritance or gift during the marriage. In equitable distribution, the focus is on dividing marital property. Assigning a fair value to each asset is a critical step. This may involve appraisals for real estate, businesses, or other significant assets.
Courts commonly take various factors into account to determine what is a fair and equitable distribution. Common factors include the length of the marriage, each spouse’s financial contributions, contributions as a homemaker, each spouse’s earning capacity, health, and any prenuptial or postnuptial agreements. Courts may also consider the future financial needs of each spouse, especially if one spouse has significantly lower earning potential or has sacrificed career opportunities for the benefit of the family during the marriage.
Equitable distribution additionally involves the division of debts and liabilities incurred during the marriage. This could include mortgages, loans, and credit card debt.
