The term “equitable distribution” refers to the method that is used to divide obligations, property and assets between spouses as a part of divorce proceedings. An important concept to understand is that equitable distribution doesn’t necessarily mean that things are divided “equally”, only that they are divided fairly according to the law. The doctrine of equitable distribution is utilized to consider the future financial circumstances of each spouse following the termination of the marriage. Although equitable distribution is a somewhat flexible system, it can be difficult to predict the outcome of any case, as some of the factors that the court considers are quite subjective.
The process of equitable distribution in regards to property involves three major steps:
- The determination of which property can be established as part of the equitable distribution
- The valuation of the property to be considered
- The actual division of the property or assets
New York regards property in a marriage as either “separate” non-marital property, or marital property. Only marital property is included within an equitable distribution, and this is the property that was purchased or acquired during the time of the marriage. In some cases, separate property can become marital property over time, due to co-mingling, which is when non-marital property is mixed with marital property – thereby becoming indistinguishable. For example, if money is deposited into a jointly-owned bank account, that money may likely lose its character as separate property and be what is called transmuted into marital property.
Distribution of Real Property
Perhaps one of the most significant pieces of property to consider in equitable distribution is real estate, and there are a number of decisions to be made about a marital home when a divorce takes place. For example, if the house is to be sold, then a decision will need to be made on who will occupy that home until the sale, and who will pay the expenses it generates, including insurance fees, the costs for utilities, home repairs, taxes and mortgage payments.
Furthermore, if the house is sold, then the two spouses, with the help of their lawyers or by a judge’s decision would need to come to a decision about various aspects of the sale. For example, it would be important to establish when the sale would take place – some people prefer to leave this moment until the children involved graduate or leave home, whereas others are differently inclined. Beyond that, a decision will need to be made on how to determine the correct selling price, where the proceeds will be divided to, whether the other spouse will have the option to buy and so on.
Once marital property has been properly identified and valued, the parties need to agree or a court will be expected to divide that property or the proceeds from the property between both parties, and there are various factors that can effect what the court believes to be “fair”. Some of the factors that may be considered include the length of time the marriage lasted for, and each spouse’s financial situation at the time of the divorce.
Dividing Retirement Funds and Professional Assets
Another important aspect to consider in decisions that must be made regarding equitable distribution, are the retirement funds. In many divorces, retirement accounts are considered to be by far one of the most valuable assets. Under New York equitable distribution law, the retirement funds can be valued, and decisions must be made on how that value will be divided and awarded to each party. The basic starting assumption during most divorces is that all marital debts and marital assets in the marriage will be divided equally. However, it’s important to recognize that this does not necessarily happen in all cases.
In regards to marital professional assets, such as businesses, licenses and degrees, the situation can be somewhat more complex. Similarly to retirement funds, the value of the business can be determined, and a decision must reached on how that value will be divided. A divorce between two people does not always necessitate the divorce of a business. Plenty of business owners actually take steps to defend their companies from the many threats that can occur as a result of divorce. Potentially the best way for them to do this is to ensure that a valid postnuptial or prenuptial agreement has been drafted, which indicated whether the business may be regarded as apart from the rest of the marital estate. In a divorce, valuation of business can be a significant factor in the formula used for equitable distribution, because of this, any business not protected by a postnuptial or prenuptial agreement could risk future dissolution. However, again the law is equitable distribution so equal division is not always what is fair, particularly in the case of businesses. When looking at the value of licenses and degrees the concept of enhanced earning capacity comes into play with equitable distribution decisions.
Personal Property, Debts and Liabilities
Typically, equitable distribution only applies to marital property, which does not include property that is obtained throughout the marriage by descent, gift, or bequest, or property provided for within an agreement such as a postnuptial or prenuptial. The decision as to whether certain bank accounts, cars, stocks, bonds, jewelry, household furniture, family photographs or collectibles can be regarded as “marital” property, may differ from one divorce case to the next.
Debt is one of the elements in New York that does not fall under the exception of separate property. In general, separate property is the things that a spouse enters into the marriage with that is kept separate throughout the marriage. Inheritance and gifts can also be regarded as separate property. Although marital assets are often broadly defined in legal terms, separate property is defined rather narrowly, and it is the burden of the party claiming something to be a separate property to prove that claim is legitimate. In a divorce, all separate property must be identified, while debt and marital assets will need to be distributed in equitable terms.
As mentioned before, equitable is a term used to refer to what is “fair”. Sometimes, pre-nuptial or post-nuptial agreements can be used to dictate how property can be divided. However, in some very specific circumstances, a court may choose to void those agreements or set them aside. If no agreements exist to begin with, the separate parties and their attorneys will need to come to an agreement on what is equitable. If an agreement cannot be made, then the equitable distribution will become the task of the judge.
As always, please see our other blog entries and WebPages for more information on matrimonial, family law and equitable distribution. Call about your free initial consultation as well. It would be our pleasure to speak with you about it.