Equitable Distribution: Definition, State Laws, Exempt Property

What Is Equitable Distribution?

Equitable distribution is a legal theory guiding how property acquired during a marriage should be distributed between a divorcing couple. Also known as “equitable division” or “division of property,” it takes into account a variety of factors when dividing assets and debts, including how long the parties were married, their needs, and the financial contribution made by each party during the marriage.

Which Factors Impact Equitable Distribution?

Rather than treat each party as equal, equitable distribution holds that some factors make the ownership of property inherently unequal. Factors that make the parties unequal include educational attainment and employability, how much each party earns and spends, the financial needs of each party, and the age and health of each party. Other factors to consider include the standard of living during the marriage or civil union; the contribution by each party to the education, training, or earning power of the other; tax consequences of the proposed distribution; and foreseeable medical or educational costs for a spouse or children.

In some states—such as Alabama, Florida, and South Carolina—the theory also takes into account the causes of the divorce, including whether one party was abusive or unfaithful. Equitable distribution is forward-looking, in that it considers the financial position of each party post-divorce.

What Is Exempt from Equitable Distribution?

Property is often divided into two groups:

The first is separate property, which is property that belongs to one spouse. Examples include property acquired or inherited before the marriage or inherited or received as a gift from a third party during the marriage.

The other group, marital property, represents property acquired during the marriage. This includes separate property that has increased in value because of the efforts of the other or both spouses; the appreciated value is considered to be marital property. The 41 common law property U.S. states allow separate property to be excluded from equitable distribution unless it was specifically put in both spouses’ names during the marriage.

Equitable Distribution vs. Community Property

Dividing up property during divorce proceedings is often complicated, and two key legal theories treat this distribution differently. Community property theory holds that property should be divided equally because both parties are considered to have joint ownership of all property (both assets and debts). This theory posits that marriage creates an economic community in which property attained is part of the community. In short, property is linked to the newly formed community rather than to each person.

Most U.S. states are equitable distribution states, meaning courts hearing divorces there divide property according to what’s fair and equitable. Only Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are community property states, while Alaska, South Dakota, and Tennessee allow the couple to decide whether they want their property to be community property.

Distribution by Mutual Agreement

Property division does not have to be decided by a third party. If a couple can come to a mutual agreement about how to split up their assets and debts, then they do not have to follow either property division rule. However, if the parties in a divorce cannot agree independently or settle during arbitration, then the divorce heads to court, with a judge ultimately deciding who gets what based on the laws of their state.