Spouses can choose to divide the property in any way they want if they can agree. If the couple has a prenuptial agreement, this is usually enforceable if it is valid. But if no prior arrangements are made and the spouses go to court to divide their assets, equitable distribution is used.
Out-of-court marital settlement agreement in exchange for a court-ordered division of property
Ideally, when a couple separates, they create their own out-of-court settlement agreement dividing property and child custody. If the couple can agree, the divorce is usually cheaper and the results are often better.
Spouses do not have to follow the rules of equitable distribution when they are negotiating how to divide property. They can decide what is right for their family, as long as both parties agree and the outcome is reasonably fair and not unreasonable. Couples can choose to work with a mediator to make decisions about how to divide the property if they cannot agree without outside help.
Separate property versus marital property
When a court divides property by equitable distribution, the first step involves determining exactly which property should be divided. Any assets that are considered separate property will not be divided by the court.
Separate property includes property owned by each of the spouses before entering into marriage – unless it is converted into marital property. For example, if a spouse had a bank account in their name before marriage, kept that account separate, and the spouse never contributed to it, then the spouse who created the account will maintain that account after the divorce. But if one spouse has a separate account and mixes the money with joint assets in a joint account, that money becomes marital property.
Other examples of separate property include property inherited by one of the spouses during the marriage that was not later mixed with joint assets or gifts given to one of the spouses during the marriage that remained separate.
Valuation of marital property
It is important to know the value of marital property in order to determine how to divide it equally. Asset valuation is usually the next step in court proceedings after all marital property has been identified.
Usually, courts take into account the fair market value of a property when determining its value. This may be different than how much the couple paid for it. Depending on the type of property, professional appraisals may be required to determine its value.
Many couples don’t just have common assets. They also shared responsibilities. If you have mortgages, car loans, credit card bills and other debts acquired during the marriage, it should be divided as well. In cases of equitable distribution, the court attempts to divide the debt fairly and decide who should be responsible for paying the bills.
It is important to note that even if a court decides that your spouse must pay a particular bill, creditors can still try to collect from you if the debt is joint. So you may want to request that the debt be refinanced in your spouse’s name only or be paid out of the marital assets during the divorce process.
Factors taken into consideration in property division
When a court is asked to decide how equity is to be divided, there are a number of different factors it may take into account. These matters vary by state, but some of the things the court usually considers include:
- Whether there is a prenuptial agreement
- Whether there are minor children and whether child support is being applied for
- Do you order alimony?
- Whether one of the spouses is a father or a housewife at home
- Duration of marriage
- Evolution of the standard of living during marriage
- Contributions made by each of the spouses to the marital property
- Contributions made by one of the spouses to the profession or training of the other
- The earning capacity and income of each of the spouses
- The age and health of both spouses
- Liquidity of marital property
- The value of non-marital property
The goal is to ensure that property is divided equitably based on each spouse’s past contributions and future needs.