Equitable distribution

What is equitable distribution?

Equitable distribution refers to the division of property that occurs during divorce. The goal of equitable distribution is not to distribute the property equally, but to distribute it based on a number of factors that weigh on the amount that each party receives.

Deeper definition

During a divorce, if a couple cannot reach an agreement concerning the division of their property, the court has to step in and divide the couple’s belongings. The two most common legal concepts for dividing property are equitable distribution and community property. These two methods are significantly different in the way they work.

When a court divides property under equitable distribution, it looks at a number of factors to decide who should receive certain assets:

  • Education and employability of each party in the divorce.
  • Spending habits.
  • Earning potential.
  • Financial needs.
  • Health status.
  • Cause of the divorce.

After taking into account all of these factors, the court divides the property in a way that is fair to each party. It is possible to exclude property that was acquired before the marriage or inherited during the marriage. This is referred to as separate property. The remaining property obtained during the marriage is known as marital property.

The community property theory supports the idea that both individuals, regardless of who bought the property or earned the assets to purchase the property, equally own all property from a marriage. Since both parties equally own the property, the property is equally divided.

States that divide property using the community property principle include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Equitable distribution example

If you divorce, you’ll have to divide your possessions with your spouse. Equitable distribution applies when you are unable to agree on a division. For example, assume that you have worked outside of the home for the past three years while your spouse remained at home to care for your three children.

The courts will take into account your spouse’s status as a stay-at-home parent when dividing the property. Even though your spouse was not earning an income, he or she was still contributing to the household. The court may decide it is equitable to evenly divide your property.

Other Personal FinanceTerms

More From Bankrate