Equitable Distribution

What Does Equitable Distribution Mean?

Divorce involves a series of difficult and legally complex decisions, including the division of assets. This process, known as equitable distribution, may seem daunting, especially during such a tumultuous time. However, understanding what equitable distribution entails can make the process more manageable, allowing you to focus on healing and moving forward.

In Ohio, equitable distribution is the legal principle that guides the division of assets during a divorce. It aims to achieve a fair and just distribution, rather than an equal one, taking into account various factors such as the length of the marriage, each party's financial contributions, and their future needs. This means that while it may not be a 50-50 split, the outcome is intended to be fair and reasonable for both parties.

Equitable distribution can cover a wide range of assets, including real estate, investments, retirement accounts, personal property, and even pets. It also includes liabilities such as debts and mortgages. The goal is to divide these assets and liabilities to reflect each party's contributions during the marriage and their future needs.

What Factors Influence Equitable Distribution?

Equitable distribution is influenced by a variety of factors that the court takes into account, some of which are easily quantifiable, while others are more subjective. For example, the court will consider the financial contributions of each party, including their income and any assets they brought into the marriage. Non-financial contributions, such as caring for the home or raising children, are also considered.

Here are some of the key factors that courts typically consider when determining equitable distribution in a divorce:

  • Income and property: Each party's income, both at the time of the marriage and at the time of the separation, is taken into consideration. This includes any increase in the value of property over the course of the marriage.
  • Length of the marriage: The duration of the marriage plays a significant role in equitable distribution. The longer the marriage, the more intertwined the couple's finances tend to be.
  • Age and physical health: The age and physical health of each party can affect their ability to earn income in the future, which is a factor in the division of assets.
  • Standard of living established during the marriage: The court considers the couple's lifestyle during their marriage. The aim is to prevent a drastic downgrade in living standards for either party post-divorce.

The court also considers the needs of each party after the divorce, including their future earning capacity and financial obligations. For instance, if one party will have primary custody of the children, this will likely affect the division of assets. Similarly, if one party has a significantly lower income or fewer job prospects, this may be taken into account.

Finally, it's important to note that equitable distribution only applies to marital property, not separate property. Marital property includes all income, assets, and debts acquired during the marriage. Separate property refers to each party's assets before the marriage, inheritances received individually, and gifts given specifically to one person. These are typically not divided in a divorce.

How is Equitable Distribution Different from Community Property Division?

Community property division is an entirely different approach to asset division in a divorce as compared to equitable distribution. This method is used in community property states like California, Arizona, and Texas. In community property division, all assets acquired during the marriage are considered common property and are split equally, that is 50-50, regardless of who earned or acquired them.

However, splitting the assets 50-50 may not necessarily result in a fair distribution, especially in cases where one spouse has a significantly higher earning potential or if there were non-financial contributions by one spouse. This is where equitable distribution differs significantly; it aims for a fair distribution based on several factors, not just a mathematically equal one. This allows courts greater flexibility to create a distribution that reflects the circumstances of the marriage and the needs of both parties more accurately.

How are Marital Assets and Liabilities Valued in Equitable Distribution?

The valuation of marital assets and liabilities in equitable distribution is essential in deciding how to divide them. This process typically involves appraising the current market value of each item. Professional appraisers are often used for tangible assets like homes, vehicles, and other personal property. Financial assets like savings, retirement accounts, and investments are evaluated based on their current value. Businesses owned by the couple are assessed based on their market worth and potential future earnings.

It's important to note that liabilities are also included in this valuation. These may include:

  • Mortgages on real estate property
  • Car loans
  • Credit card debts
  • Personal loans
  • Outstanding tax obligations

Both assets and debts accrued during the marriage are considered marital property and are therefore accounted for in the equitable distribution. The aim is to ensure a fair and just division that adequately reflects each party's contributions, needs, and future financial responsibilities.

What Role Does Each Spouse's Earning Potential Play in Equitable Distribution?

Each spouse's earning potential plays a significant role in equitable distribution. This factor refers to each party's capacity to earn future income, considering their current job, skills, education, work experience, and the employment market. If one spouse has a higher earning potential due to these factors, they may receive a smaller portion of marital assets. A spouse with a lower earning potential or who has been out of the workforce for a significant period (for instance, to take care of children or the household) may receive a larger share. This is to ensure that both parties can maintain the living standard they had during their marriage as closely as possible.

This evaluation of earning potential is not limited to income but extends to other financial resources. For instance, if one party has a substantial retirement account or other significant financial assets, these will be taken into account. Future earning potential also considers the age and health of the spouses since these factors can influence the ability to work and earn income. The court’s objective is to achieve an equitable, fair, and just distribution, considering both current circumstances and future prospects.

How are Retirement Accounts Handled in Equitable Distribution?

Retirement accounts, whether 401(k)s, IRAs, or pensions, are generally viewed as marital property if contributions were made during the marriage and thus are subject to division. However, the division of these accounts can be complex, demanding a thorough understanding of the different types of retirement accounts, their tax implications, and the specific laws governing their division in a divorce.

Divining retirement accounts usually involves a Qualified Domestic Relations Order (QDRO). This legal document, issued by the court, instructs the retirement plan administrator on how to distribute the retirement benefits between the divorcing spouses. It's crucial to note that not all retirement accounts require a QDRO. For example, IRAs typically don't necessitate a QDRO but still must be divided according to the divorce decree. The division of retirement accounts can have significant tax implications, so it's essential to handle this process carefully to avoid unnecessary penalties.

Some key points to consider when dividing retirement accounts are:

  • Pre-tax and post-tax contributions: It's important to distinguish between pre-tax and post-tax contributions as they will have different tax implications upon withdrawal.
  • Early withdrawal penalties: Withdrawing from a retirement account before age 59.5 usually incurs a penalty. However, QDROs can typically avoid this penalty.
  • Tax implications: The resulting tax burden can vary depending on the type of account and the nature of the contributions (pre-tax or post-tax). It's crucial to engage a financial advisor or tax professional to navigate these complexities.
  • Future growth: Keep in mind that the value of retirement assets can fluctuate over time. When dividing the assets, consideration should be given to the future growth potential.

What Happens if One Spouse Hides Assets?

If one spouse attempts to conceal assets during the divorce proceedings, it undermines the principle of equitable distribution and violates legal obligations. Both parties in a divorce are legally required to disclose all their assets and liabilities fully and honestly. Hidden assets can distort the perception of a party's financial situation, leading to an unjust distribution that deprives the other party of their rightful share.

The consequences of hiding assets can be severe. If discovered, the court may order the dishonest spouse to pay the attorney’s fees of the other party or assign a larger share of the marital property to the wronged party to compensate for the deceit. Moreover, hiding assets can lead to criminal charges for perjury, fraud, or contempt of court. It's highly recommended to seek legal advice if you suspect your spouse is hiding assets.

How We Can Help

At Crossman & McNamee, LLC, we understand that equitable distribution can be complex and emotionally challenging. Our experienced divorce attorneys are committed to helping you navigate this process with compassion and determination. We will work diligently to protect your rights and ensure a fair division of assets during this difficult time.

Contact us online or call us at (937) 468-3796 for a consultation to discuss your case and find out how we can help guide you through this process.