This is one of the most important questions in a divorce. While a marriage, and its undoing, can be fraught with complex and difficult emotions, the legal process of a divorce mostly comes down to who gets what and how to handle parenting issues. The first question, who gets what, is decided through the process known as “equitable distribution.”
What Is Equitable Distribution?
Equitable Distribution is the process by which all of the marital assets and liabilities, also known as all of the marital stuff you’ve accumulated over the years and all of the marital debt that is left, is distributed to both spouses. The concept comes from section 61.075 of the Florida Statutes, which outlines the entire process. The first step in determining equitable distribution is determining what is a marital asset/liability and what is a nonmarital asset/liability.
Marital vs. Nonmarital Assets and Liabilities
The simple rule is that assets that were obtained before a marriage are nonmarital, meaning they belong to one of the spouses individually and independent of the marital bonds, and the same goes for debts that were incurred before a marriage. For example, if you purchased an antique sports car before the marriage, that is presumed to be nonmarital and not part of the equitable distribution process. Similarly, student loans that you took out before you got married are presumed to be nonmarital and will remain your sole responsibility after the divorce.
The same analysis applies when determining whether something is a marital asset. If that antique sports car was purchased three months into your marriage, it is presumed to be a marital asset. If you took out student loans three months into your marriage that is presumed to be marital debt.
That’s the quick and easy way to determine what are marital assets and liabilities and what are nonmarital assets and liabilities. However, like many things in the law, it is never really that easy.
Common Issues in Equitable Distribution
Equitable Distribution can be complicated by a number of circumstances that families regularly encounter. While these are exceptions to the rules, they are not uncommon.
One of the trickiest issues in Equitable Distribution is determining the value of certain assets. How much is your home worth? Are you having the home appraised? Do you and your spouse agree to the appraiser or will you each have your own appraisal performed? Are you using an online listing option, such as Zillow, to get a feeling for what your house could be worth? Or are you both simply agreeing to a value? The answer to these questions will directly impact what number gets placed in the Equitable Distribution Spreadsheet (see below). If you have a family business, it can be very tricky to determine the appropriate value of the business for Equitable Distribution purposes.
Pensions and Retirement Accounts
Another problematic area is with pensions and retirement accounts. It is very common for a spouse to come into a marriage with an existing retirement account that was established pre-marriage, which they then continue to contribute to after the marriage has begun. The pre-marital contributions, and interest derived therefrom, would be nonmarital, while any contributions and interest on those contributions after getting marriage would be considered a marital asset. Calculating the nonmarital portion of the retirement account and any interest derived from those pre-marital contributions can be complicated and requires expertise to determine.
Pensions can be even more difficult to calculate because of the nature of how they pay out. There is usually not a value that a pension can be traded in for until the time comes for one to retire. Pensions will state a current payout amount based on projections, anticipated age of retirement, and other factors. Even more complicated, if the pension was started before the marriage and continued throughout the marriage, it can be very difficult to find the precise nonmarital and marital values of the pension for Equitable Distribution purposes.
Active vs. Passive Appreciation
Another difficult area that can complicate Equitable Distribution is determining whether the increase in value of a nonmarital asset is due to active or passive appreciation. Generally speaking, if a nonmarital asset appreciates in value during the marriage due to the active efforts of one or both spouses, that increase in value is considered “active” appreciation and is likely considered a marital asset subject to Equitable Distribution. If, however, a nonmarital asset increased in value due to market forces, inflation, or other methods that neither spouse had any active involvement in, that increase in value is considered to stay nonmarital and not subject to Equitable Distribution. This is common in real property and in investment accounts in which one or both spouses spent considerable efforts during the marriage to manage the investments.
Inheritances are a big exception to the ordinary marital vs. nonmarital rules. Generally, if a spouse receives an inheritance or a gift that is not from the other spouse, that is considered nonmarital. Also nonmarital are any assets exchanged for such nonmarital assets. In other words, if you spend your inheritance while married on a yacht, that yacht is likely nonmarital even though it was purchased during the marriage. However, if an inheritance or gift is comingled with marital assets, they can lose their nonmarital nature. Thus it is very important if you receive an inheritance or non-spousal gift during the marriage and you would at least like the option to keep it nonmarital, to be careful how it is stored and what you do with it.
Equitable Distribution, Not Necessarily “Equal”
It is important to note that the term we use for the distribution of marital assets and liabilities is “Equitable” Distribution, not “Equal” Distribution. While the courts are instructed to start the process “with the premise that the distribution should be equal,” the court is also permitted to perform an unequal distribution of assets based on certain enumerated factors, which we will discuss in another post.
Typically, the longer a marriage, the more assets and liabilities a couple has accumulated. It can be a very overwhelming process to gather all of this information into one place. How does one organize all of this financial information? A good place to start is an Equitable Distribution Spreadsheet. The Ninth Circuit in Central Florida has a helpful Equitable Distribution Spreadsheet which one can use to input all information about a couple’s marital assets and liabilities. If you are in litigation, your lawyer should prepare this form for you based on the information you and your spouse provide. While one would think financial information is cut and dry and the answers clear, it is not uncommon for both attorneys to have differences in their Equitable Distribution Spreadsheets (usually regarding whether an asset or liability is marital or nonmarital or the value of an asset or liability). If you are pursuing a collaborative divorce, the financial neutral will gather all of your financial information into their own Equitable Distribution Spreadsheet for the team to analyze and build options with together. In the collaborative process, this spreadsheet is a joint document that both spouses and their team members work together to create and ensure it is accurate.
Equitable Distribution, along with parenting issues, makes up the vast majority of issues to figure out during a divorce. It can be very helpful to talk to a lawyer about this process to figure out what, if any, issues might arise during the Equitable Distribution process and how to resolve them efficiently and fairly. Please schedule a consultation with our office today to discuss these and any other questions you might have. We look forward to hearing from you.