Property Division in Divorce: Community Property vs. Equitable Distribution
Property division during divorce or dissolution of marriage consists of all the property, including some future income like pensions and retirement funds, being divided between the spouses. Property division can also include the goodwill value of a business and the value of increased earning capacity from a degree or professional license obtained during the marriage. There are two general systems for making a division of property, community property and equitable distribution.
Some states have what are called community property laws, which means generally that the money both spouses have earned during the marriage belongs to both of them, and the money that either spouse had before the marriage or from an inheritance or gift belongs to that spouse as separate property. Increased equity in separate property may become community property in certain circumstances, and separate property that is commingled with community property often becomes community property. You should check your state law and get advice if there are questions.
The courts in community property states will usually divide the community property equally between the parties and give each spouse his or her separate property. This is not always the case, so if you have an unusual situation—where one spouse is disabled and unable to work, for example—you should seek advice in community property states to find out how the law in your state and your personal circumstances might change the result of the divorce property division. This also doesn’t mean that the court will divide every asset in half. The property is divided so that each spouse gets half of the total net value, which is the fair market value of assets minus community debts.
The other system is called common law, marital property law, or equitable distribution. In that system the spouse whose name appears on an ownership document, like a title, deed, or registration, owns the property. Unlike in community property states, a spouse is not entitled to keep separate property. Each spouse is entitled to receive a fair and equitable share of the property of the other spouse.
There is no set measure of what is fair and equitable. Equitable grounds in some states may include the fault of one or both parties in the divorce, while in other states fault is not considered in property division. The factors most commonly considered in the division are the needs of the spouses, the length of the marriage, and the fairness of the division. In practice, the average division is 2/3 to the higher wage earner and 1/3 to the other spouse, but there are no guarantees.