What is “Equitable distribution of property”?

THE DEFINITION of EQUITABLE DISTRIBUTION – NOT 50%/50%

Equitable Distribution is the legal term for how judges, in Virginia (and 39 other states), divide and distribute property and debt in a divorce.  “Equitable” means “fair”, not “equal”. . .  so you know you are in some tricky territory right there.  “Fair” is hardly clear.   States that actually divide marital property on a 50%/50% basis are called community property states.[1]  No matter what you read or hear, Virginia is not a 50%/50% state when it comes to the division of real estate, retirement plans, bank accounts, furniture, credit card debt, automobile loans, or anything other type of property or debt.

Though Virginia is not a community property state, property and debt division in a Virginia divorce often ends up in the neighborhood of 50%/50%, in the end. The judges have 11 criteria that they are required, by law, to consider before order the division and distribution of property in Virginia.  It is the job of the divorce attorneys to convince the judge – and each other – that their client deserves a bigger piece of the asset pie (and, of course, a smaller piece of debt pie), based on those 11 criteria.

HOW DO COURTS DETERMINE WHAT IS “EQUITABLE”?

Virginia judges have 11 criteria that must be considered when making a ruling in an equitable distribution situation? 

1. The contributions, monetary and nonmonetary, of each party to the well-being of the family;

2.  The contributions, monetary and nonmonetary, of each party in the acquisition and care and maintenance of the marital property of the parties;

3.  The duration of the marriage;

4.  The ages and physical and mental condition of the parties;

5.  The circumstances and factors which contributed to the dissolution of the marriage;

6.  The time period and circumstances of when and how specific items of property were acquired;

7.  The debts and liabilities of each spouse, the basis for such debts and liabilities, and the property which may serve as security for such debts and liabilities;

8.  The liquid or non-liquid character of all marital property;

9.  The tax consequences to each party under differing distribution options;

10. The use or expenditure of marital property by either of the parties for a non-marital separate purpose or the dissipation of such funds, when such was done in anticipation of divorce or separation or after the last separation of the parties; and

11. Such other factors as the parties deemed necessary and appropriate to consider in order to arrive at a fair and equitable distribution of their marital property and debt.

                   (from §20-107.3 of the  Virginia Code, Ann, 1950)            

However, as previously stated, it is not uncommon, when all is said and done, for a Virginia divorce case to end up in the neighborhood of 50%/50%.  That being said, why not start there and move out from that center point, depending on the facts and circumstances of the case?  The answer is, for the most part, cultural.  That is not how, in our country, most attorneys (and business people) negotiate.  The prevailing wisdom is that a negotiator needs to start by asking “for the moon”, and hope that the negotiation eventually brings the opposing parties to a point that is somewhere closer to the middle, but still weighted to the client’s advantage.  That is not, however, very efficient.  It is also very expensive and  often causes a lot of ill will between the parties who, most of the time, are also parents of the same children.

A MORE CONTEMPORARY APPROACH

A more contemporary approach, and one that is reflective of many mediation practices, is to start with a 50%/50% mentality and then, through the process of assisted negotiation, help the clients work their way out from that center point based on the particularities presented by their case.  The factors considered by the parties do not tend to differ much from the judge’s list, but it is the start point – the negotiating mindset – that is different. 

Also, for many divorcing parties, it is simply too expensive, time consuming and gut wrenching to start at a polar extreme and then try and prove why your position is correct and the other party’s position is wrong.  Most judges are of the belief that divorce is a two-way street and that neither party is probably 100% right.  Justice and the truth usually lie somewhere toward the middle – so why not start there and save yourself some money and aggravation? It’s a thought worth pondering.

For example:

MEDIATION: $100,000 to divide.  50%/50% with $4,000 in mediation fees  = $96,000 to divide  =

                  $48,000 for Wife and $48,000 for Husband.

LITIGATION: $100,000 to divide.  60% to Wife = $60,000 - $20,000 in attorneys fees; 40% to Husband =  $40,000 - $20,000 in attorneys fees

                  $40,000 for Wife and $20,000 for Husband

 

How is the concept of Equitable Distribution applied in mediation?

Usually, in mediation, the parties themselves determine what the criteria will be for equitably dividing their property.  They might not be as formal in their thinking and in the way that they assign weight to the various criteria as a judge would be, but they know what feels right and why.  There are sometimes trade offs and things bargained for in a mediation that might not occur in a courtroom.  What is fair to one couple may not work for another.

Parties in mediation are free to toss out certain criteria that they do not think fits their particular set of facts, or may be antithetic to their values and/or general sense of fairness. The effect of that is to streamline and personalize the negotiations for those parties’ parties particular set of facts and sensibilities.

Goals, Needs & Fears

It is important, in a mediation,  for the mediator to understsand what the parties’ goals, needs and fears are so that negotiations can be tailored to address those goals, needs and fears.  It is appropriate in mediation to sift through those goals, needs and fears and determine which requests are based on “the principal of the matter” and “concepts of punishment”.  Mediation tends to focus on tangible settlement prospects, such as the ability to support oneself, figuring out how to pay for the children’s college, getting one’s career underway, having a time for healing, digging through the potential tax aspects of various settlement options, etc.  In mediation, we call this “issue spotting” and it is this type of focus on what can actually be settled in a divorce (as opposed to “getting even”, which rarely works) that often saves clients tons of money and the traumatic effects of contested litigation.

WHAT IS CLASSIFICATION OF PROPERTY?

The Law

Before dividing and distributing property and debt in a court or mediated divorce case, there must first be decisions made with regard to whether the property and debt in question is to be classified as marital, non-marital or hybrid (some of each).  Marital property is divisible by the courts, non-marital is not (the marital portion of hybrid property is divisible, the non-marital portion is not.)

Couples in mediation are always informed of the law with regard to classification – marital property is that which is acquired/earned during the marriage, while non marital property is that which is acquired prior to the marriage, after the separation, inherited, or received as a gift to one the spouses (individually).

Classification of Property in Mediation

Most clients, in mediation, tend to draw fairly clear lines, in terms of classification, and do not seek to extract nonmarital property from marital property.  For example, I don’t often see clients arguing for a return of a downpayment they made on the marital residence from their nonmarital money.  They usually consider that downpayment to have been a gift (a key legal point) from them to the marriage. Also, I rarely see clients arguing mightily over the return of nonmarital money which was put into a joint account that the parties referred to, during the marriage, as the “nest egg”, the “retirement”, “our savings”, etc.

This is true even though Virginia law allows for great latitude in these types of situations, and is fairly protective of the spouse who put his or her non-marital money into the marital pot – as long as it was not a gift which, many people think, requires a fairly light standard of evidence to prove, in Virginia. For example, there is no presumption that nonmarital property, put into the joint names of a married couple, is converted to marital property.  (Unimaginable in many other jurisdictions, but that is law in Virginia).  Nonetheless, in my experience, most mediation clients do not see it that way and do not choose not to fight over whether or not those non-marital+marital cominglings  were or were not gifts.

Considerations when Classifying Property & Debt and Equitably Dividing & Distributing Property in Mediation

In classifying and, ultimately, dividing and distributing property and debt in a mediation setting, clients often consider the following (which are very similar to the criteria a judge must consider in equitably dividing and distributing property and debt, in Virginia):

  • Is the marriage of long duration?  If so, contributions of non-marital property to marital property often become less relevant as time goes on;
  • Does the client value the concept of generosity? (This is not, necessarily, a bad thing as long as it does the generous party no serious harm);
  • Is there a desire, for emotional, psychological, and/or financial reasons,  to “get it over with”? (This can be legitimate if the party in the hurry will not be harmed to any great degree)
  • Do one or both of the parties forsee a positive future financial projection for him/herself?  Negative financial projection?  Why?  What about for the other party?  Why?
  • Was there a clear division of labor in marriage? Of what effect did that have on career development?  The well-being of the children?
  • Are there perceived equal/unequal contributions to the marriage (financial or otherwise),
  • Do either of the parties have access to other non-marital assets?
  • Is it appropriate for there to be “pay back” for negative/positive behavior during the marriage?
  • Is there a mutual belief that nonmarital property comingled with marital property is actually a gift to the marriage?

It is important to remember that, in Virginia, judges are not permitted to order the division and distribution of non-marital property.  Only in settlement may parties choose to share non-nonmarital property, if that is their desire.  Mediation frees parties to settle a case – after being fully informed of their legal rights – on their own principals of fairness and equity and not have their property and debt divided and distributed based on a judge’s restricted ability to assess and weight what is fair and equitable in their situation.  The price tag differential, too, between contested litigation and mediated settlements is a factor for consideration that is not on the judge’s list.  It should, however, be on your list when are thinking about divorce.


[1] Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, and Puerto Rico are all community property states.


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