A divorce usually involves couples dividing their assets, including their financial assets. While you are dealing with huge life changes, you are also dealing with a huge financial transaction – often the largest one in your life.
In the law, we call this process equitable distribution. The goal of the Court in equitable distribution is to provide a fair (“equitable”), though not necessarily equal, division of assets at the end of a marriage.
Below, our Virginia divorce attorneys at Slovensky Law explain the steps we take, along with the court, to divide your assets. We believe that if you understand the three-step process, you will have a better case outcome.
What Is Equitable Distribution?
Before anything else, let us define what “equitable” distribution means. Equitable distribution is a way of dividing property and assets during a divorce. It doesn’t always mean an exact 50-50 split, but rather a fair division based on an evaluation various factors (more on this later). These factors aim to ensure that both spouses get a fair share of the assets, considering their individual and collective circumstances.
Does Virginia Follow Equitable Distribution of Community Property?
Yes, Virginia follows the equitable distribution method when dividing property in a divorce. This means that the court aims to divide property in a way that is fair and just, rather than simply splitting everything down the middle.
Calculating Equitable Distribution
The calculation involves several steps and considerations:
Step One: Identify the Assets and Debts
The first step is to identify both parties’ assets and debts.
Our team will gather evidence of all of your and your spouse’s assets and debts. It is important not to overlook the debts because they can be divided in equitable distribution. Even if you didn’t know your spouse had credit cards, those debts may be considered in equitable distribution, and you may be responsible for helping pay them back.
At this stage, it is really important that you share all the information you have about both your and your spouse’s belongings with us. The more we know, the better we can assist you. Property means not just things you own, but also debts, land, and things like physical items and non-physical things. Property can be a wide range of things, like homes, furniture, pensions, life insurance policies, retirement plans, businesses, old items, valuable collections, and more – almost anything you can think of- even airline miles.
Step Two: Classify
The next step is to sort the assets into three categories:
- Marital, and
Separate property is property that belongs just to one spouse; this includes money that the spouse owned before the marriage (or acquired after separation), gifts made solely to one party or the other, and inheritances (as long as the property didn’t get mixed with marital property).
Marital property includes all assets obtained during the course of the marriage (excluding gifts received by one party or the other, as well as inheritances received during the marriage).
Some property can be both separate and marital, in other words, hybrid property. This could be a home or retirement account that belonged to one spouse before marriage but gained value throughout the marriage.
If the financial patterns are complex, we may have to perform a “tracing” which may or may not get a forensic accountant involved to see whether the money came from a marital or separate source. There can be some very complex rules as to whether a particular asset is marital or separate if the finances got mixed together.
The earlier in the process you help your Virginia divorce attorney accurately identify all the debts and assets, the more quickly you can resolve your case.
Step Three: Value
Some property is easy to value: credit cards, bank accounts, etc.
Other property is more difficult – houses, businesses, and pensions, for example.
Hybrid property is unique because we have to identify both the marital and the non-marital amount of the property. Through different methods of valuation, we can determine which portions of the hybrid property are separate and which are marital.
Step Four: Division
Next, the court will divide the assets. Many times, the court simply decides to divide the marital property in half between the parties.
However, the court does not have to make an equal division. In fact, the court uses many factors to make its decision, including:
- The ways in which each spouse contributed to the family and assets
- The length of the marriage
- The fault of either party for the end of the marriage
- Tax consequences
- The uses of the property, and
Importantly, the court can also divide marital debts. So, for example, you may come away with a large portion of the retirement savings but also get saddled with the bulk of the mortgage. Usually, debts are just divided in half, but, again, the court has the discretion to decide otherwise. If the debt is attached to an asset, they usually go together to the same person- so if you get the car, you take the attached debt as well.
The value of assets is determined as of the date of the divorce trial. If your case goes to trial, we may need an initial valuation and then another valuation at the time of trial.
A Word About Division of Retirement Accounts
In many cases, retirement accounts like pensions can have both separate and marital parts. The marital part of a pension includes what was contributed during the marriage before separation. Anything contributed before the marriage or after separation is considered separate property. The more complicated part of this division concerns the determination of how to value market increases and decreases in value on the contributed funds.
If your case requires the division of retirement accounts following the divorce, we will use a particular process to divide them. This process can take quite a while and requires us to work with the retirement plan administrators. It is essential to come to us immediately if your case involves the division or retirement accounts. It is also critical that you not withdraw retirement funds from your account without speaking to us first, as doing so can allow you to identify more successful strategies and prevent you from having to pay unnecessary taxes and penalties.
This is a lot of information. But we want you to have an idea of how the law handles your finances in divorce and to be prepared for what will happen throughout the divorce process. Our job is to do our very best to convince the court to give you the best financial outcome possible.