Equitable distribution is a fancy lawyer’s phrase meant to refer to the division of property between spouses following the dissolution of the marriage. That includes money, real estate, cars, 401(k) plans, artwork, furniture, business interests, and any other property interest that came into being during the existence of the marriage. Such property is considered “marital property.” Property acquired prior to the marriage, or by inheritance or gift, is considered “separate property” that does not get divided as part of equitable distribution. In Wake County, once a claim for equitable distribution is filed, each spouse is required to complete an Equitable Distribution Inventory Affidavit which lists the marital and separate property owned by each party.
The law requires marital property to be divided between the parties “equitably.” All other things being equal, “equitably” = “equally.” Thus, if the total value of the “marital estate” were $500,000, each party would be entitled to a distribution of $250,000 in assets. Only very rarely do judges make unequal distributions of marital property. Unfortunately, there are so many different types of property interests, and so many different ways to value them, that it can often be difficult to resolve equitable distribution claims without employing appraisers and other experts. If the parties cannot agree on whether property should be classified as marital or separate, valuation, or how property should be divided, an equitable distribution claim may be resolved by the judge.
For tax planning purposes, both spouses should understand that the division of marital property, generally speaking, is not considered taxable income to either party. If one spouse pays the other a sum of money to equalize the marital assets each holds, that payment is generally not tax deductible to the party making it and is generally not considered taxable income to the party receiving it. Unlike child custody, child support, and alimony, an equitable distribution award is final and may not be modified.