Equitable Distribution: Definition and State List

The process of divorce can be emotionally and financially draining. It can also be very complicated, as state laws tend to dictate who gets what property, assets and even debt in a split. Equitable distribution is a system by which many states divide property during a divorce. What does it mean and which states use it?

A financial advisor can help you understand how divorce will impact your assets, income, and investment portfolio.

Understanding Equitable Distribution

Equitable distribution is a legal term that describes the process of dividing marital property and debt in the event of a divorce. While the term may suggest otherwise, the term equitable distribution doesn’t necessarily mean dividing all marital property down the middle.

Rather, this process takes into account the divorcing couple’s assets, the length of their marriage, debts, needs, and their individual financial contributions through the years. It also considers future employability and earning power, as well as spending and saving habits. In this manner, it aims to divide assets equitably, but not necessarily evenly.

Factors that Impact Equitable Distribution

Achieving equitable distribution requires addressing multiple factors that can influence the allocation process. Socioeconomic status is a primary factor, as it often determines access to quality education, healthcare, and employment opportunities, which, in turn, impact wealth and income distribution. Geographic location also plays a role; urban areas may have better access to resources and services than rural or underserved regions, leading to disparities in outcomes. Additionally, systemic bias, whether based on race, gender, or other social categories, can result in unequal treatment and access to opportunities, creating barriers that prevent fair distribution.

Education levels and access to information are other key factors, as individuals with higher educational attainment often have better job prospects and earning potential. The structure of policies, such as tax laws, labor rights, and social welfare programs, also significantly impacts equitable distribution by either promoting fairness or inadvertently favoring certain groups over others. Technological access influences equitable distribution by either enabling or limiting access to information, economic opportunities and social services.

States With Equitable Distribution

Most states adhere to equitable distribution. States that do not use the equitable distribution model practice community property.

Community property states in the U.S. are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. The territory of Puerto Rico follows community property principles. In Alaska, couples can decide if they want their property to be considered community property. All other states are equitable distribution states.

How Equitable Distribution Works

If you’re facing a divorce in a state that isn’t a community property state – in other words, one that utilizes the equitable distribution process – there are a few important points to keep in mind. First, this process aims to keep the division of property acquired during the marriage fair – but not necessarily equal. In other words, it likely won’t be a perfect, 50/50 split.

Equitable distribution takes into account various factors within the split based on the idea that spouses are inherently unequal. For example, one spouse may be more employable or educated than the other, which would likely result in them getting fewer assets in the split since they could more easily earn more post-divorce. A spouse that committed infidelity or was abusive, making them largely responsible for the split, typically becomes entitled to less as a result.

Don’t forget about separate property. This property belongs only to one spouse, who either acquired it before the marriage or inherited it during the marriage. Prenuptial agreements supersede equitable distribution and community property states’ laws regarding the division of assets.

Community Property and Equitable Distribution

While many states use equitable distribution to divide marital property, the community property state process looks much different. More specifically, these states consider all marital property as community property. This means that in the event of a split, it’s usually divided 50/50.

Unlike equitable distribution, which considers factors such as a spouse’s contributions to the marriage, whether there were underlying issues such as abuse or infidelity, community property states consider all property bought during the marriage to be community property, meaning that it essentially belongs to both partners equally and will be divided up as such.

Full List of Equitable Distribution States

Forty-one states divide marital property through equitable distribution. The table below shows each one. If your state is not listed here, it uses community property rules instead.

*Alaska defaults to equitable distribution. However, state law gives married couples the option to treat their property as community property if both agree to it in writing. The District of Columbia also uses equitable distribution.

The nine community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Puerto Rico follows the same approach.

How Equitable Distribution Plays Out in Practice

How a court splits assets depends heavily on the specifics of the marriage. Two divorces in the same state can produce very different results based on income and net worth, length of marriage, and each spouse’s role during the relationship.

A couple divorcing after 28 years where one spouse stayed home to raise children and the other earned the household income will not see a 50/50 split in most cases. The spouse who left the workforce has limited earning power and may receive a larger share of marital assets, including the home and a portion of retirement savings, to reflect that gap.

A four-year marriage between two working professionals earning similar salaries is a different situation entirely. Neither spouse gave up career opportunities for the other, and both can support themselves going forward. A court is more likely to split things close to evenly.

Courts also consider whether one spouse damaged the financial position of the household. If one spouse ran up $60,000 in gambling debt without the other’s knowledge, a court may assign that debt entirely to the person who created it and give the other spouse a larger share of what remains.

How Equitable Distribution Applies to Common Assets

Different types of property carry different complications when a marriage ends. Here is how equitable distribution typically works for the assets that come up most often:

• The family home. This is usually the biggest asset on the table. One spouse might stay in the home and give up their claim to other assets to balance things out. In other cases, both parties split the proceeds from selling it. Courts often lean toward keeping children in the home, which can shape who ends up with it. The spouse who stays typically needs to take over the mortgage on their own through a refinance.
• Employer retirement plans. These are marital property in most equitable distribution states. Splitting these accounts requires a court order called a QDRO that tells the plan administrator to move a portion of the 401(k) or pension balance to the other spouse. Without this order, the transfer can trigger taxes and penalties.
• IRAs. These accounts split differently. No QDRO is needed. As long as the money moves directly between accounts without either spouse touching it, there are no tax consequences.
• Stock options and restricted stock. If one spouse received equity compensation from their employer it may count as marital property even if the shares have not vested yet. Putting a dollar value on unvested equity usually requires a financial professional or forensic accountant.
• A business. The spouse who runs the business may keep it and give up other assets of equal value, or the court may structure a buyout paid over time based on an independent appraisal.
• Debt. Courts divide credit card balances, car loans, and other debts based on who spent the money, who benefited from it, and who has the ability to pay. Debt that one spouse carried into the marriage usually stays with that person.

5 Ways a Financial Advisor Can Help During a Divorce

Divorce changes your entire financial picture in a short period of time. A financial advisor who works with people going through a split can help you make decisions that protect your long-term interests rather than just getting through the process. Here are five specific ways they can help.

1. Show You What Assets Are Actually Worth After Taxes

Two assets with the same dollar value on paper can be worth very different amounts once you account for taxes. An advisor can help you see the real numbers before you agree to a split.

Example: One spouse is choosing between a $400,000 brokerage account and $400,000 in a traditional 401(k). The advisor explains that the brokerage account has a cost basis of $300,000, so selling it would trigger capital gains tax on only $100,000. The 401(k) would be taxed as ordinary income on every dollar withdrawn. After taxes, the brokerage account puts significantly more money in your pocket. The advisor helps the client push for the better asset.

2. Run the Numbers on Keeping the House

Wanting to stay in the family home is understandable, especially when children are involved. But an advisor can tell you whether you can actually afford it on your post-divorce income.

Example: A client wants to keep the home after the divorce. The advisor adds up the mortgage, property taxes, insurance and estimated maintenance and finds it would take 55% of the client’s monthly income. The advisor recommends selling, downsizing and putting the equity to work in investments that provide more financial breathing room.

3. Make Sure Retirement Account Transfers Do Not Cost You Money

Retirement accounts have specific rules about how they can be divided in a divorce. Getting the paperwork wrong can result in taxes and penalties that reduce what you receive.

Example: A client is awarded half of their ex-spouse’s 401(k). The advisor works with the attorney to file the proper court order with the plan administrator before the divorce is finalized so there are no delays. The advisor then helps the client move the funds into their own IRA to keep the money growing tax-deferred.

4. Rebuild Your Financial Plan as a Single Person

Your budget, insurance, retirement timeline and savings goals all change after a divorce. An advisor can help you reset each of these based on your new income and expenses.

Example: A client’s household income drops 40% after the divorce. The advisor builds a new monthly budget, lowers retirement contributions temporarily to stabilize cash flow, shops for individual health insurance now that the client is off the ex-spouse’s plan and sets a target for rebuilding an emergency fund within 12 months.

5. Spot Problems in a Proposed Settlement Before You Sign

A settlement can look fair on the surface and still leave you worse off once you factor in taxes, upkeep costs and lost benefits. An advisor can review the terms and flag anything that does not add up.

Example: A proposed settlement gives one spouse a vacation property and the other an equal amount in cash. The advisor points out that the property carries $8,000 per year in taxes, $3,500 in insurance and ongoing maintenance that the spouse cannot afford. Keeping the property would drain savings within a few years. The advisor recommends taking liquid assets instead.

Bottom Line

Equitable distribution is a system by which certain states divide property during a divorce. It occurs in non-community property states and considers assets and debts, each partner’s financial needs and contributions to the marriage, how long they were married, the age and health of both partners, as well as future employability and earning power. Prenuptial agreements supersede equitable distribution laws.

Tips for Dividing Marital Property

• Many financial advisors specialize in the final implications of divorce. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• The question of what happens to someone’s pension when he or she goes through a divorce can be a contentious issue. Learn more about how to handle this potentially difficult matter.

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