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equitable distribution

Equitable distribution is the legal principle most states use to divide marital property in a divorce. In so-called equitable distribution or common law property states the court attempts to divide the spouses’ assets equitably (fairly) and may consider the value of a spouse’s separate property in making an unequal division of the spouses marital property.

In deciding what is an equitable distribution of the spouses’ property, the court may consider factors such as the relative education, employability, earning capacities, and separate property assets (acquired before marriage) of the spouses, and whether one spouse’s infidelity or abusive behavior, for example, was a greater factor in the breakup of the marriage.

In contrast, if the spouses live in a community property state the court generally begins with the presumption that the spouses’ marital or community property will be divided equally.

But in practice, the difference between the division of assets in community property states and in equitable distribution states is sometimes not as great as it may seem, as the court in a community property state may have the discretion to divide the spouses’ community property on a 60-40, 70-30, or other unequal basis—and to order one of the spouses to pay all or most of the community debts—based on factors such as the relative education, employability, earning capacities, and separate property assets (acquired before marriage) of the spouses, and whether one spouse’s infidelity or abusive behavior was a greater factor in the breakup of the marriage.

Community property states generally include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Texas is a community property state, which means that in the event of a divorce, the court starts with the presumption that all property acquired during the marriage is community property and should be divided equally between the spouses. However, this does not mean that the division is always a strict 50-50 split. Texas courts have the discretion to order an unequal division of community property based on various factors, including the spouses' education, employability, earning capacities, separate property assets, and whether one spouse's misconduct, such as infidelity or abuse, contributed to the dissolution of the marriage. Separate property, which includes assets acquired before the marriage, inheritances, and gifts, is not subject to division and remains with the original owner. It's important to note that while the starting point is an equal division, the actual division of assets in Texas may be adjusted to achieve a result that the court deems 'just and right' under the circumstances.


Texas Statutes & Rules

Texas Family Code, Title 1, Subtitle C, Chapter 7, Subchapter A, Section 7.001
This statute is relevant because Texas is a community property state and this section establishes the general rule for division of property upon divorce.

Upon divorce, the court shall order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage. This includes both community property and separate property. Community property is generally divided equally unless there are reasons to order an unequal division.

Texas Family Code, Title 1, Subtitle C, Chapter 7, Subchapter A, Section 7.002
This statute is relevant as it provides the court with the authority to divide and distribute the property of the spouses in a manner that is equitable.

The court has the authority to divide the marital estate in a way that is just and right. This includes the power to set apart to a spouse their separate property and to divide the community property as the court sees fit. The court may consider the factors such as fault in the breakup of the marriage, benefits the innocent spouse may have received if the marriage had continued, disparity of earning capacity, health, education, and future employability of the spouses, and the nature of the property.

Texas Family Code, Title 1, Subtitle C, Chapter 7, Subchapter F, Section 7.006
This statute is relevant as it allows for an agreement between the spouses regarding the division of their estate.

Spouses may enter into a written agreement concerning the division of their property and the dissolution of their marriage. The agreement can partition and exchange between themselves any of their community property, both present and future. The court may enforce the agreement as it is written or may make orders for the division of property not addressed in the agreement.

Texas Family Code, Title 1, Subtitle C, Chapter 7, Subchapter A, Section 7.003
This statute is relevant because it addresses the consideration of fault in the breakup of the marriage in the division of property.

In a decree of divorce or annulment, the court may award to one spouse a disproportionate share of the estate if the other spouse's fault in the breakup of the marriage is proven. This can include cruel treatment, adultery, and other actions or behaviors that the court deems relevant.

Federal Statutes & Rules

28 U.S.C. § 1738 - Full Faith and Credit
This statute is relevant because it requires courts to recognize and enforce valid judgments, including those pertaining to the division of property, issued by courts in other states.

Under 28 U.S.C. § 1738, also known as the Full Faith and Credit Clause, courts in the United States must give full faith and credit to the public acts, records, and judicial proceedings of every other state. This means that a divorce decree and property distribution order from one state must be recognized by courts in other states. This is particularly relevant when divorced parties move to different states, as the equitable distribution or community property determinations made in one state must be upheld in others, barring any specific federal law or policy to the contrary.

Internal Revenue Code (IRC) § 1041 - Transfers of Property Between Spouses or Incident to Divorce
This statute is relevant because it addresses the tax implications of property transfers between spouses during a divorce, which is a key consideration in equitable distribution and community property settlements.

IRC § 1041 provides that no gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse, but only if the transfer is incident to the divorce. This means that property transfers that are part of the equitable distribution or community property division are generally not taxable events. The statute defines a transfer as 'incident to the divorce' if it occurs within one year after the date of the divorce or is related to the cessation of the marriage. This provision helps to facilitate the division of property upon divorce without additional tax burdens.

Uniformed Services Former Spouses’ Protection Act (USFSPA), 10 U.S.C. § 1408
This federal statute is relevant because it governs how military retirement pay is treated in the context of a divorce, which can be a significant asset in equitable distribution or community property divisions.

The USFSPA allows state courts to treat military retired pay as either sole or community property depending on the state. It also provides a method of enforcing current and future child support and alimony awarded in the divorce decree, and it establishes a system for the direct payment of a portion of a military retiree's pay to the former spouse. The act also addresses the benefits that former spouses may be entitled to receive, such as medical benefits and commissary privileges, under certain conditions. This statute is particularly important for divorces involving service members, as it can significantly affect the distribution of military benefits.

Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1055 - Requirements for Qualified Joint and Survivor Annuity and Qualified Preretirement Survivor Annuity
This statute is relevant because it outlines the treatment of retirement benefits in the event of a divorce, which are often subject to division under equitable distribution or community property laws.

ERISA § 1055 mandates that retirement plans subject to ERISA must provide for a qualified joint and survivor annuity for married participants and a qualified preretirement survivor annuity for participants who die before retirement, unless the participant and spouse consent to a different form of benefit payment. In the context of divorce, a Qualified Domestic Relations Order (QDRO) can be used to divide retirement plan benefits. A QDRO is a legal order subsequent to a divorce or legal separation that recognizes the right of a spouse, former spouse, child, or other dependent to receive a portion of the retirement benefits that were earned by the participant.