Getting Divorced? 'Equitable' Does Not Mean 'Equal'
When people get divorced, a major determinant of the division of marital property depends upon the state they live/file in. Nine states (AZ, CA, ID, LO, NV, NM, TX, WA, WI) use a community property approach, which usually results in an equal distribution of property acquired and income earned during the marriage (but excluding gifts, inheritances, and property owned before the marriage). The other 41 states use equitable distribution, although, in many, there is a legal presumption of 50-50 unless the facts and circumstances suggest something else. In any case, as JPMorgan's CIO Michael Cembalest notes, “equitable” is not always interpreted to mean “equal”, given judicial discretion based on each state’s statutory factors considered when dividing marital property.
In 2001, a paper in the Journal of the American Academy of Matrimonial Lawyers found that for large marital estates, “unless the dependent spouse made an extraordinary non-financial contribution or a significant financial contribution, the independent spouse usually ended up with the majority of the estate”. However, by 2008, the authors’ positions changed, and they now see the concept of “marriage as partnership” applied more frequently; we have read similar conclusions from other legal scholars as well. The chart below shows post-2001 decisions on large marital estates highlighted in their paper. The share of the marital estate granted to the independent spouse is shown as a function of the duration of the marriage; reasons for the departures from 50-50 cited by the authors are explained in the key.
To be clear, given the discretion afforded judges and the differences across states, this is more art than science. Even in community property states like Texas and Arizona, there are substantial departures from 50-50. And in equitable distribution states like New York, there can be idiosyncratic differences by county; some counties have seen opposite trends compared to the AAML article findings, with business-related and deferred compensation assets increasingly subject to a split favoring the earning party. The bottom line: while the courts have not formulaically specified the value of non-financial spousal contributions, in practice, they are often deemed to be roughly equal to purely financial ones.
Full JPMorgan CIO Eye On The Market letter here (PDF)
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