Equitable Distribution in Washington DC
How the DC laws of divorce protect its residents from unfair treatment
|Written by Tom Yeung, CFA | CDFA
Investment Advisor & Fund Manager, Jurnex Financial Advisors
According to Section § 16–910 of DC law, marital assets must get divided “in a manner that is equitable, just, and reasonable.” That makes Washington DC, along with 41 other US states, an equitable distribution state.
In other words, shared assets can get separated into amounts BESIDES 50-50 if the situation warrants. This arrangement can create a more level playing field for both spouses, especially when assets are complex.
Equitable distribution ≠ 50-50 division
Equitable distribution doesn’t necessarily mean a 50-50 division of marital assets. Instead, courts will award what they believe is fair in the situation. This generally means better protections for lower-earning spouses.
Example 1. One spouse is a trust fund beneficiary. The other should get more marital assets
For example, assume a couple has been married for 30 years. Marital assets are worth $5 million, but one spouse also has separate property worth $10 million. Equitable distribution in Washington DC suggests that the spouse without the trust fund should get a more significant portion of marital assets as compensation.
Example 2. One spouse owns a business. The other should benefit from future earnings too.
In another scenario, assume one spouse has used family savings to start his own business. The firm now earns significant profits, but neither the family nor the company has rebuilt savings yet. An equitable outcome could mean the business owner maintains common voting shares, while the other spouse gets issued preferred, non-voting shares in the company.
In both examples, equitable distribution in Washington DC creates a better outcome than a simple 50/50 split of assets.
What are your equitable distribution rights in DC?
According to a study by AARP, the #1 reason women delay divorce is due to finances (44%). Financial concerns come ahead of children (37%) and personal beliefs (11%).
Yet financials worries are often misplaced. Equitable distribution laws mean it’s illegal for the spouse with control over family finances to create an unfair financial situation for the other spouse.
How to know your rights? Hire a local advisor
When large sums are at stake, it’s almost always worthwhile to engage with a financial expert in divorce. That’s because understanding your rights is the first step in negotiating a fair settlement. And when assets are large, even a small percentage change can mean a huge number of dollars.
Why hire outside counsel?
- Avoid getting taken advantage of. Even though a judge must ratify all divorce agreements in DC, people who are unaware of their rights can get fooled into accepting a worse outcome by their spouse.
- Finding hidden assets. Vindictive spouses have a habit of making joint assets “disappear.” You should contact a financial advisor or CPA before you tell your spouse about divorce if you’re worried about spitefulness.
- Calculating equitable distribution. Without using proper financial software and models, it’s often unclear what constitutes “fair” in asset separation. A financial expert can help with these questions.
How is equitable distribution calculated?
According to § 16–910, Washington DC courts will take into account the following:
- Marriage duration. How long was the couple married?
- Personal circumstance. What are the ages, earning power, and needs of each party?
- Children. Who will take custody of minor children?
- Alimony. Will either party take spousal support?
- Prior marriage obligations. Does either spouse have requirements from other marriages
- Future earning power. Does one spouse have higher earning power? And did the other spouse contribute to enhancing that power via homemaking, education, or others?
- Taxes. The effects of taxation on the value of assets
- Divorce circumstances. The circumstances which contributed to the estrangement of the parties
Not only does the division of assets need to be fair. Both the couple’s cash flow, retirement savings, and lifestyle must also maintain a sense of equity. This prevents a higher-earning spouse from squandering marital assets and then “walking away” from the relationship.
Because of the number of variables, contacting a qualified divorce financial advisor is often the best way to understand your situation.
What is marital vs. separate property?
In the District of Columbia, only marital assets get divided during a divorce. Separate assets remain with their original owners after separation.
- Marital assets. Marital property includes assets and liabilities acquired during the marriage, regardless of who’s on the title. It can also include earnings from separate property, generated from “active work” during the marriage.
- Separate assets. Separate property includes property owned before marriage or acquired during marriage via gift or inheritance.
When marital and separate assets are commingled (whether on purpose or accidentally), the resulting property generally becomes all jointly owned unless one spouse can prove ownership over the asset.
What equitable distribution in Washington DC means for dividing property
Dividing property equitably (rather than 50-50) is especially useful when one spouse desires ownership of a particular piece of marital property. Assets can include a family house, personal business, or even a retirement account.
Correctly dividing property can help keep the overall pie larger for both parties. For example, rather than selling a house or company, the couple can save on taxes and transaction costs by assigning the property to one spouse while the other spouse takes a different asset.
Dividing family assets
For equitable distribution states such as Washington DC, both parties must divide family assets in a fair manner.
- Family house. A family’s primary residence is often their most significant asset. It’s tempting to split the home equity 50-50 and let the stay-at-home parent take the house, but that’s usually unfair to the person receiving the house. That’s because of home maintenance costs and eventual taxes. Even with spousal and child support, the stay-at-home parent will generally find themselves falling behind their ex-spouse. A 60-40 or 65-35 split could be more equitable.
- Tangible property. Physical property can include collectibles, jewelry, and household items. Often, one spouse will value certain items more than their spouse does, and a vindictive spouse might try to inflate the value of those items. But in an equitable distribution state such as DC, these “dirty tricks” will be considered unfair and inequitable.
- Pension benefits. Many people working in Washington DC are beneficiaries of government or company pensions. But what are they worth? It often requires a dedicated financial analyst to make sure you’re getting the fair value of your spouse’s retirement funds. Many defined benefit pension plans will offer annuities, while defined contribution offer lump-sum payouts to departing spouses.
Dividing small businesses
One of the most common issues for equitable distribution in Washington DC is how to share a privately-owned company.
- Ownership restrictions. Many businesses, such as law firms and medical practices, have ownership requirements. Lawyers must own law firms, and a dentist must own dental practices. When dividing a private business, couples must come to a fair conclusion of what the company is worth for one spouse to buy the other out.
- Maintaining control. Often, it’s in the best interest of the family for the current business owner to maintain control. Profits will be more substantial, and the non-controlling spouse can receive a more extensive payout
- Liquidity restrictions. Often, small businesses are challenging to value and sell. Companies can get sold for huge discounts. And getting forced to sell a private corporation can also trigger taxes. Couples are often better off coming to an amicable conclusion in dividing the property.
What equitable distribution in Washington DC means for you
Regardless of your situation, equitable distribution in Washington DC means that your family’s assets and liabilities will be divided equitably between you and your spouse in a separation.
That means financial fears shouldn’t be part of your decision to leave a toxic relationship. Courts will generally order fair spousal support and equitable distribution, especially to those who are unable to rejoin the workforce due to age or disability.
Where to find more resources
If this seems like a lot of information, don’t worry. The great news is that help is available. That’s because here at Jurnex, we work with individuals and families just like you to make the most out of investing. I’ve helped invest client money for over a decade in the same old-fashioned way. And that’s to seek out great companies in great industries that can you can buy at a discount to their fair value. Sounds too simple to be true? Give me a call today, and I’ll show you that it’s still possible after all these years.
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