What is Equitable Distribution of Property in Maryland?

The division of property in a divorce is often one of the most challenging issues to resolve, especially in a high net worth divorce. Maryland law gives guidance for determining an equitable distribution of marital property, but does not dictate a predetermined outcome or how the distribution will occur..

Divorcing couples are free to agree on their own division of marital property, and many do. This allows the spouses to work out an arrangement that feels fair to them, and each spouse can get to take from the marriage property that is most meaningful to them.

However, many couples struggle to divide up their marital property. One spouse might think that the other is trying to “game the system” and take more than their fair share. Conversely, another spouse might feel that he/she should be entitled to the lion’s share of the marital estate because of some misconduct by the other spouse. Frequently, spouses disagree about which property should be considered marital property subject to division.

In short, there are a lot of things that can go sideways when trying to equitably divide marital assets. Misinformation often contributes to the difficulty. Here are some common myths about the equitable distribution of marital property during divorce.

Myths About Equitable Distribution of Marital Property

“Marital property must be divided 50/50.”

This is probably one of the most common misunderstandings about the equitable distribution of marital property. It might stem from confusion about the difference between “community property” and “equitable distribution.” In equitable distribution states, which includes Maryland and the great majority of other states, property is divided in a way that is fair and equitable to the trier of fact (a judge) — but may not necessarily be exactly equal.

“My spouse cheated on me. I’m going to take them for everything they’re worth.”

When your spouse has committed adultery or some other misconduct that caused your marriage to break down, it’s natural to be hurt, angry, and to feel that they ought to make it up to you. One spouse’s fault can “move the needle” somewhat regarding marital property division, causing the injured spouse to get more of the marital assets than they otherwise might. That said, a Maryland court will not award all, or even the great majority, of the assets to one spouse because the other cheated.

“It’s in my name, not my spouse’s, so it’s mine.”

A common misconception about the equitable distribution of marital property is that if an asset is titled in one person’s name, it is theirs and is not subject to division in their divorce. As a general rule, any property acquired by either spouse during the marriage is considered “marital property” and is subject to division in a Maryland divorce. Title may govern what happens to a particular piece of property, but its value still will be included in the total marital pie for division, and may result in a monetary award that one spouse must pay the other.

“I can just trade the house for my retirement - they are worth the same.”

Parties to divorce often confuse the value of different types of assets as being the same. Cash, however, is not the same as real estate, is not the same as stock investments, is not the same as business value, is not the same as retirement funds. Each of these have different tax treatment, time and costs of conversion to liquidity, and other legal restrictions. Before trading an asset of one class for an asset of another with the same or similar nominal value, it is important to factor in these considerations to avoid significant unfairness in the outcome.

Equitable Distribution of Marital Property is Not Always Clear-Cut

If spouses cannot agree on how to divide their property, the court must make a decision. As we mentioned above, equitable distribution refers to a division of property that is fair and equitable under all the circumstances. What is considered fair depends on a number of factors set forth in Maryland law, including the length of the marriage; each party’s contributions, monetary and non-monetary, to the family’s well-being; the economic circumstances of each party at the time the property award is to be made; fault in the breakdown of the marriage; and more.

Before a court can consider the factors to decide what division of assets and debt would be equitable in a particular circumstance, it has to determine what property is to be divided. As a general rule, property is classified as either separate or marital.

Marital property is any property acquired by either spouse during the marriage, with limited exceptions. Separate property is anything which either spouse acquired before the marriage and has not been commingled (more on that in a moment). Property received by gift or inheritance, compensation for personal injury, and assets excluded by a valid prenuptial agreement are also considered separate. Separate property also includes any asset that can be directly traced to one of the separate sources.

Even “separate” or “non-marital” assets can be divided in a divorce if the original owner commingled the property with other marital assets. For instance, if one spouse had a bank account in their sole name before the marriage, and put funds from that separate account into the couple’s joint bank account that they used during the marriage, those funds could transmute and become marital property subject to division.

However, some assets may be considered partly marital and partly separate, like a retirement account to which a spouse began contributing before marriage, and continued contributing afterward. An asset owned by one spouse before marriage may be separate property, but if it appreciates in value after the marriage, the appreciation may be considered marital property.

All of which is to say, it is not always obvious what is marital property and what is not. A Maryland court will presume that disputed property is marital unless one spouse is able to prove otherwise.

Asset Valuation and Equitable Distribution of Marital Property

Determining which property is marital and which is separate is only the first step in the equitable distribution of marital property. In order to equitably divide the marital estate, the court needs to determine the value of the marital assets.

Sometimes, as with a bank or investment account, the value is obvious and easy to determine. Other times, as with complex assets like a business, determining value is complicated, and estimates can vary by tens or hundreds of thousands of dollars, or even more. Financial experts may be required to present evidence of value to a court.

The bottom line is that equitable distribution of property during a divorce is often complicated, and the help of an experienced family law attorney is invaluable. Even where divorcing spouses can agree on the rough outlines of a property settlement, they may need an attorney to help them nail down the details. Furthermore, it’s important to remember that not all property that has an equal value today is truly equal. Some property appreciates in value, other assets depreciate. Some assets come with tax benefits or burdens. Working with an attorney who understands these distinctions can help ensure your property settlement is truly fair to you.

If you are concerned about protecting your property interests during divorce, or have questions about equitable distribution of marital property, contact Strickler, Platnick & Hatfield to schedule a consultation.