Equitable Distribution versus Community Property

Missouri and Illinois both follow equitable distribution models of property distribution in divorce proceedings. However, analyzing how community property and equitable distribution work, and the differences, is helpful for parties going through a divorce.

In states with community property, community property is defined as "all property acquired by the spouses during the marriage belongs not to either spouse individually but to a third entity, marital community."[1] The fact that the legal title rests within the community; there is no future expectancy, which rests upon divorce or death. The community holds a real legal title interest.[2]

When a divorce or death occurs, the community equally divides the property.[3] Although this community is not an "entity," the rationale for this equality is deeply embedded in the community.[4] The principle behind this "equality" is that:

[A]ll wealth acquired by the joint efforts of the husband and wife shall be common property... the marriage is a community of which each spouse is a member, equally contributing by his or her industry to its prosperity, and possessing an equal right.[5]

A jurisdiction that enforces community property law based on "equitable distribution" function in a different manner.[6] In statutorily-mandated equitable distribution of community property, some courts permit a divorce distribution that substantially deviates from an equal split.[7] The basis for an "equitable distribution" is evaluated on case by case basis.[8] There is a possibility that the starting point for an equitable distribution starts with equal division, however, a divorce court has a discretion concerning such matter.[9]

In Toth v. Toth[10], a husband took $140,000 of his separate property and purchased a home in a retirement community for the couple to live. The title was under both their names in joint tenancy with right of survivorship.[11] A month after the marriage, the husband filed an annulment.[12] There was only one possible community asset: the home.[13] His former wife sought 50% of its worth. The trial court noted the parties differing ages, needs, health, and income, etc. and concluded that she is only entitled to $15,000. The former wife appealed, and the court concluded that a 50/50 split was justified only in the event of fraud.[14] The Arizona Supreme Court affirmed the trial court's decision, and stated that the legislature's use of the word "equitable" rather than the word "equal" signaled the legislature's desire to give divorce courts authority to decide in each case what constitutes an equitable distribution.[15] The court said that, "equitable means just that it is a concept of fairness dependent upon the facts of particular cases."[16] Although the former wife did not engage in marital misconduct, she failed to contribute to the asset or to the community. In this case, equal is not equitable.[17]

In In re Marriage of Flower[18], a husband changed the title in his home to community property with right of survivorship shortly after marrying. They lived in that house for about six months, until moving to the wife's house (no title change).[19] After a year of marriage, the husband filed for divorce.[20] The trial court granted the husband the entire community property, and the wife appealed. Arizona Court of Appeals affirmed trial court's decision.[21] Citing Toth, the Arizona Court of Appeals said that the word "equitable" in the divorce distribution statute required trials courts to consider "fairness on a case-by-case basis rather than relying upon per se rules."[22] A divorce court has a wide discretion to consider not only the source of the funds use to purchase or improve assets in questions, but also any factor that has bearing on equitable division of marital property.[23] Here, the wife's lack of contribution to marital property, along with "a relatively short" marriage, justified the unequal distribution in favor of husband."[24] This case shows how much discretion trial courts have concerning decisions about "equitable division of community assets."[25]

In Kelly v. Kelly[26], the husband and wife had both worked for the federal government. A portion of the wife's retirement was paid out thru social security, while the husband was enrolled in the Civil Service Retirement System, which does not include social security, and would actually reduce his CSRS benefits if he ever received social security payments. [27] Husband challenged the trial court's decision that characterized his retirement plan as community property while classifying much of his wife's plan as separate property. [28] The Supreme Court of Arizona affirmed decision classifying much of wife's retirement plan as separate property. [29] Provision 42 U.S.C. 407(a) has generally been interpreted to prevent social security from being divided by state courts at divorce. [30] However, courts are able to treat CSRS benefits as marital or community property. [31] Court then employed Toth's expansive interpretation of equitable distribution, and stated, "equitable means just that-it is a concept of fairness dependent upon the facts of particular cases." [32] Here, the husband was actually getting more than 50/50, which was justified since the wife had generated less to the community. [33]

In Shafer v. Shafer, [34] the trial court awarded Husband 94% of the marital assets. Wife requested the division the trial court entered, but had also requested a cash equalization payment.[35] No equalization payment was ordered.[36] The parties were married nine years.[37] Wife was disabled and could not support herself.[38] Husband contributed to the house the parties lived in, but refinanced and payments were made during the marriage.[39] Husband acknowledged that Wife bought groceries and cleaned the house.[40] One instance of physical abuse occurred between the parties on the day they separated.[41] No evidence of added burdens to either party as a result was presented.[42] The Court reversed, finding that all the factors under § 452.330 favored the trial court's judgment. [43] The case was remanded for a just and equitable division of property. [44]

On the other hand, in Plager v. Plager,[45] the trial court did not err in awarding Husband 22% of the marital assets where the parties had relatively equal earning power, and Wife had contributed $44,000 of her non-marital funds to the purchase of the marital residence.[46] The Court also found persuasive that though Husband lived in the marital home during the year of separation, he did not make mortgage payments, and the house was lost in foreclosure.[47] Wife also contributed both parties' marital vehicles. [48] This same analysis supported the division of debt.

Toth, Flower, Kelly, Shafer and Plager show that courts may depart from a 50/50 split of the community worth by considering many different factors that include contribution and need.[49] Contribution and need are both important concepts that are employed by divorce courts in common law equitable-distribution jurisdictions to arrive at a division of the marital assets and liabilities.[50] Ultimately, however, little guidance is offered regarding how and when to consider need, contribution, and other factors.[51]

Additionally, courts have addressed the issue of equitably distributing debt. Marital debt incurred on the basis of the income-earning capacity of both spouses, split equally, may pose problems for a spouse with lower post-divorce income prospects. Courts have broad discretion to divide and distribute the marital estate in a manner that is "just and equitable."

For example, in Geldmeier v. Geldmeier[52], the husband challenged the trial court's division of marital property that left him with more debts than property. Mr. Geldmeier worked at a bottling plant, while his wife was a homemaker. She worked for part of the marriage as a secretary. [53] The Missouri Court of Appeals affirmed the trial court's decision holding that the court does not need to divide debts and assets equally in making a fair distribution. Rather, the court "may charge a spouse with debts based on his ability to pay." [54] Here, Mr. Geldmeier had been the only spouse with a source of income, and was better able to assume marital debts than the wife.[55]

[1] Brett Turner, Equitable Distribution of Property. 1 Equit. Dist. of Property, 3d § 2:5. November 2013

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] James Ratner, Distribution of Marital Assets in Community Property Jurisdictions: Equitable doesn't Equal. 72 La. L. Rev. 21. 2011

[7] Id.

[8] Id.

[9] Id.

[10] Toth v. Toth, 946 P.2d 900 (Ariz. 1997)

[11] Id.

[12] Id.

[13] Id.

[14] Id. at 901

[15] Id. at 903

[16] Id.

[17] Ratner, supra at 6

[18] In re Marriage of Flower, 225 P.3d 588 (Ariz. 2010)

[19] Id. at 590

[20] Id.

[21] Id. at 591

[22] Id.

[23] Id. at 593

[24] Ratner, supra at 6.

[25] Id.

[26] Kelly v. Kelly, 9 P.3d 1046 (Ariz. 2000)

[27] Id. at 1047

[28] Id.

[29] Id.

[30] Id.

[31] Id.

[32] Ratner, supra at 6.

[33] Id.

[34] Shafer v. Shafer, 423 S.W.3d 911 (Mo. Ct. App. 2014)

[35] Id. at 912.

[36] Id.

[37] Id. at 915

[38] Id.

[39] Id.

[40] Id. at 916

[41] Id.

[42] Id.

[43] Id. at 917

[44] Id.

[45] Plager v. Plager, 426 S.W.3d 689 (Mo. Ct. App. 2014).

[46] Id. at 693-694

[47] Id. at 694.

[48] Id.

[49] Ratner, supra at 6.

[50] Id.

[51] Id.

[52] Geldmeier v. Geldmeier, 669 S.W.3d 33 (Mo. Ct. App. 1984)

[53] Id. at 34

[54] Id. at 35

[55] Id.