Equitable Distribution of Property

The goal of Virginia's system of property division, known as “equitable distribution”, is to fairly divide the couple's marital assets with respect for both their monetary and nonmonetary contributions to the property and to the marriage. All the property issues described below can either be decided by the judge in a court hearing, or, if the spouses agree on them, they can be dealt with in a Separation Agreement drafted by the parties' lawyers.

Spouses who hide, transfer or destroy property to keep the other spouse from getting it in the divorce can be punished for this “dissipation” or “waste”.

Specific procedural requirements for this division have been set by the law:

• The court determines who holds the legal titles and ownership of the property, and sets its value.

• The court classifies all property as marital or separate, or partially each. (Any property that is marital or part-marital property can be distributed through equitable distribution.)

• Taking into account the rights, interests and equities of the parties, the court decides who gets what, and can also order either party to pay a monetary award to the other party.

Any monetary award is based on the value of the property in question. When the court is determining the value of property, the two parties must provide evidence for their claims regarding the value of the property. This evidence is presented to a judge during an equitable distribution hearing.

How Property is Classified: Separate and Marital

The court determines the ownership of all “real and personal property”. This term includes a wide variety of assets, including jewelry, the marital residence, other real estate, bank or credit union accounts, furniture, paintings or other art work, automobiles, business interests, and other types of property managed by both or either spouse during the marriage. Most future income and future assets, except for pensions, are not included in equitable distribution of property.

Virginia considers marital property to be of three basic forms:

• Property acquired by either party during the marriage that is not separate property

• Property that is part marital and part separate.

• Property whose title is held by both parties (however, this still may be proven to be separate or partly separate if it can be traced accurately and fairly to separate property).

Separate property includes:

1. All real and personal property acquired by either party before the marriage

2. All property acquired during the marriage by inheritance or gift from a source other than the other party

3. All property acquired during the marriage in exchange for or from the proceeds of the sale of separate property, provided it is maintained separately

Any income generated from separate property by the active efforts of either party is classified as marital.

Separate property can also become marital property in several ways, including the failure to maintain the property as separate, or commingling with marital property, in a way that is too complex or undocumented to trace back to its source. Assumed in these general rules is that any property gained by either party during the marriage was gained with the knowledge that it would become marital property.

Marital property, however, cannot become the separate property of either party without valid and specific agreements by the parties.

Pensions

Pensions are marital property to the extent that they were earned during the marriage, before separation. The marital share is a percentage, based on a ratio of months of marriage in which they were earned compared to all months of unmarried or separated pension-earning. Courts usually divide the marital share in half. In some cases involving military or foreign service families, special federal laws apply about when courts can divide pensions, and how much each spouse can get. In contrast, when parties settle their cases out of court, they often provide that each will keep their own pension.

Marital Debts

Also divided during the property settlements of a dissolving marriage are the debts the couple, or the separate spouses, have incurred.

Factors included in the court's division of marital debts include:

• The debts and liabilities of each spouse

• The basis for the debts and liabilities of each spouse

• The property used as security for the debts and liabilities of each spouse

The court can apportion and order payment of the parties' debts (either joint or separate) incurred before the dissolution of the marriage using the above factors. However, both spouses remain vulnerable to creditors for all debts incurred during the marriage, unless the creditor is willing to let one spouse refinance after the divorce.

Tax Issues

In Property Division: Virginia statute specifically includes as a factor considered by the court in making its award or in dividing or transferring jointly owned marital property the “tax consequences to each party.” In order for the court to consider the possible effects of tax consequences, the contesting party must offer evidence of the expected tax consequences. These consequences cannot be merely speculative.

Capital Gains Tax: Transfers of property between spouses incident to divorce incur no recognition of gain or loss. The basis of the transferor carries over to the transferee, delaying any immediate tax consequence resulting from an equitable distribution award. This is something to consider when negotiating a division of property.

Alimony generally is deductible from the gross income of the payor spouse and includable in the gross income of the recipient spouse. Several procedural rules govern how the payments must be made in order for these tax allowances to be made. Parties can also elect to exclude the payments from deduction.

Child support is not deductible by the payor, and it is not income for the payee.

Filing joint or separate returns also becomes an issue for spouses during divorce. The dependency exemption and the new per-child tax credit go to the parent who has custody, but a court can order, or the parents can agree in their Separation Agreement, that the other parent will get them both instead. They can be alternated between the parents from year to year, but the exemption and credit for any particular child cannot be split between them in the same year.

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