Equitable vs Equal: Dividing Assets and Debts in Divorce

Divorce attorneys all have cases and stories that they will never forget.  Some because they were really hard, some because we learned a lot, and some because they are perfect examples of legal principles.  One rule of divorce that can be difficult to understand is equitable vs equal division.  I had a case many years ago that I use to this day to explain the difference.

Rope knot in the shape of a heart that is burning.

Story Time:

A couple had been together for over 20 years.  They had a house, retirement, and some investments.  They also had nice cars, and the husband had a Harley motorcycle.  My client was the wife.  We were in mediation and talking about how we were going to divide the debts and assets.  I had explained to my client that we consider the assets all together.  Imagine that we put the value of all of the assets into a pot so that they’re all mixed together.  We then divide that pot of assets in a way that makes sense and is still fair (equitable division).

If this were a stew, we try to ladle out some good pieces of meat (or Beyond Meat Ground Beef Substitute if that is your thing) to each person.  Lets say that one person loves carrots, and the other person hates them.  So we give the first person all of the carrots.  They both like potatoes, so we give them both half of the potatoes.  However, since the first person got more carrots, we then take some of their potatoes and give it to the other person so that their bowls are even. That way both people get an even amount, but of the pieces that they want.

Take a Saw To It:

This idea was very hard for my client to understand.  I tried to explain it in many different ways, but she still didn’t understand.  The final straw came when she would not agree to a division of assets that was everything that she wanted.  I couldn’t understand, so I asked her what does she need to change in order to agree.  She had to have half of the Harley.  Literally.  Cut the thing in half.  She thought that the Harley had not been included in the division.

I reminded her that if you take a saw to a Harley and cut it physically in half then the Harley no longer has any value at all.  You couldn’t sell it (unless you marketed it as a modern art statement on consumerism, I guess).  Then I showed her again in the spreadsheet where the money value of the Harley was included in his column.  She then got more actual money in the bank from their investments for her portion of the Harley.  Money is better than the motorcycle.  Money will grow, a motorcycle will just decline in value.  Also, he wanted both the money and the Harley.  By taking the money she was getting the far better end of the deal.

In the end she agreed to the proposed division, begrudgingly.  I don’t know if she ever really understood that she was getting half of the value of the Harley.  I think that she just wanted to take a saw to the thing that her Husband seemed to value more than her.  This is why its important to have a good lawyer—our emotions can make us lose sight of the long term.  We can all probably understand that.

Why You Want an Equitable Division

You might have heard that Colorado is an equitable division state.  Other states (primarily community property states) are equal-division states.  In order to understand why an equitable division is better than an equal division, you need to understand the difference between the two:

Equal Division:

Each person gets half of each asset or debt category no matter what.  Examples of an equal division that would not be helpful are:

  • Each person gets half of the debts, even though one person has more income to pay them off than the other person.
  • The house must be sold because they each have to have half of the equity, and only the equity. They can’t buy each other out with other assets like retirement or investments.
  • Each person gets half of the retirement, even if one person needs more cash now and the other can wait.

Equitable Division:

Each person gets a part of the assets and debts that are a fair compromise.  For example, here are some good equitable divisions:

  • One person keeps more of the debt because they have the ability to pay it off better. However, they also get proportionally more of the assets to offset the debt.
  • One person can keep the house and refinance. This keeps the kids in the same home, and is more cost effective.  They buy the other person out of the equity by giving them other assets.  The other person then has the benefit of usable money instead of potential value in a home that they can’t use.
  • One person keeps more retirement savings because they don’t need cash right now. The other person gets more cash right now because they need that to create their new life.  (Note: check out our blog on Divorce Pitfalls: Dividing Retirement)

Separate Property?

Some of your assets might be your separate property that you don’t need to divide with your spouse.  See our blogs on Separate Property to learn more.

We Can Help

These decisions can be overwhelming and confusing.  Contact Us today to talk to a lawyer who really cares about you. Let’s create solutions together.

 

Two people with folded hands on a divorce decree with keys in the middle.

 

Other Helpful Links:

Collaborative Divorce Knowledge Kit

Colorado Divorce Laws for Division of Property (2023)

Equitable Distribution of Marital Property

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