Journal Issue: Children and Divorce Volume 4 Number 1 Spring/Summer 1994
Sanford N. Katz
Specific Aspects of Distribution of Economic Resources
With the inclusion of no-fault divorce in American law, the emphasis in a divorce case has shifted from determining and proving fault grounds for divorce to determining what are marital assets and how they should be assigned. For the most part, the economic aspects of divorce constitute the main concern in divorce negotiation in lawyers' offices and the major time in litigation. Divorce that involves a couple with substantial financial resources has become so complex that, in order to prepare for such a case, lawyers must hire not only accountants but experts in special types of valuations, such as those who specialize in valuing the position (including benefits and advancement possibilities) which a spouse holds and the industry in which a spouse's business is located. The reason for this change in divorce practice and litigation is that marriage is now considered an economic partnership in which each spouse may have an interest in the other spouse's business or career.Property Distribution
Two kinds of marital property systems have existed side by side in the United States: the common law system and the community property system.38 The common law property system is based on evidence of title. In other words, under the common law property system, the motto "He who holds title takes the property" has a ring of truth to it. Under the community property system, found in nine states in the western and southwestern part of the country, the distribution of marital property (accumulated during marriage) upon divorce is theoretically based on the principle that each spouse owns an undivided one-half interest in each community property item. While four of the community property states seem to conform to the fifty-fifty split (assuming there has not been a prenuptial agreement that assigns property according to a different formula), the other five incorporate equitable distribution principles (that is, a judge considers the equities of a case) which may result in a different formula than an equal split.39
In the past 20 years, there has been a major decline in the number of states that either by statute or by case law adhere to the old common law property system. In fact, only North and South Dakota lack a statutory scheme deviating from the title theory of marital property.40 Now, the prevailing method of assigning marital property upon divorce is called equitable distribution. Basically, equitable distribution has changed the nature of the judicial inquiry when making an assignment of property. Instead of asking who holds title, the questions asked are: What is considered marital property regardless of title?
Who has contributed to the acquiring of that property? Who has helped to enhance its value or who has depreciated the property? When should it be valued (for example, at the time of separation, of initial court petition for divorce, or of the divorce trial) and what is its value? Who should be assigned it? A whole body of law has developed to give courts guidance in answering these questions, but the fundamental assumption of equitable distribution is that marriage is an economic partnership in which there is a shared enterprise. In some respects the modern American marriage is an investment which, at times, pays off (in a long and productive relationship) and, at other times (divorce), does not.
More than a decade ago, marital property was thought of as mainly tangible items like a house, an automobile, a painting, or cash in the bank and investments. Today, the definition of marital property goes beyond these items to include less obvious ones like, for example, pensions, interests in a spouse's business, reputation, or career.41 The reason for this phenomenon has a great deal to do with the changes that have occurred in society. That is, for most Americans today (although this may be changing because of the current economic recession and companies' downsizing their work forces) one's job—the work place—generates one's property, not one's family (by way of inheritance).42 Thus, instead of accumulating wealth in investments in land and in stocks and bonds, and inheriting money from relatives, most Americans derive their assets and status from their employment. In addition, economic contributions to the marital enterprise are not limited to those directly created by employment outside the home (such as a salary) but by contributions made within the home itself. Thus, in the context of a divorce, a value may be placed on a wife's (or husband's) household services, which include caring for the marital house and raising children. The percentage of the marital property awarded to a spouse who performs household services during the marriage and does not work outside the home varies according to the facts of the case.43 One state considers homemaker services only to the extent that they contributed to "the acquisition, preservation and maintenance, or increase in value of marital property."44
The nature and provision of equitable distribution statutes vary from state to state. Basically state statutes contain a list of factors that a court must consider to properly determine the assignment of property.45 One goal of enacting such legislation was to provide guidance to judges. A second was to provide some uniformity in decisions. Although at first blush stating factors that must be considered for making an assignment of marital property might seem to be a method to limit judicial discretion, the history of the application of state statutory provisions has not proved this to be true. In other words, even though judges are governed by statutory provisions, there is still wide discretion in interpreting statutory factors and applying them to a particular situation. In fact, one commentator has gone so far as to label equitable distribution as "discretionary distribution of property."46
The factors that are considered in the assignment of property are not weighted equally. Nor does an equitable distribution provision provide a formula. The statutes merely state that certain factors are to be considered, thus allowing the judge to set his or her own priority of importance. Some attempts have been made to create either a presumption of equal division or a fifty-fifty starting point for division. A handful of state statutes contain a presumption that marital property will be divided equally. At least two states have provisions which contain presumptions that the contribution of each spouse to the acquisition of property during the marriage is equal or at least substantial.47
We have had nearly a quarter of a century of experience with some form of equitable distribution. Has the existence of statutory factors reduced judicial discretion? What trends can be discerned? Equitable distribution legislation has limited judicial discretion to some extent but certainly has not eliminated it.48 A review of the statutes and case law suggests that, absent statutory guidance, courts are generally more likely to divide property equally in long-term marriages (fifteen years and longer) and, conversely, less likely to presume equal division for short-term marriages (one to three years).49
The assignment of property upon divorce is only part of the economic consequences of divorce. Alimony and child support are additional financial considerations. Both have undergone major changes in the past 30 years.Alimony
Until the passage of the Married Woman's Property Acts in the mid-nineteenth century in the United States, a woman's property became her husband's upon marriage. A husband, then, had the duty to support his wife during marriage. Upon divorce that duty continued under the legal term alimony. It was customary to say that alimony was based on a balance between the husband's ability to pay and the wife's needs. English legal history reveals that the amount of an alimony award was based on the station of life that the wife enjoyed during her marriage and, to some extent, on the value of the property she lost control over and which the husband acquired upon marriage.50 Unlike today's equitable distribution laws, which include factors for a judge to consider in assigning property,45 before the enactment of these laws, there were no standardized statutory guidelines, which resulted in judges' using their own discretion in making awards. At that time, no thought was given to the now-accepted idea that a wife may have contributed something of value to the economic well-being of the family (as she did in the past, although this is often lost sight of, by bringing her own property into the marriage) by her household services or by giving up certain opportunities in the commercial work force and that the husband's payment of alimony was really repayment of what was owed to the wife. In other words, today alimony is considered to be a right possessed by a wife, not a privilege that may or may not be judicially recognized.
In reading appellate cases decided more than 30 years ago, it is not unusual to find instances where a wife who divorced her husband after 10 years of marriage (during which time she did not work outside the home) received alimony for the rest of her life. Why was lifetime alimony routinely awarded in the past? One thought is that, if a wife never worked outside the home, she would not have qualified for any benefits like a private pension or Social Security. Thus, if she were divorced without any financial support from her husband and unable to find a job, she would become a public charge. Perhaps, in those old cases (before 30 years ago), alimony could have been thought of as a substitute for a pension or Social Security except that instead of a pension or government Social Security check, a wife would receive one from her former husband. Another view is that alimony serves as severance pay paid out either in a lump sum or in installments. If one viewed alimony as like either a government benefit or severance check, one would have to think of the marriage relationship as similar to that of an employer and employee with the husband acting as the employer.
Alimony was the economic link that continued a relationship between divorced spouses. That is to say, if a husband had a duty to pay alimony, he was forced to have some kind of relationship with his former wife. In other words, he had to communicate with her, even if it was by mailing her a check. If the divorced husband remarried, that fact alone did not ordinarily discharge his alimony obligation. He had to consider his first wife (and first family if he had children) in all his economic planning. Permanent alimony meant that a divorced wife could passively receive her former husband's alimony without any effort to reduce her financial dependency on him. As attitudes toward the role of men and women in marriage as well as the definition of marriage itself changed, so did the concept of alimony.
Today long-term permanent alimony is an unusual outcome of a divorce except in a very long marriage (of 20 years or more), where the wife is not in good health or has been out of the commercial work force for so long that she is now unemployable. In its place is short-term alimony (for a few years to help a wife through the difficult period of postdivorce adjustment) or rehabilitative alimony.
Rehabilitative alimony is a phenomenon derived from the application of judicial discretion in alimony cases.51 The thought is that divorced wives should actively attempt to reduce the husband's alimony obligation by developing skills to become employable.52 In a way, conceptualizing rehabilitative alimony in this way suggests the idea of mitigation of damages in contract law—that is, that a contracting party should try to reduce the amount owed her under a contract. In divorce, it would mean that the divorced wife eventually would have to seek employment, and if the wife needed additional education to obtain a position, the husband would support his divorced wife to secure the education.53 In a way, rehabilitative alimony is designed to take into account the spouse's (usually the wife's) lost opportunities for either education or employment advancement.Child Support
The process for awarding child support is currently in reform. In the past, the amount of child support awarded was a simple matter of judicial discretion,54 and court-ordered child support tended to greatly undervalue the true costs of raising children.55 Today, child support is governed by standardized guidelines to which judges must conform or express reasons for their deviation.56
Prior to 1984, when the U.S. Congress passed the Child Support Enforcement Amendments, child support orders very often bore no relationship to the cost of supporting a child, were not complied with after a few years, and were not zealously enforced. For example, child support obligors, mostly fathers, failed to fulfill their support obligation at the rate of $4 billion annually. In addition, half of the divorced custodial parents did not have a support order to enforce.57 With no other means of support, divorced women turned to departments of public welfare to assist them in raising their children. This placed an unusually severe financial burden on public welfare agencies and the taxpaying public. To reduce divorced women's dependency (as mothers) on public funds, the federal government's Child Support Enforcement program provided creative ways of forcing fathers to comply with court orders and, ultimately, to support their families.58 For example, specific enforcement remedies include wage withholding, imposition of bonds, securities or other guarantees, liens on real and personal property, and interception of federal and state income tax refunds.
Even with the new legal machinery in place and support laws on the books by way of child support guidelines, recent data indicate that a large number of children are still not receiving support from the parent with the obligation.59 One explanation for this phenomenon is that the custodial parent herself does not seek support because she thinks it would be futile or because she does not want to have to communicate with her former husband.60 In such cases, if the mother seeks assistance from the welfare department, the department seeks reimbursement from the delinquent father if the father can be found and he has funds. Of course, if the current economic conditions persist and parents with support obligations are unable to find employment, nonsupport of children will continue to be a major social problem as well as a drain on public welfare funds.
In the present economic climate, judges have a difficult time arriving at an economic balance between the divorced spouses when there just are not enough finances to support the reorganized family. Attempts are made to preserve some assets, and where possible and economically practical, the spouse who will be raising the children is assigned title to the family home.61 Further, child support obligations may not necessarily be abruptly stopped in some states when a child reaches 18 if he or she is in college.62 (For further discussion of child support awards and enforcement, see the articles by Garfinkel and by Roberts in this journal issue.)