The Equalization payment is calculated via each party’s economic standing. For instance, a snapshot is taken of the value of the assets that each party owns (on the date of the marriage and on the date of the separation). The date of separation is also known as the valuation date. All items are counted and valued as of these two dates. The current value of each party’s books, furniture, automobiles, bank debt, student loan debt, and so forth, are valued. The value of these items is measured by their value before the marriage and on the valuation date.
For example, if you were married in 2004 and owned a classic 1960 BMW, a silverware collection, and a leather couch when you got married, the question is: what was the value of each item on the marriage date in 2004? If any of these items were still in your possession at the time of your separation, for example, in 2008, then you would set out the 2008 value for each item you still have on the date of separation (the valuation date). The 1960 BMW may no longer be in your possession on the separation date, and the leather couch which may have been purchased for $1000 may be worth only $200 at a garage sale. However, the silver collection worth $600 at the date of marriage may now be worth $1000. As a result, you would enter the couch at $200 and the silverware collection at $1000 for the valuation date values.
Once the value of the items that each party has brought into marriage has been calculated (less any debt), this value is subtracted from the value of items owned at the separation date (less any items received as gifts or inheritance). This equation is known as Net Family Property (NFP). Each party must calculate their own NFP. The lower NFP is then deducted from the higher NFP and the difference is then divided in half. This new figure is the amount of the equalization payment. It is termed as an equalization payment because it is paid from the financially well-off party to the party with less. It should be noted that one party may have more assets than another due to the reasons mentioned below.
The equalization payment may be further complicated by the fact that there are certain items which are not included in the calculation. For instance, the value at separation date of an inheritance or gift received after marriage is excluded from his or her NFP calculation. If one inherits $25,000 from an uncle a few years before separation, and he or she spends it on a vacation, or to pay off the mortgage (and none of the funds are left at separation), there is no value to the inheritance. However, if the $25,000 inheritance is put into a separate bank account or it is invested in stocks, the value of the bank account or the stocks at the date of separation is not taken into account with the NFP. In some cases, the amount of the exclusion is greater than the value of the gift or inheritance, especially if the item has been invested in a stock which has increased in value, or an investment which has increased in value.
There are other exclusions from the NFP to keep in mind, such as specific policies which state that one cannot deduct the value of the matrimonial home in one party’s name. Due to the importance of these deductions and exclusions in determining an equalization payment, a knowledgeable family law lawyer should be given all information pertaining to the issue, in order to properly calculate each party’s entitlements. A lawyer with wide experience in family law matters will also outline your rights in regards to such payments.