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 What Is Equalization?

Equalization refers to the adjustment of the assessed value of taxable property by the government.

Divorcing couples may find that dividing their assets and obligations is contentious. Finding an equitable divide can be difficult, and court cases are not unusual. However, the difficult issue of dividing property can be resolved greatly with innovative thinking and a willingness to explore solutions in mediation or settlement negotiations.

What Does Equalization Do and Why?

Equalization is a process used to ensure that taxes on taxable property be distributed among various tax districts at a fixed percentage of the property’s assessed value. Equalization stops the same piece of property from being subject to high property taxes in one tax district and low property taxes in another.

Equalization Payments for Property

An amicable divorce can easily become acrimonious over a property split. Couples are frequently overwhelmed by the work of sharing marital assets and debts, whether it involves a family business, a home, vacation properties, a priceless personal item, or a division of a bank, brokerage, or retirement accounts. Sometimes a party has a strong emotional bond with particular goods. Other times, fear and uncertainty prevent the parties from moving forward.

Consider the idea of “Property Equalization” to get over your apprehension and arrive at a fair distribution of your marital assets.

Equal Property Division

According to some state laws, the division of marital property must be done “equitably,” which is defined as being about equal. Other property, such as cars, furniture, etc., cannot be divided in half, unlike liquid assets (such as money in bank accounts).

Equalization must be performed when one party gets a property that is more valuable than the other party. Simply put, a property equalization payment aims to balance the ultimate property divide between divorcing parties. It can take the form of a gift of property given to one party that will make the overall property division equal, or it can be paid in a lump sum cash payment or in installments.

Sometimes, rather than getting spousal maintenance, a person will choose to accept money as equalization. A property equalization payment does not create a taxable obligation, in contrast to spousal maintenance, which is taxable to the recipient and deductible to the payer. This strategy has advantages and disadvantages.

Only after a careful and complete analysis of all pertinent elements can the choice be taken as to whether to structure a payment as spousal maintenance or an equalization payment. You must look for a knowledgeable equalization payment lawyer because the process’ complexity greatly depends on the client’s unique circumstances.

When Does Equalization Matter?

Three situations are often where equalization causes problems:

  • Divorce/Separation: Equalization may become a problem for you if you own taxable property, are going through a divorce or separation, and live in a different tax district than your spouse and fellow co-owner of the taxable property.
  • Jointly Owned Property: If you jointly own taxable property with another person or persons and reside in a separate tax district from the other owner(s), equalization may be a problem for you and your co-owner(s).
  • Multiple Tax Districts: Equalization may be a problem for you if the same taxable property is subject to several different property taxes at once, such as state, county, and city taxes.

Each party will often provide evidence regarding the worth of all marital assets and how they believe they should be distributed during mediation and at trial. Typically, a marital balance sheet will show this.

The marital balance sheet includes a list of the real estate, vehicles, and personal property each party claims in the divorce action. That said, the court can’t issue an order that does not leave a deficiency in its split when dividing up assets like automobiles, homes, and cash.

Therefore, the trial court may order one party to pay the other party an equalization payment to make up the division the court decrees if, for example, there is a $30,000.00 shortfall with the division ordered.

By means of what is known as a “Qualified Domestic Relations Order,” the court may occasionally permit a party to use a payment plan or order that money be moved from a retirement account. The court uses these methods to arrive at the conclusion that the evidence is fair and equitable.

The majority of parties do not have the money to pay checks to each other to carry out this division. The trial courts have broad authority to impose equitable and reasonable conditions on the payment of equalization payments.

You must carefully develop proof with your attorney of the details of how the payment should be made in order to make the most of your circumstances, especially if you are the spouse who will likely be making the equalization payment to the other spouse. If not, it is unlikely that this judge’s discretionary decision will be overturned on appeal.

Make it clear in your testimony what aspects of the equalization payment make sense for you.

What Exactly Constitutes My Net Family Property?

This starts out being quite simple but becomes more challenging as you go. You begin by deducting all you owe as of the date of separation from the value of everything you owned at that time.

Then you determine the net value of anything you brought into the marriage using the prices in effect at that time, and you deduct that value from the net value as of the date of separation. In the following paragraph, we examine what you then exclude. You can then calculate the value of the net gain in your worth throughout the marriage.

You could eliminate some types of gifts, inheritances, litigation settlements, insurance money, and gifts obtained during the marriage from your computations if you possessed them at the time of separation. There is also a unique setup for the marital residence.

How Are Equalization Decisions Made?

Each state or municipality has a separate administrative body, typically referred to as a Board of Tax and Appeals, that determines the precise conclusions regarding the market value of your taxable property.

Additionally, they choose the appropriate equalization ratio between two tax districts. A different organization might change your tax due for that tax district about the taxable property, typically referred to as a Board of Equalization and Assessments.

Legal Concerns Regarding Equalization Payments

After a marriage dissolves, dividing up assets and property after a marriage dissolves can be stressful and challenging. Although community property is typically divided equally, the court may decide that an equitable distribution is preferable. There may be disagreements about which spouse is entitled to particular assets, and the divorce might quickly get expensive.

How a Family Law Attorney Can Help You

When going through a divorce, a lawyer with knowledge of equalization payments can assist you in identifying and cataloging your assets. Lawyers can assist in determining a property’s value and resolving disputes over who owns what assets and when they were acquired.

Equalization payment attorneys can file a petition with the court if they believe an equalization payment is owed to you. They will work with financial experts to ensure that any equalization payments the court orders are fair.

Do I Need an Attorney for a Problem with Equalization?

Finding a tax attorney to advocate your interests is highly advised due to equalization’s extremely technical nature. Only a tax lawyer can fully explain the situation, inform you of your rights, and lead you through the equalization procedure.

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