Sweat Equity in Divorce Cases

By Beverly Bird

Sweat equity means the same thing in marriage as it does in any other endeavor -- you may not invest hard-earned dollars, but you make contributions all the same through labor or other intangible efforts. When spouses divorce, sweat equity can have more of an impact in equitable distribution states than community property states. Marital assets are usually divided between spouses 50-50 in community property states, without accounting for a variety of factors that might make this distribution unfair. In equitable distribution states, courts weigh several issues to try to come up with a division of property that's justified based on the facts of the particular case.

Unequal Property Division

When spouses jointly purchase property during their marriage, it's commonly considered to be marital property. It's subject to division in a divorce. Even many equitable distribution states begin with the premise that this division should be 50-50, then judges consider several factors that might add or subtract from one spouse's share. If one spouse devotes his time and energy to maintaining or improving the property, he can potentially receive more than 50 percent of its value in a divorce, particularly if the other spouse made no such contributions at all.

Effect on Separate Property

Sweat equity can transmute, or change, one spouse's separate property into marital property. For example, you might have owned an asset before you got married. Normally, this would not be divisible in a divorce, because its acquisition predates your marriage. However, if your spouse devoted a great deal of time to cleaning it, repairing it and improving it, these actions can change the nature of the property into something she has a right to share in after divorce.

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Calculating Value

If your spouse's only non-monetary contribution to a certain asset was to run the vacuum once a week, this probably would not influence a judge into ordering an unequal division. If he devoted the majority of his free time to painting, plastering, and rewiring the place, this changes things. Another pivotal factor is whether the property increased significantly in value as a result of his labor. If so, he would most likely be entitled to more than 50 percent. Even if you and your spouse contributed equally to the improvements labor-wise, if you financed material and supplies with his credit because yours is iffy, this could give him an additional stake, as the improvements were only possible because of his credit, even if marital funds paid off the loan.

Business Assets

If you own a business, your spouse's sweat equity can become a factor in this case as well. For example, if she regularly ran your office or dealt with bookkeeping tasks, taking nominal pay or even no pay at all, she contributed to any increase in the business's value. Most courts compensate her for this. An often overlooked aspect of divorce sweat equity is what was going on at home while you were building your business. If the two of you regularly dined on hotdogs and otherwise lived on a tight budget, depriving yourselves of niceties so you could reinvest revenue back into your business, some courts compensate your spouse for this as well.

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How Is a Division of Property Figured in a Divorce Where a Home Has a Negative Equity?

References

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