When divorce lawyers refer to “equalization” payments in Marital Settlement Agreements and divorce cases, they are referring to a payment from one spouse to the other to make the division of assets and debts equal. Under California law, the superior court judges are required to equally divide parties' marital community property in a divorce matter. If the court divides property “in kind”, meaning the court assigns certain assets or debts to one party rather than order the property sold, the court would then be required to order the party that will receive a greater net value of property to make an equalization payment to the other party to even out the distribution of assets and debts.
Typically, equalization payments are found within Marital Settlement Agreements or Stipulated Judgments, rather than the court ordering an equalization payment. The reason is that the court will usually order property to be sold rather than divide property in kind. During the negotiation phase of a divorce case, attorneys representing the parties may advise for one client to pay the other an equalization payment. For example, if one party really wants to retain the family residence and there is equity, that party will have to pay the other party one-half of the net equity. If there are no other assets to provide to the other spouse to offset the value of the net equity, the party that wants to retain the family residence will have to make an equalization payment.