Equitable Distribution

Most folks involved in a divorce assume that everything the couple owns can be divided equally in half and awarded to each party. In New Jersey, it’s not quite so simple. NJ is an equitable distribution jurisdiction. This means that courts are required to divide property fairly – but not necessarily equally. Courts using equitable distribution in NJ must take multiple factors into consideration. If you are divorcing in the state, take note of what to expect when dividing property during marriage dissolution.

Equitable distribution in NJ applies only to property that the parties earned as of the date of marriage, but not any property acquired before. Therefore, the court must first decide which assets are eligible for division. Any property acquired before marriage cannot be divided unless it was acquired in contemplation of marriage. Any property that either party owned before the marriage, was acquired as a gift, inherited, or gained after the divorce complaint from new efforts is deemed ‘separate’ property. Separate property is not subject to division.

However, sometimes if separate property is improved during the marriage, courts might consider it to be division. For example, if a party inherited a home, but the spouses significantly improved it during the marriage, the value of the house might be eligible for division. On the other hand, if one of the spouses has a business before marriage, and the value of that business significantly increases during the relationship, the increased value may not necessarily be subject to division. The non-owning spouse must typically show that any increase in the business was because of his or her efforts.

Courts can choose to divide the marital home by requiring the sale of the property and division of equity. This frees up cash for parties to use immediately. Retirement accounts and pensions are also subject to division – even if one party was a homemaker for the duration of the marriage. This is because courts consider the efforts of the homemaking spouse to be just as important in supporting the family as the breadwinning spouse. Denying the spouse who was not compensated for their work and could not invest in a retirement account would be inequitable.

The next step in using equitable distribution in NJ is to determine the value of the assets the court will be dividing. For very small estates, this will probably be fairly straightforward. But for estates where there are businesses, complex accounts or multiple real properties, valuing the community property can be more challenging. Sometimes, parties may need to hire forensic accountants or other professionals to get an accurate estimate.

Finally, the court has the discretion to divide the assets between the parties. Under the statute for equitable distribution in NJ, the courts must consider:

• The length of the marriage
• The income or property brought to the marriage by each party
• Age, physical and emotional well-being of the parties
• The standard of living during the marriage
• Any written agreements made by the parties regarding division of property
• Economic circumstances of each party
• Income and earning potential, including things like educational background, job skills, work experience, absence from the job market, raising the children, and expenses necessary to become self-sufficient
• Contribution of each party to the education of the other
• Contribution of each party to the acquisition and preservation of property, including contributions of a homemaker
• Tax consequences of the distribution
• Needs of the children, if any
• Debts and liabilities of each party
• And any other factor the court finds to be relevant.

Using these factors, courts can award one spouse anything from zero to one hundred percent of the property. In reality, courts tend to hover around the 50-50 mark, awarding each party anywhere between 40 and 60 percent. The fault of one spouse is not listed as a factor courts must consider when dividing the estate. So, courts usually do not consider fault to be a persuasive element when determining distribution. However, if one party is found to have wasted marital assets irresponsibly, particularly if there was already trouble in the relationship, then that will affect the distribution of assets. Taking out second mortgages or depleting retirement accounts should be done with the permission of your spouse and so as to benefit the entire family – not to fund a lavish vacation with a new significant other.

Courts will look at the debts associated with property they award. For instance, if the marital residence is upside down on the mortgage, the court will calculate its negative equity into distribution of the overall estate. Courts must ensure they do not unfairly saddle one spouse with debt associated with the assets, even if it may sound more advantageous to be awarded real property. Equitable distribution in NJ is a complex balancing test courts engage in to ensure fairness to all parties and children.

Separate property is exempt from the rules of equitable distribution. However, if it becomes commingled with community property, then it’s possible that the separate property can now be subject to division. For example, suppose one party inherits a sum of money from her relatives. If she then puts that money in a joint account shared with her spouse, and the joint account also has money that was earned during the marriage, then that property becomes commingled. Therefore, the non-inheriting spouse could thus acquire an interest in that separate property.

Courts have to consider whether or not the parties have agreed in advance as to how property should be divided in the event of divorce. A prenuptial agreement is a contract that outlines the rights and obligations of spouses. It can be very useful in pre-empting thorny disputes regarding asset division and spousal support. Notably, however, it cannot pre-empt any issues of child support or child custody.

Prenuptial agreements in NJ are governed by the Uniform Premarital Agreement Act. These contracts must be in writing and signed by each party. Agreements may be found invalid if they were not entered into voluntarily, are unconscionable, or were executed without sufficient disclosure of assets and debts. There are other more complex considerations regarding prenuptial agreements. Parties should always obtain professional drafting and advice when deciding whether to use a prenuptial agreement.

If you need further clarification on equitable distribution in NJ, call The Law Offices of Peter Van Aulen at 201-845-7400 today, for a consultation.