When two people are getting divorced, the Court is required to divide their assets and debts between them. This process is known as “equitable distribution,” because it is a distribution of assets and debts and the Court is free to divide that property in any way it finds equitable (as in fair).
Most states, including New Jersey, follow the theory of equitable distribution. Some states, however, follow the theory of “community property,” which means that spouses are deemed to equally own all income and assets earned or acquired during the marriage regardless of whether a 50/50 division is fair under the circumstances. We won’t discuss community property any further, because while New Jersey Courts frequently (but unofficially) use a 50/50 division as the baseline, we are not a community property state. The Court is free to divide assets and debts in any manner that it believes to be fair.
It is important to remember that the Court can divide assets and debts of either or both parties, meaning that regardless of who “legally” owns the property, or is listed as the responsible party on the debt, the Court can assign the asset or debt to either or both spouses. For example, even if a credit card debt is entirely in your spouse’s name, the Court can require both parties to pay off that debt or even assign that debt entirely to you. This might be done if the Court determines that the spouse used the card, despite it being in his or her name alone, to purchase groceries for the entire family. Or, perhaps, the Court might assign a debt entirely to Spouse A despite it technically being in Spouse B’s name if Spouse A used the card for a post-separation luxury shopping spree from which Spouse B saw no benefit. Even so, just because the Court can equitably distribute an asset does not mean that the Court will distribute that asset. Courts are given broad discretion to determine what is fair in any given situation.
In virtually all examples of equitable distribution, the Court must go through the following three step process: (1) determine what property is eligible for equitable distribution; (2) determine the value of the eligible property; and (3) decide the actual division of property.
The equitable distribution statute states that a Court may divide property acquired during the marriage. Virtually all property acquired during the marriage is included for consideration, including future interests (such as pensions) and intangible assets (such as trademarks or patents). The statute is meant to be interpreted broadly, but the legal tides have and will continue to ebb and flow as to exactly how broad the definition of marital property should be.
We briefly note that the equitable distribution statute states that “property,” to be eligible for division by the Court at the time of divorce, must be “legally and beneficially” acquired. Thus, if your spouse earned a small fortune through his illegal drug empire, the Court will not divide those assets between the parties (although it will likely refer him or her for criminal prosecution). There was some debate as the meaning of “beneficially” acquired and whether pensions and other deferred assets, which cannot be used until some future date, fell under that definition. That debate has, for the most part, been resolved. Equitable distribution includes a broad range of economic interests, including assets that can only be used in the future.
The Court will only equitably distribute assets acquired “during the marriage.” The marriage is generally thought to begin on the date of the marriage ceremony. Assets acquired prior to the marriage ceremony are generally considered unavailable for equitable distribution purposes. There are, of course, certain exceptions to this rule. For example, if one spouse owned a business prior to the marriage that significantly increased in value during the marriage, the Court will attempt to value the growth in the business’s value (if the increase was a result of one spouse’s efforts) and equitably distribute the growth in value.
Courts have held that the date a marriage terminates, for equitable distribution purposes, is the day on which a Complaint for Divorce was filed. That rule, though, is not necessarily hard and fast. In certain situations, the Court may refuse to consider assets acquired prior to the filing of a Complaint (such as where a separation agreement was entered prior to a Complaint for Divorce being filed). In others, the Court may consider some post-Complaint assets. Further, the Court is free to correct any unfairness that results from strict application of the rule. For example, if one spouse files his or her Complaint for Divorce just one day prior to acquiring a valuable interest in a corporation, the Court may consider that interest in equitable distribution despite it being technically acquired post-Complaint. There are a number of arguments that may result in the inclusion or exclusion of certain pre- or post-Complaint assets. We strongly recommend consulting with an attorney at the DeTommaso Law Group or another qualified matrimonial attorney if your divorce presents serious issues of equitable distribution.
There are certain important exceptions to assets subject to equitable distribution. Perhaps the most frequently discussed of those exceptions is assets obtained by “gift, devise, or intestate succession.” Anything that you received as a gift or through an inheritance will generally be excluded from equitable distribution. We note that there are a number of special rules applied to distinct classes of assets, and we reiterate our strong recommendation that readers consult with a qualified matrimonial attorney where there are substantial assets in dispute.
Valuation of assets can be the most difficult task in divorce cases. The Court may be presented with conflicting accounts of the underlying facts, directly opposed testimony from financial experts, and a number of seemingly reasonable outcomes. The Court’s ability to effectively evaluate varying claims as to valuation may depend on the individual judge’s business and financial expertise. To the extent practical and fair, the Court will attempt to apply generally accepted accounting principles.
As with other complex issues of equitable distribution, we strongly recommend that readers retain a qualified matrimonial attorney to guide them through the process. The DeTommaso Law Group and our network of trusted financial professionals will fight to ensure that you receive every dime to which you are entitled. As discussed, there is broad discretion in this process, and a qualified matrimonial attorney has the knowledge and experience necessary to ensure that the Court utilizes the proper method of valuation and, when necessary, to explain and interpret that valuation to the Court such that your Judgment of Divorce or any settlement is properly phrased and enforced.
The Legislature in New Jersey has set forth the following criteria for Courts to consider when dividing assets and debts between divorcing spouses (equitable distribution):
This list is not exhaustive. The Court is free to consider any fact or circumstance that it finds relevant to the fairness of its award. Nevertheless, a substantial body of case law has developed as to each of the factors listed above, and we strongly recommend that readers consult with a qualified matrimonial attorney where there are substantial assets to be divided by the Court on divorce.
Further, there is a rebuttable presumption that each party made a substantial financial or nonfinancial contribution to the acquisition of income and property while the party was married.
As a final note, it’s important to remember that, unlike alimony , equitable distribution cannot be changed after the fact as a result of “changed circumstances.” Keep this in mind during negotiations. Once a deal is struck, the Court may not allow you to revisit the issue in the future.
DISCLAIMER: The information presented here is of a general nature only, intended simply as background material, is current only as of the latest revision date in January 2015, omits many details and special rules, is not guaranteed to be accurate or applicable to your case, and cannot be regarded as legal advice. Viewing this information does not create an attorney-client relationship between the reader and the DeTommaso Law Group. We strongly recommend that those consulting the Divorce Guide secure the representation of an attorney, and we require that those consulting our Divorce Guide perform independent legal research and refrain from either acting or failing to act based on this information. Thank you.