Equitable Distribution in NJ
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.
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.
Equitable Distribution vs. Community Property
In community property states, all assets are divided equally. Equitable distribution states, on the other hand, permit the Court to divide the divorcing parties’ assets in any manner deemed fair and equitable; this may mean in some other fashion than 50/50. The process is, of course, quite complicated and subject to a number of rules set forth by statute and in various cases.
Active & Passive Assets in NJ
One key concept of inequitable distribution is the difference between active and passive asset appreciation.
- Active appreciation occurs when an asset increases in value based on someone’s hard work. For example, if you build a hotel on a piece of property, the appreciation that results is active.
- Passive appreciation occurs when an asset increase in value without any effort from the parties. For example, if you own stocks, those stocks may increase in the value of their own accord.
Generally, active appreciation in the value of a premarital asset is subject to equitable distribution, but passive appreciation is not.
The Three-Step Distribution Process in NJ
In virtually all examples of equitable distribution, the Court must go through the following three-step process.
Determine What Property Is Eligible for Equitable Distribution
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 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 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.
There are certain important exceptions to assets subject to equitable distribution, including 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.
Determine the Value of the Eligible Property
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.
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