The process of divorce in New Jersey involves the complicated task of property division. Although splitting up all of your assets can seem daunting, New Jersey divorce lawyer Brian Winters explains that not everything owned by you or your spouse is subject to equitable distribution in a divorce. He discusses the differences between marital property and separate property, as well as how a court determines whether or not an asset should be split evenly between the divorcing parties.
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Divorce Magazine Podcast: How asset and property division are decided in New Jersey divorce cases.
Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine
Guest speakers: Family Lawyer – Brian D. Winters. With more than 20 years of experience in family law, Brian Winters is certified by the Supreme Court of New Jersey as both a matrimonial attorney and a mediator. A partner at Keith, Winters & Wenning, LLC in New Jersey, Brian provides professional and knowledgeable counsel to divorcing individuals. For more information about Brian or his firm, please visit www.kwwlawfirm.com.
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Read the Transcript of this Podcast Below.
What is the difference between marital property and separate property?
New Jersey is an equitable distribution state, meaning the judge’s job upon divorce is to identify and divide all of the assets equitably between the parties. However, the judge first has to determine which assets are marital and which are not subject to equitable distribution and are therefore separate.
All assets acquired during the marriage are subject to equitable distribution with some exceptions, which include inherited monies, gifted monies, and monies acquired prior to the marriage. Except for those exclusions, everything is subject to equitable distribution.
New Jersey is an equitable distribution state as opposed to a community property state, so are most assets split 50/50 in a divorce?
Any judge will tell you that equitable does not mean a 50/50 split. In actual practice, 50/50 is the starting point and nine times of out ten an asset will be divided on a 50/50 basis. There would have to be extraordinary circumstances for an asset to be divided on anything other than a 50/50 basis – although it does happen.
Let’s look at an example of an asset that might be separate or marital property. If one spouse received annual bonuses during the marriage which were put into a savings account in that spouse’s name only, would those funds be considered martial or separate property?
Those funds are subject to equitable distribution just like any other source of monies. Bank accounts, retirement accounts, savings accounts, and security accounts that are funded with monies acquired by either party from their job or otherwise during the marriage as well as assets acquired during the marriage, are subject to equitable distribution – meaning each party would likely receive half, regardless of who earned the money or how it was kept.
If only one spouse worked outside the home during marriage, are the contributions to that spouse’s retirement accounts also considered marital property?
Yes. That is an important part of equitable distribution. Very often, one party’s pension, 401(k), or other form of retirement account is the most valuable asset in the marriage. Oftentimes, a pension or a 401(k) is valued at a figure much greater than the equity in the marital home or any money the parties have acquired or saved otherwise. It should not be overlooked.
Is the marital home treated as a 50/50 split in a New Jersey divorce even if one spouse owned it prior to marriage?
The starting point for equitable distribution is generally a 50/50 split. There would have to be extraordinary circumstances for the judge to split the equity in the marital home any way other than on a 50/50 basis – but there are those instances. For example, if one party owned the house prior to marriage, it could be argued that the home is not subject to equitable distribution at all. However, if the parties both made contributions to the house, paid down the mortgage, made capital improvements, refinanced the house, or took out a home equity loan, those are instances that would militate toward the house being split 50/50 in any event. Sometimes a 60/40 split or a 55/45 split is appropriate in circumstances where a party owned the house premaritally or used a great deal of exempt assets toward either the down payment or the maintenance of the house during the marriage.
If each party owned a house before marriage and they decide to live in the husband’s house and use the wife’s as an income property, what happens to those houses in a divorce? Is one considered marital property and one considered separate?
They are both marital property. Any asset that comes into the marriage during the marriage is subject to equitable distribution. If the parties had an investment property that was owned prior to the marriage, and with respect to that investment property used equity from the house to fund another marital endeavour, made improvements to that investment property, or paid down the mortgage – all of those factors would lead the court to believe that the other property is marital. If, however, the investment property was always kept separate, not co-mingled with marital monies, and the profits from the investment house were always put back into that same property, a strong argument could be made that the investment house is outside of equitable distribution.
If someone owned a mutual fund account valued at $100,000 prior to marriage and kept it solely in his or her name, but by the date of separation the account had grown to $150,000, how much of it is separate property and how much is marital property?
One hundred percent of the increase in value, as well as the underlying value of the mutual fund, would be exempt from equitable distribution. It is called passive income or passive increase in an asset due to ordinary market forces. The exemption would be if the party actively managed the account and, through the parties’ efforts during the marriage, the mutual fund increased from $100,000 to $150,000. However, it wouldn’t be common for that to occur in a mutual fund because they are long-term investments; it would be more common in an aggressive securities account in which someone may trade more frequently or even daily. In such cases, the increase in the value of the asset, if not the underlying asset itself, becomes subject to equitable distribution.
Is inheritance separate property if it has been kept separate from the marital assets?
Yes. In order for any immune asset to remain immune it must be kept separate and not be co-mingled with marital assets. For example, if someone inherits $100,000 and they want to keep it as separate property in the event of divorce, they should be counselled to always keep it separate and not to mix those monies with other money of the marriage.
If someone inherited $100,000 and spent half to renovate the marital property, can that $50,000 come back to the person whose separate property it was, or has it lost its separate characterization?
A judge will make a decision based upon equity, meaning what is deemed fair. However, if someone takes $50,000 of an otherwise immune asset and uses it for improvements to the house or mixes it with other marital money, it will lose its immune character. Anyone contemplating divorce should know that the money would lose its immunity and would not go back to the person who owned it originally.
Could a degree earned during the marriage, such as a medical license or a license to practice law, ever be considered a marital asset?
It varies by state. In New Jersey, we do not place any individual value on a law license or a medical license. Rather, a doctor’s medical practice or a lawyer’s legal practice would be valued and subject to equitable distribution. The license itself does not have a value attached to it, but the practice does.
Does fault ever play a role in asset division if someone used marital funds to buy gifts for a romantic partner outside the marriage?
Generally, fault does not play a role in who gets what by way of equitable distribution. However, equitable does not necessarily mean 50/50. In the event that one spouse took marital monies and used them for a paramour – a boyfriend or a girlfriend – or dissipated them gambling or in some other way that could be considered fault-worthy, then the judge has considerable discretion to order an uneven distribution of marital assets such that the other party is made whole.
What is an example of separate property received as a gift during marriage? You’re not going to trace every single gift ever received, so when is it worth trying to trace and prove something was separate property if it was received as a gift?
In New Jersey, there’s a statute that explicitly says gifts acquired during the marriage by one spouse or the other are exempt from equitable distribution. However, in actual practice, it must be very clear that the gift was made to one spouse rather than to the marriage or to the couple.
For example, if the wife’s mother gives her $10,000 and writes her a card that says this money is for you and you alone, don’t share it with that husband who I disapprove of, then those monies will most assuredly be separate and immune from equitable distribution. However, if the wife’s mother gives her $10,000 and the card says this money is for you and your husband to take a vacation, then that would be considered a gift to both parties. It’s not about the amount of money; it’s more about the proof that certain monies were gifted to one spouse or to the marriage in general.