Because New Jersey is considered an equitable distribution state, all property and debts acquired during the marriage will be fairly divided during a divorce. To help listeners gain an understanding of equitable distribution, Warren divorce lawyer Amy Wechsler discusses some of the most common concerns men and women have during the property division process, including: who is responsible for credit card debt; what happens to assets that are in one person’s name; how a business and pension is divided; whether or not it’s possible to divorce without dividing assets and debts; and much more.
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Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine
Guest speaker: Amy Wechsler, Certified Matrimonial Law Attorney
Amy Wechsler has been practicing family law for more than 23 years. A partner of Shimalla, Wechsler, Lepp & D’Onofrio, LLP in Warren, New Jersey, Amy is a Certified Matrimonial Law Attorney, arbitrator, mediator, and collaborative practitioner. Whether you are struggling with complicated financial issues or difficult custody decisions, Amy is devoted to guiding you through the legal process and helping you achieve your goals.
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Read the Transcript of this Podcast Below.
Divorce Lawyer Amy Wechsler on Equitable Distribution
Diana Shepherd: What’s the difference between marital property and separate property in New Jersey?
Amy Wechsler: Marital property refers to assets that are required during a marriage or a civil union in which both parties will have an interest. It does not necessarily matter who has title to the property. For example, if one spouse during the marriage contributes to a 401(k), by law it can only be in only his or her name, but because the monies were earned during the marriage to fund the account, it is still considered a marital asset as it was earned during the marriage.
Separate property refers to assets in which only one party can claim an interest regardless of whether the asset was acquired during the marriage or not. Examples of separate property are assets that someone brings into the marriage and does not co-mingle with marital assets that were someone’s premarital property. If acquired during the marriage, this could be inherited assets or gifted assets that are given to only one of the parties. That asset then must be maintained separately and not deposited to a joint account or co-mingled with marital assets. Things like furniture, tangible objects given to just one party are very easy to distinguish as separate property.
Money is sometimes more difficult. If someone inherits money, and it’s only gifted to them but they deposit it into a joint account where they deposit their paycheque and the other party deposits his or her paycheque, it becomes very difficult to identify the separate dollars and they will lose their identity as separate assets as time goes on. The longer assets are commingled, the less likely it will be that the portion that was separate can really still be claimed as a separate asset.
If a credit card is in one person’s name, is only that person responsible for the debt?
Not necessarily. If the credit card was used to pay expenses for the family that are consistent with how the parties were living when the marriage was intact, then they are likely to be considered marital debts. Charges for children’s clothing, lessons or activities, even though on one person’s card, will be considered marital expenses to which both parties should contribute. If the card holder bought clothes for themselves, or paid for activities not shared by the other party, these may be considered marital debts. An exception would be if the cardholder had an affair and charged meals, hotels or gifts to a boyfriend or girlfriend. These are “non-marital” purposes, and the portion of the bill used for those activities should be the cardholder’s responsibility. Even though the credit card companies can seek payment only from the card holder, on divorce, the court can order ways in which the other party will share the debt.
If an asset is in only one person’s name, is it subject to equitable distribution?
Most assets owned by one party before the marriage will not be subject to equitable distribution unless commingled with marital assets. If you had a bank account in your name before the marriage, kept the money there and never added funds to it, or added a spouse’s name to the account, the account should retain its immunity and be exempt from equitable distribution.
When immune assets are commingled with marital assets, the result can be that the entire asset, or a portion of the asset, will be subject to equitable distribution. In a premarital bank account that is used during the marriage to deposit paychecks and pay bills, the original value of the account loses its identity as an immune asset over time.
How parties acquire an asset during the marriage matters. Income earned from a job during the marriage is a marital asset subject to equitable distribution, even if the person earning it deposits it into a separate account. Title to the asset, by itself, does not determine who gets it. Sometimes when people are about to get married and they enter into a premarital agreement, they define what will constitute separate property and what will constitute marital property. If that agreement is properly drafted and executed, then their agreement can control how those assets will be distributed.
If one or both spouses owns a business, how is it divided on divorce?
First of all, businesses owned by one spouse are not going to actually be divided. The law does not turn a spouse into a partial owner of a business that is owned or run by the other spouse. If both parties own a business together or portions of a business, they can potentially remain business partners or shareholders depending on their relationship and the nature of the business. That may depend on the business agreements that have been signed and the contracts that have been signed among the business owners.
When that is not the case, there may have to be a buy-out by one party of the other party’s share. With businesses owned by one spouse, the non-owner spouse may have an interest in the business for which he or she would be compensated. The court looks at many factors in determining this, including when the business was established, whether a premarital business increased in value during the marriage, and whether that increase was due to the efforts of the business owner or just to changes in the marketplace. It can depend on the financial contributions made by the parties to operate the business during the marriage. It can depend on the non-financial contributions of the non-owner spouse as well as other factors.
Courts usually rely on forensic accounting experts to establish the value of the business and sometimes to also determine the portion of the business that constitutes a marital asset that has to be distributed in terms of an exchange of assets or a cash payment to the non-owner spouse.
What happens to pensions? How are they divided?
Some people are fortunate enough to have defined benefit pensions that will provide an income for life upon retirement. To the extent one of these pensions was earned during the marriage, the spouse has an interest in it. Many, but not all, pensions can be divided so that both parties will receive a pension income upon retirement. This division of the pension is accomplished through a specialized court order required under federal law. When a pension cannot be divided in this way, the pension can still be valued so that the spouse’s interest in it can be offset by getting a larger share of other assets or with additional support. It is important to understand the rules of each individual employer’s plan when structuring the distribution of a pension.
If one spouse had an affair and spent large sums on hotels, gifts, vacations and expensive dinners, can the other spouse recover any of the funds?
This depends on whether there is proof that these were what we call “non-marital” expenses. It doesn’t necessarily matter whether they are substantial funds or modest funds. Credit card statements, bank records (such as canceled checks or debit card statements) can provide the documentation needed to determine whether things were spent on non-marital purposes. To the extent cash was used, it may be more difficult. To the extent that one spouse can show that monies were spent on a third party, such as a girlfriend or boyfriend, that spouse should be able to claim a credit for a portion of what was spent. The reason the credit is not for the entire amount is because, if the funds used to pay the expenses were from marital assets, they belonged to both parties and each party would have been entitled to perhaps half of them. A spouse looking for reimbursement would be entitled to half of the cost of what was spent, and reimbursement to a spouse would be only for that spouse’s share of what was spent.
What are some considerations for a spouse hoping to keep the marital home?
If the property is owned by both parties and is considered a marital asset, then both parties have an interest in it. In some instances, a marital home may not be a marital asset; it may be something that was owned by one party prior to the marriage. There may be a premarital agreement that indicates even the paydown of a mortgage balance during the marriage would not require that the asset be divisible in any way. If the property has equity, meaning its value exceeds the amount of any mortgages, and it’s a marital asset, then both parties are entitled to share that equity. The parties must determine what each of their interests are, and then the party who wants to keep the house must buy out the other party’s interest in it. For properties with a mortgage, the spouse who wants to keep the house should also refinance the mortgage so that the other party, who will no longer own the house, will not be financially responsible for the debt.
Try to avoid letting an emotional connection with a house lead to making a bad financial decision. The party seeking to keep the marital home will have to cover mortgage, property taxes, assessments, utilities, repairs, and all the other carrying costs, and should review his or her finances very carefully to make sure this is a financially viable option. Also the party who seeks to keep the house, if there is a mortgage, will have to qualify to refinance that mortgage, which may then include not only the original mortgage balance, but also the amount that’s due to the other spouse to buy out his or her interest, and that simply may not be viable, as that person, depending on what the support will be and what the other assets are, may not qualify for that mortgage.
Can you get a divorce without having to divide marital assets and debts?
Yes, courts do not analyze parties’ agreements when awarding a couple a divorce. If the couple presents a settlement to the court and both parties say they understand it and believe that it’s fair and that they entered into it voluntarily and of their own free will, the court will not second-guess whatever their decisions were. If parties simply agree that each will keep whatever they have in their own names, it may not be necessary to have a document that formally divides assets and debts. They can split joint bank accounts, for example.
When transferring assets between spouses, however, sometimes it may be necessary to avoid tax consequences or other issues, and it may be necessary to have a judgement of divorce that specifically spells out who gets what and also how and when the transfers should take place. When there are transfers of assets to be accomplished in a divorce, it’s probably a good idea to divide them clearly in an agreement so there are no questions about it later.
If the Court has issued a Temporary Order for possession of property, or payments of debts, can they be modified later?
A temporary order would normally be an order entered only while a case is pending prior to the entry of a financial judgement. When that happens, then that order may be modified at any point in time up until the final judgement occurs. Those orders are called pendente lite orders; they can be modified by agreement of the parties, by the judge in another order while the case is pending, or by the divorce judgement itself.
Once there’s an order and a final judgement that divides property, that order will be almost impossible to modify absent of showing letter of fraud or other extraordinary circumstances that would warrant the modification.
Can the Court change an Order regarding division of property or debts after the divorce is final because of a substantial change in circumstances for one or both parties?
Only under extremely unusual circumstances. Equitable distribution of assets as well as debts on divorce is normally not modifiable. The exceptions to this are limited and rare, such as when one party acted fraudulently in failing to disclose the existence of an asset and the other party did not have the ability to discover the asset. If you and your lawyer have the ability to discover assets but don’t take the opportunity, don’t conduct discovery, then it may not be possible even if there is a failure of disclosure on the other side to get that asset back into the pot to be distributed.