Equitable Distribution

In all New Jersey divorces, the property acquired during the marriage, including any debts that may have been created, are equitably distributed between the parties. Equitable does not necessarily mean on a 50-50 basis. There are multiple factors that Courts consider (N.J.S.A. 2A:24-23.1) when assessing what equitable distribution should be in each case. It is the job of the lawyer, in consultation with the client, to gather the facts around the criteria and advocate for a particular objective the client seeks to accomplish.

By and large, spouses will not remain as business partners in connection with a viable business that was operated principally by one party during the marriage. That business will be valued and a portion of its value will be distributed to the spouse who did not participate significantly in the operation of the business. The other spouse will be allowed to continue its operation and use it to generate income with which any alimony and/or child support obligations are paid. There are rare cases where two people owned and principally operated the business together and those provide unique opportunities so long as the spouses are able to treat business issues rationally.

Generally, the longer the marriage, the more likely the distribution will be 50/50. Generally speaking, regardless of how long the marriage, liquid assets that are eligible are distributed equally. Businesses that have value may not be distributed equally because of issues pertaining to liquidity. Frequently, the most material aspect of a business value is the good will which is intangible and not a hard asset that can be allocated. Business value is not usually distributed on a 50/50 basis.

Generally speaking, before one can equitably distribute property between parties, there are three issues that must be determined:

First, what is eligible to be distributed? Generally speaking, property acquired between the date of the marriage and the date of the divorce Complaint filing, or agreed upon cut-off date, is eligible for distribution, except that gifts or inheritances from a third party to one spouse that are or have been kept segregated in that spouse’s name are usually not eligible for equitable distribution. The theory is that such third party gifts would have been made whether the marriage occurred or not, and that the other marital partner did nothing to contribute to the acquisition of such wealth. Even if third party gifts are held on an interim basis in joint name may not foreclose an argument that they are ineligible and that they were placed in joint name solely as a convenience pending transfer to an individual account or holding.

Second, the property that is eligible must be valued. Valuation is either simple or complex, depending upon the nature of the asset. The values of bank or brokerage accounts are obviously easily ascertained by looking at statements. Real estate may be best valued by its sale, but if the parties have decided that one or the other is going to retain real estate owned, then it will need to be appraised. Defined benefit pension plans also need to be appraised by actuaries, whereas defined contribution plans or 401k’s or IRA’s also are easy to ascertain by simply looking at statements as of a particular time.

The value of businesses obviously is not easily ascertained and the retention of forensic experts is necessary to arrive at valuation of good will and the effective cash flow stream from a business. In assessing support, courts look not only at income, but also at perquisites that are paid for by a business that benefit the business owner and his/her family. Those must be added back to income when assessing support and added back to the net income of the corporation when assessing the value of goodwill.

Third, after assets are valued, they must be equitably distributed. There is no mathematical formula that is used to distribute assets and the distributions depend upon the circumstances of each case, subject to the general principles previously set forth.

If the sources of assets which are eligible are not related to marital efforts, like gifts from one spouse or another’s family that wound up in a joint account, then it is not unreasonable for an advocate to argue that the distribution of that account should be less than 50/50. The asset may be eligible but it may not be equitable to distribute it equally because of its source. The longer the gift from one side’s family or friends to a particular spouse remains under joint control, the less effective such an argument is perceived to be by most judges.