When parties’ divorce, there is a distribution of the assets and debts acquired during the marriage. This is called equitable distribution. Assets which are not subject to equitable distribution are any of those which belonged to a party before the marriage, such as inheritance and gifts and individually owned property. These are the individual’s property and are not divided in the event of a divorce.
Once a party comingles an individual asset into a joint asset, it is no longer individual property. For example, if a wife contributes $50,000 of her inheritance into a down payment on the marital home, that $50,000 becomes marital property and if there is a divorce, she is not entitled to the $50,000 back. The sale price of the house can be divided without refunding her individual contribution to it.
Financial planning and accurate information are essential to properly valuing and distributing the assets and to be aware of tax consequences. It can be advisable to have the assistance of a CPA.
Certain issues must be carefully evaluated. A house worth $400,000 is not equal to $400,000 cash. There are costs of selling the house and taxes to be paid. A $400,000 IRA is not the same value as the $400,000 house or straight cash of $400,000. The IRA is tax deferred. If it is not rolled over into another IRA and is liquidated, the tax for the premature distribution becomes due.
Another form of marital property is stock options. These are a deferred compensation benefit. They may not be exercised until a future date sometimes after the parties’ divorce.
Marital property is that which is acquired during the marriage. Another marital asset can be a pension called a defined benefit. It can be acquired during the marriage, but paid out only during retirement. A coverture fraction is used to divide retirement benefits. The denominator is the years over which the stock options or pension was earned. The numerator is the total years in that period in which the marriage existed.
Stock options can vest at different periods of time. The stock option plan describes the purpose of the plan. The important issue is whether the work required to earn the options was put forth during the marriage.
Marital debts are also subject to equitable distribution. Common marital debts are mortgages, car loans, and credit cards. The simplest picture is where the marital house is sold, the mortgage balance is deducted and the parties split the remaining equity. If the marital home is not sold and the party who keeps it cannot buy out the other, if the mortgage is in both names, both remain liable after the divorce.
Sometimes the party remaining in the home will execute a hold harmless agreement. This does not suffice to protect the other spouse because the contract is with the bank. If the remaining spouse defaults on the mortgage, the other spouse is still responsible for it.
Credit cards may be in one person’s name, but can be considered as marital debt. If the credit cards were used for ordinary household items, restaurants, trips, and clothing, a Court can rule that it is marital debt. Unless a party can prove that the charges were made for a paramour, for example, they will not be considered as separate debt.
Dissipation of marital assets means that an asset that was acquired during the marriage and that is subject to equitable distribution has been disposed of improperly to deprive the spouse of his/her share.
If a party believes this is occurring, a Motion can be made to the court to freeze certain assets. It is important to know what the asset is. Bank accounts and securities, transfers of real estate deeded in one name can be dissipated. A party can dissipate marital assets by regularly sending money to one’s parents in a foreign country without the knowledge or consent of the other spouse. The improper withholding of business records and obstruction of discovery can be an attempt to deprive the other of his/her share.
There are many procedures used in a matrimonial case to ensure that there is full disclosure. It is, of course, advisable for both spouses to be aware of the family finances during the marriage. However, even if one spouse does not have this information, it will be revealed through discovery techniques and Court enforcement, if necessary.
If the parties cannot settle this equitable distribution, the Court will determine it based on the following considerations:
Tanya N. Helfand, Esq. concentrates in Family Law. The firm works with clients throughout New Jersey and New York. Helfand & Associates’ office is located at 575 Route 10 East, Whippany, New Jersey, telephone number 973-428-0800. The firm frequently handles the successful resolution of complicated financial cases. We offer a free half hour consultation.
Tanya N. Helfand, Esq., is a Certified Matrimonial Attorney, a mediator and Panelist in the Morris and Essex County ESP Programs. The firm welcomes your questions and inquiries at [email protected].