New Jersey Equitable Distribution Overview

Equitable Distribution is defined as "the fair, but not necessarily equal, division between former spouses of property acquired during the marriage" and is one of four main subject areas covered during divorce mediation along with (1) Parenting (2) Child Support and (3) Spousal Support / Alimony.

To begin the process of equitable distribution in NJ, the mediator will ask each party to produce a list of marital assets as well as any assets not considered marital assets (i.e. those assets acquired prior to the marriage, received as a gift or through an inheritance) for the purpose of determining an item's inclusion or exclusion in the equitable distribution discussion.

These items may include, but are not limited to:

Real Estate: Marital residence & real estate investments
Personal Property: Furniture, jewelry, collectibles, art, cars, plane, boats, furs, etc..
Short-Term Assets: Cash, Money Market Funds, bank accounts, Rental Security Deposits
Retirement Funds: 401(k) Plans, 403(b) Plans, IRAs, Roth IRAs, Defined Benefit Plans, Pensions
Longer-Term Assets: Investment Accounts. Surrender Value of Whole Life Insurance Policies, Stocks & Bonds, Tax Shelters, tax loss carry-forwards
Businesses Interests: Business, professional practice, interest in business or professional practice including property, plant & equipment
Other: Frequent flyer miles, interest in race horse, cemetery plot, etc.

Once a complete list has been compiled, the mediator will work with the couple to facilitate the discussion regarding the equitable distribution of marital assets, keeping in mind that equitable may not always mean equal. The mediator will bring in advisors or refer the couple to subject matter experts where appropriate to determine valuation for such complex assets such as pensions or family owned business interests.

In additional to the equitable distribution of assets, liabilities are also equitably shared. These items may include, but are not limited to:

Mortgages: primary, home equity loans, lines of credit
Car loans
Installment loans: credit cards, revolving charges
Back taxes owed: from a year the couple was married
Life insurance loans
Pension loans, etc.

The liabilities will also be equally divided between the former spouses unless the liability was incurred prior to the marriage and no such "co-mingling" has occurred. As with marital assets, the mediator will bring in advisors or refer the couple to subject matter experts where appropriate.

As every family's circumstances are unique, it is always best to consult with a mediator who can help you and your spouse understand the principle behind equitable distribution in detail and determine what an appropriate division of assets and liabilities would be. With that in mind, please note this document is intended to give a general overview of the subject matter and not to provide any specific legal advice. Should you have any specific questions regarding NJ equitable distribution in your particular situation, please contact us and we'd be happy to schedule a free, no obligation consultation to discuss equitable distribution and the mediation process in more detail.

Equitable Distribution vs. Community Property

To fully understand the concept of equitable distribution, we must first look at the differences that exist between States and what other alternatives exist to the Equitable Distribution system of diving property.

A few states have what is know as the continental system of community property which essentially means that property or assets acquired by either husband or wife during the marriage, except for gifts from third parties, belong equally to the husband or wife and will be split "50-50." Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington.

Community property does not mean that each asset is divided 50-50 but rather that the net value of the assets received by each spouse must be equal when totaled. However, the majority of states bases their marital law on British common law, and provide for equitable distribution rather than equal distribution of marital assets and liabilities. Most states on the Eastern seaboard are equitable distribution states, including New Jersey, New York and Pennsylvania and each state has their own factors in determining what is an equitable, fair and just division of assets.

In equitable distribution states such as New Jersey, during the course of divorce mediation, the couple determines a fair and reasonable distribution that may be more than or less than 50% of any asset to either party. Equitable may not mean equal - it may be more or less than 50% of any asset to either party but as long as each party is agreeable to the distribution, the court will usually not seek to prevent such a distribution.

NJ Equitable Distribution: An Example

Let's say a couple that has been married 25 years has two items each of sentimental value - the husband's collection of antique clocks that he's collected for the past 15 years worth $2,000 and the wife's collection of rare lamps that she has collected for the past 20 years worth $10,000, both marital assets by definition. In this example, if the husband had a sentimental attachment to his clocks and was fully aware that by agreeing to relinquish his share of the lamp collection ($5,000) so that he may garner his wife's share of the clock collection ($1,000) he effectively gives up $4,000 in additional assets to his former spouse, the courts will not seek to adjust the distribution. And while in these situations, typically the discrepancy in assets is equaled out somewhere else (perhaps through additional funds from a bank account) it is not mandatory and the disparity can stand and as long as each party understands the differences and considers the overall distribution of property, fair and equitable, regardless of the total at the bottom of the "balance sheet."

What is and is not Marital Property?

Marital property is defined as any property (both assets and liabilities) that were acquired during the course of the marriage regardless of who owns it or who has title to it. In addition, any assets or liabilities that were "co-mingled" during the term of the marriage also may count as marital property. This may include items such as a house in which the spouse was placed on the deed, a mortgage assumed or a 401k which was converted to a joint account after the marriage occurred.

Traditionally marital property does not include property provided for in a written agreement such as a Prenuptial Agreement nor does it include "separate property" which is defined as property acquired before marriage; property acquired by bequest, devise, descent or gift from a party other than the spouse, and also does not usually include compensation for personal injuries.

Lastly the enhanced earning capacity from an educational degree earned during the marriage may be considered a marital asset in some states such as New York, but usually not in New Jersey. However, the increased earnings will be factored into Spousal Support / Alimony, and the cost of the education may factor into Equitable Distribution and repaid as "Reimbursement Alimony." More details are available on this topic in the article regarding Spousal Support and Alimony.

Conclusion

So where does this discussion on equitable distribution leave us? That is truly up to the couple to decide. While NJ law does provide some guidelines, the concept of equitable distribution is truly based on what the couple considers fair and reasonable. Once you've had a chance to review the New Jersey Equitable Distribution Criteria, you will see the factors are as varied as the possessions that may require distribution so it's always best to come to an agreement that works for both of you rather than leaving it to the courts, attorneys and judges to decide.