If you are getting divorced, some of your biggest questions are probably financial.
Who gets the house? What happens to your retirement accounts? Is your spouse entitled to part of your business? What happens to the debts you accumulated during the marriage?
In New Jersey, property division is handled through a process called equitable distribution.
The word “equitable” means fair. It does not automatically mean that every asset and debt gets divided exactly 50/50. New Jersey courts have specifically recognized that equitable distribution does not begin with a presumption that everything must be divided equally.
So before you start dividing accounts or arguing over percentages, you need to understand what property is actually part of the marital estate.
Property division in a New Jersey divorce generally comes down to three questions:
That sounds straightforward. Sometimes it is. If you bought a house together during the marriage, have straightforward retirement accounts, and agree on most of your finances, identifying the marital estate may not be particularly complicated.
But add a business, premarital investments, an inheritance, stock compensation, multiple properties, or decades of retirement savings, and those three questions can become much harder to answer.
As a general rule, property legally and beneficially acquired by either spouse during the marriage may be subject to equitable distribution.
That can include:
One of the biggest misconceptions I hear is: “It's in my name, so it's mine.” Not necessarily.
Whose name appears on the account, deed, or title is not always what determines whether an asset is subject to equitable distribution. When and how the property was acquired can be much more important.
If you accumulated $300,000 in a retirement account during your marriage, for example, simply having the account in your name does not necessarily mean your spouse has no interest in it.
Not everything you own automatically becomes marital property when you get married.
Depending on the circumstances, property you owned before the marriage may remain separate. New Jersey law also generally excludes property acquired from a third party during the marriage through gift, inheritance, or similar transfers from equitable distribution. Interspousal gifts are treated differently. The complication is often proving what is actually separate.
Suppose you entered the marriage with an investment account worth $200,000. Twenty years later, the account is worth substantially more, money has moved in and out, marital earnings have been deposited into it, and you no longer have the original statements.
Now we may have a tracing problem.
Separate and marital property can also become more difficult to distinguish when assets are commingled. New Jersey courts have recognized that commingling otherwise exempt property with marital property can potentially make it subject to distribution.
If you believe an asset should be excluded from equitable distribution, documentation matters.
For many couples, the marital home is their largest asset and their biggest source of disagreement. There is no rule that says the wife gets the house, the husband gets the house, the parent with the children automatically gets the house, or the house must always be sold.
You might sell it and divide the equity. One spouse might keep it and buy out the other's interest. The house might be offset against retirement savings or another asset. In some circumstances, the sale may be delayed.
The right answer depends on the finances of the particular family. And remember: getting the house is not always the same thing as being able to afford the house.
Before fighting to keep it, look at the mortgage, taxes, insurance, maintenance, utilities, and the rest of your post-divorce budget.
Retirement savings can also represent a substantial part of the marital estate.
If you contributed to a 401(k) or accumulated pension benefits during the marriage, the marital portion may be subject to equitable distribution even if the account or benefit is entirely in your name.
If you already had retirement savings before getting married, the analysis may require separating the premarital portion from what accumulated during the marriage. And don't assume that dividing a retirement account means withdrawing the money, paying the taxes, and handing your spouse a check.
Certain retirement plans can be divided through specialized court orders, including Qualified Domestic Relations Orders, without treating the division like an ordinary early withdrawal.
Retirement assets also need to be evaluated in context. $100,000 in a retirement account is not necessarily financially equivalent to $100,000 sitting in a checking account. Taxes, liquidity, investment risk, and when you can access the money all matter.
Possibly. If a business or professional practice was created or increased in value during the marriage, some or all of its value may become an equitable distribution issue. That does not necessarily mean your spouse becomes your business partner after the divorce.
More often, the questions are what portion of the business is subject to distribution, what that interest is worth, and how your spouse's share can be accounted for as part of the overall financial settlement.
Business valuation can become one of the more complicated areas of property division because there may be disagreements about income, assets, liabilities, compensation, cash flow, and the value attributable to the business itself.
If a business represents a significant part of the marital estate, guessing at its value is rarely a good idea.
Property division is not only about deciding who gets the assets. You also have to deal with the debts.
Mortgages, credit cards, loans, tax obligations, and other liabilities may need to be addressed as part of the overall settlement.
Just as an account being in one spouse's name does not automatically resolve ownership, the name appearing on a debt does not necessarily answer every question about responsibility between divorcing spouses.
You need to understand why the debt was incurred, when it was incurred, what it was used for, and how it fits into the rest of the marital finances.
No. Sometimes an equal or nearly equal division of marital property makes sense. Sometimes the circumstances support a different result.
New Jersey law identifies 16 factors courts consider in equitable distribution, including the duration of the marriage, the spouses' ages and health, their economic circumstances, income and earning capacities, marital standard of living, contributions to the marriage, debts, tax consequences, and other relevant circumstances.
This is why I would be very cautious about anyone promising you an exact percentage before reviewing your finances. There is no universal formula that says, “You get 60%, your spouse gets 40%.” The result depends on the property and the facts of the marriage.
Another misconception I sometimes encounter is that the spouse who earned more money should automatically receive more of the property.
Marriage doesn't work that way, and neither does equitable distribution.
One spouse may have earned most of the household income while the other raised the children, managed the home, supported the working spouse's career, or made other non-financial contributions to the marriage.
New Jersey's equitable distribution framework recognizes marriage as an economic partnership. Courts have described the underlying philosophy as one in which both spouses contribute to the accumulation of marital assets, even when those contributions are not equal or made in the same way.
A paycheck is one kind of contribution. It isn't the only one.
Before you agree to divide property, make sure you know what actually exists.
Gather bank statements, retirement statements, tax returns, mortgage information, investment records, business documents, loan statements, and other financial records. Identify assets that may have existed before the marriage or came from an inheritance or third-party gift. Determine whether significant assets require professional valuation.
Then look at what those assets are actually worth to you after the divorce. Two settlements can have the same value on paper and produce very different financial futures.
A house comes with carrying costs. Retirement money may come with future taxes and restrictions. A business may be difficult to convert into cash. An investment account may fluctuate in value.
Don't focus only on getting your “half.” Focus on what you are actually receiving, what it is worth, what it will cost you, and whether it makes sense for the life you will have after the divorce.
If you are considering divorce and want to understand property division and the other financial decisions you may face, my free Divorce Smarter Course explains the New Jersey divorce process in plain English.
Until next time,
Steve