Considering a Spouse’s Exempt Assets When Equitably Distributing Marital Assets

As lawyers and litigants are often reminded in Family Part matters, New Jersey is an equitable – not equal – distribution state. Not every marital asset, as a result, will be divided 50/50. Instead, trial judges are given broad discretion when called upon to analyze numerous factors under New Jersey’s equitable distribution law in determining what is ultimately a fair division of property.

With that in mind, what happens when there exists a marital estate of assets, but one spouse owns substantial separate or exempt assets? For instance, perhaps one spouse received an inheritance or gift during the marriage (or even during the divorce process) to which the other spouse has no legal rights. Is it fair in that situation for the marital assets to be equally divided when, ultimately, one spouse will be far better off financially than the other spouse?

This is where the notion of equity may come into the picture and brings us to the Appellate Division’s decision in Van Horn v. Van Horn. Issued as an unpublished decision in 2008, the case illustrates how trial judges may not simply engage in an equal division of marital assets when addressing the issue of equitable distribution.

Here are the facts that you need to know:

  • The parties were married in 1980 when the husband was 17 and the wife was 16. Three children were born of the marriage.
  • The parties’ in comes and marital assets were minimal. The marital home was worth approximately $140,000, there was a checking account with a small balance, four vehicles (the most valuable of which was determined to be worth $22,000), $8,000 in stocks/bonds, business trucks and approximately $20,000 in business debt.
  • The husband filed for divorce in November, 2001.
  • Critical to the case was that the wife’s father died while the divorce was still pending in December, 2002. The wife was the sole beneficiary of her father’s estate, which included a home into which the wife moved and total assets valued at almost $10 million (before taxes due of approximately $3.5 million).
  • Trial occurred over 40 days and concluded in April 2005. Prior to its conclusion, the trial judge granted the wife’s motion to dismiss the husband’s claim for equitable distribution of the property she inherited from her father after the divorce complaint was filed.

In awarding the entirety of the marital assets to the husband, the trial court found:

[t]he equitable distribution statute permits the court to consider the economic circumstances of each party at the time the division of the assets become[s] effective. The court finds that, given the facts of this particular case, equity compels that all the marital assets be awarded to . . . husband. By making this award the court is not saying that the wife did not make a substantial contribution to the marital partnership. Her contribution to the marital partnership is equivalent to that which the husband contributed. The equitable distribution award is being made strictly in light of the fact that the marital assets are so small in value in comparison to those assets which the wife now possesses due to her inheritance. The wife's newfound wealth vastly exceeds that which she is seeking by way of distribution. Given the magnitude of her inheritance, she does not need to get a share of the marital assets. As for the husband, getting the marital assets, especially the marital home (the most valuable marital asset), will contribute toward his ability to maintain the marital standard of living. Therefore, all of the marital assets shall be awarded to the husband.

Briefly affirming the trial court’s award, the Appellate Court noted that New Jersey’s equitable distribution statute requires trial judges to consider “the economic circumstances of each party at the time the division of property became effective . . . “ It further reiterated:

Equal division of marital assets is not required. The wife has an estate that she concedes is worth over $6,300,000 after taxes. Thus the husband’s net worth after the divorce is only four percent of that of the wife and he alone is responsible to his attorney for counsel fees, which may significantly reduce his assets. We find no inequity or abuse of discretion in this division of assets.

Van Horn not only confirms that New Jersey is an equitable – not equal – distribution state, but also provides litigants and practitioners with guidance on how to address the equitable distribution of the marital estate when one party owns exempt assets separate and apart from those otherwise subject to distribution.

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