Splitting Up Assets in a New Jersey Divorce
Upon the entry of a Judgment of Divorce, the court is to equitably distribute marital assets between spouses, regardless of titled ownership. N.J.S.A.2A:34-23(h). The theory of equitable distribution is that marriage is a partnership whose assets should be fairly and equitable distributed when the partnership breaks up. Pascale v. Pascale, 140 N.J. 583 (1995).
Marital assets include all property, both real and personal, which was legally and beneficially acquired by the parties or either of them during the marriage. N.J.S.A. 2A:34-23(h). Equitable distribution does not include any assets acquired by either party by way of gift (except that a gift from one spouse to the other is subject to equitable distribution), devise or interstate succession, or any assets acquired prior to the marriage.
In effectuating an equitable distribution of the marital assets, the court must follow a three-step approach: (1) determine what specific property is eligible for distribution, (2) value the property for purposes of distribution, and (3) decide how such distribution can most equitably be made. Rothman v. Rothman, 65 N.J. 219 (1974). Equitable distribution does not mean equal distribution. The following factors are used in allocating and dividing marital assets.
Equitable distribution is not simply a matter of mechanical division of the marital assets. Stout v. Stout, 155 N.J. Super. 196 (App. Div. 1977). Instead, in effectuating an equitable distribution, the court is to consider the factors set forth in N.J.S.A. 2A:34-23.1, the most important of which are:
- The duration of the marriage or civil union;
- The standard of living established during the marriage or civil union;
- Any written agreement made by the parties before or during the marriage or civil union concerning an arrangement of property distribution;
- The income and earning capacity of each party;
- The contribution of each party to the acquisition, dissipation, preservation, depreciation or appreciation in the amount or value of the property, as well as the contribution of a party as a homemaker;
- The tax consequences of the proposed distribution to each party;
- The present value of the property; and
- The debts and liabilities of the parties.
Equitable distribution becomes even more complex when one of the parties owns a business or when the parties jointly own and operate a business. In effectuating an equitable distribution of a business, it is often necessary to have a complete business evaluation prepared to analyze the total monetary value of the business, including projected income and cash flow. This is done by a forensic accountant employed to work with counsel. The leading cases are:
- Brown v. Brown 348 N.J. Super. 466 (App. Div. 2002) (Minority and marketability discounts should not be used when valuing closely-held corporation for purposes of equitable distribution “absent extraordinary circumstances.”)
- Steneken v. Steneken, 367 N.J. Super. 427 (App. Div. 2004) (There are three principal methods that can be utilized for valuing a business: the income or capitalized earnings method, the market approach method, and the cost approach method.)