The term “equitable distribution” refers to the division between the spouses of assets and debts which are acquired during the marriage or civil union. “Equitable Distribution” is not supposed to be “equal distribution.” Like custody, alimony and above-Guidelines child support, equitable distribution is supposed to be determined by the application of factors. In the case of equitable distribution, there are sixteen factors, with the sixteenth factor being the ever-present “any other factors which the court may deem relevant” making the number of possible factors infinite.
Among the equitable distribution factors are such factors as: the duration of the marriage or civil union, any written agreement made by the parties before or during the marriage or civil union concerning property distribution (i.e. a Prenuptial or Mid-Marriage Agreement); the income and earning capacity of the parties; the contribution by each party to the education, training or earning power of the other party; the tax consequences of the proposed distribution; the present value of the property and other factors.
Before you have that “aha” moment, we must once again warn you about the difference between statutory theory and reality. While it is true that different factors apply in different situations, the best un-kept secret in New Jersey divorce law is that the we generally begin with the presumption that an asset or a liability will be equally divided between the parties and then the we look to see whether any of the sixteen factors might lead the Court to decide that in this particular case, for these particular reasons, something will not be divided equally.
For example, if one party put his or her inheritance into a jointly owned residence a short time before the divorce was filed, then the judge might give that spouse more than fifty percent of the equity in the house. Another common example is a judge will usually award less than fifty percent of the value of a closely held business to the non-owning spouse. Several theories for this exist: tax consequences on a later sale, the actively working spouse should be entitled to more of the value, perhaps it was a family-owned business that was gifted to the spouse and appreciated in value during the marriage or civil union, and the like. However, these are the exceptions to the general unspoken rule that assets and debts will be equally divided.
The process of Equitable Distribution is a three-step process. First, the attorneys need to identify which assets and debts are subject to distribution. Second, they must place a value on the assets and debts. Third, they must come up with a plan to divide the assets and debts.
Identification of the assets and debts is the least difficult of the three-steps as the parties are required to disclose all assets and debts under oath at the beginning of the case. Generally, spouses are aware of one another’s finances. However, if a spouse suspects that the other spouse is hiding assets, then an asset-tracing expert may be called into the case.
Valuation of an asset is often the most complex issue in divorce or dissolution cases. Among the different types of assets that may need to be valued are marital residences, investment properties, commercial properties, retirement plans and closely held businesses, medical practices, dental practices, and the like. While the valuation of real estate used to be a simple matter, it has proven to be very challenging since the decline of the real estate market. Attorneys need to locate and retain experts for each of these assets if the parties cannot agree on value. No matter what the asset, there is an expert somewhere who can place a value on the asset.
Equitable Distribution can be the most complicated and time-consuming area of family law. There are rules for valuation dates, rules for passive and active changes in value, differing methodology for valuing different assets and, perhaps most complicated of all, complex rules which apply to the distribution of retirement plans. Likewise, both obvious and latent tax consequences must be taken into account before equitable distribution can be accomplished. For all of these reasons, accounting and other experts are often called in as part of your divorce or dissolution team in order to make sure that all bases are covered.
As far as the third step is concerned, courts try to apportion the assets and debts in such a way that everything can be finalized at the time of the final judgment. For example, perhaps one spouse can retain the house and the other spouse can retain the retirement account. However, there are many times when a payout over time is the only way to effectuate equitable distribution.