In New Jersey, the principles of “equitable distribution” regulate how property and assets are divided when a couple is divorcing. N.J.S.A. 2A:34-23(h) states that when arbitrating a divorce case, the court may grant the parties awards “to effectuate an equitable distribution of the property, both real and personal, which was legally and beneficially acquired by them or either of them during the marriage or civil union.”
The key phrase in this law is “during the marriage.” This is the phrase that has family lawyers in New Jersey debating what counts as existing within this timeframe and how much influence each spouse has on an asset during the course of the marriage. Not long after the state statute went into effect, the New Jersey Supreme Court heard the case of Painter v. Painter. In this 1974 case, the state Supreme Court ruled that any property or asset owed by either spouse at the time they got married would not count as a distributable asset in the event of divorce. Additionally, the Court ruled that any property owned by either spouse at the time of the marriage that later increased in value during the marriage would be given the same consideration. The Court did provide a footnote to clarify, stating that “the immunity of incremental value to which we refer is not necessarily intended to include elements of value contributed by the other spouse, nor those for which husband and wife are jointly responsible.”
Active vs. Passive
Following this ruling, several state courts have tried to further define any incremental changes of value in assets that a partner had before getting married. If these assets would be considered exempt from the laws of equitable distribution, the courts tried to determine whether the contributions made by the other spouse during the marriage had significantly contributed to the value of the asset as it stood at the time of divorce.
Courts define passive (or exempt) assets as those with fluctuating value, following the economy and market conditions at the time. In contrast, an asset is considered active when one or both spouses contribute to the asset’s increase in value. If the owner is the sole contributor, the value of the asset should not be distributed, but if the other spouse had an active hand in contributing to the success of the business, or the value of the asset, the appreciation in value should be shared between the two parties.
Consider this example: A man owns his own business before he gets married. After he is married, his wife begins to help run the business and contributes significantly to the company’s earnings. She implements new tactics to generate business and the company makes a significant amount of money during their marriage. If this couple gets divorced, the business--as an asset--could be considered co-owned by both the husband and the wife, and a court could order the appreciation subject to distribution as part of the divorce proceedings. In this case, the wife was an active contributor to the success of the business.
At Helmer, Conley, and Kasselman, PA, we represent clients who are going through a divorce, especially those with personal assets that they wish to protect. To discuss your case, contact one of our New Jersey family attorneys today.