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As with most divorce-related questions, the starting point for any legal inquiry is the applicable statute. In this case, the statute is N.J.S.A. 2A:34-23(h), which reads that “in all actions where a judgment of divorce, dissolution of civil union, divorce from bed and board, or legal separation from a partner in a civil-union couple is entered, the court may make such award or awards to the parties, in addition to alimony and maintenance, 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. However, all such property, real, personal, or otherwise, legally or beneficially acquired during the marriage or civil union by either party by way of gift, device, or intestate succession, shall not be subject to equitable distribution, except that inter-spousal gifts or gifts between partners in a civil- union couple shall be subject to equitable distribution.”
In accordance, if the parties acquire assets by gift from anyone other than their spouses or partners, that property is exempt from equitable distribution (subject to the exceptions below). The same applies to property received through inheritance (“device” or “intestate succession”). Subject to some fact-sensitive exceptions, any property acquired by either party before the marriage or after its termination is also exempt.
If the owner spouse has gifted the otherwise-exempt asset to the non-owning spouse, it may no longer be exempt from equitable distribution. To make an otherwise-exempt asset available for equitable distribution by gift, there must be a clear, unequivocal intent on the part of the owner spouse to gift/transfer the asset to the non- owner spouse.
Just because property is “marital” does not mean that it has to be divided equally. When equitably distributing property, the court applies the statutory factors listed in N.J.S.A. 2A:34-23.1 to decide how property should be divided. This could result in one spouse receiving more or less than one-half of the value of the property. For example, this statute requires the court to consider the income or property brought to the marriage or civil union by each party. Subparagraph (i) requires the court to consider the contribution of each party to the acquisition, dissipation, preservation, depreciation or appreciation in the amount of the marital property, or the property acquired during the civil union as well as the contribution by the party as a homemaker.
When an otherwise-exempt asset increases in value during the marriage, the increase may be subject to distribution if it can be linked to the efforts of the non-owner spouse. An increase in the value of an immune business interest has both active and passive components. A passive increase in value is not due to the active effort of either party, but the result of factors such as market conditions, return on capital, or the effort of a third party, and is not subject to equitable distribution. An active increase is attributable to the active efforts of a spouse during the marriage. Active increases in value are subject to equitable distribution to the extent that the increase can be linked to the efforts of the non-owning spouse. The effort that the non-owner spouse must demonstrate can be effort directly expended to increase the value of the asset, or the effort can be indirect effort that affected the growth of the asset (e.g., the non-owning spouse helped raise the children which, in turn, allowed the owning spouse the time needed to directly tend to the increase in value of the asset). There is a presumption that the increase in value of an immune asset is likewise immune from equitable distribution. Therefore, the non-owner spouse bears the burden of demonstrating that there was an active increase during the marriage that “can be linked in some fashion” to the non-owning spouse’s “efforts” during the marriage.
Charles F. Vuotto, Jr., Esq. is a partner with the Matawan based law firm of Tonneman, Vuotto & Enis, LLC (TV&E), which dedicates its practice exclusively to Divorce and Family Law.