One of the most complex and contentious parts of a divorce is the division of property between the spouses. In New Jersey, it’s the court’s duty to ensure that property gets divided fairly, which doesn’t necessarily mean that each spouse gets half of the marital assets and liabilities.
If you’re considering or going through a divorce in Paramus, NJ, the divorce and family law team at Bozanian McGregor LLC can share how equitable distribution laws may apply to you and pursue the best possible outcome on your behalf. Give us a call to confidentially discuss your case with one of our attorneys.
Types of Property in a Divorce
Property in a New Jersey divorce falls into two basic categories:
- Marital property – Marital property includes most assets and debts that either spouse acquired during the marriage, regardless of whose name is on the title.
- Separate property – Separate property includes all assets and debts that each spouse owned before the marriage. Some property, like inheritance money and gifts explicitly given to you, may be considered separate even if you acquired it during the marriage.
Note that even if you owned an asset before the marriage, that doesn’t mean it will always stay separate property. If both spouses contribute to a property’s value, or if the property becomes commingled with marital assets, it becomes marital property.
Property Commonly Divided in a Divorce
All marital property will need to be divided during divorce, including the following:
- Real estate – The marital house is often the most valuable asset in a divorce. Sometimes, one spouse keeps the home and the other gets property of similar value. Other options may include selling the home and splitting the profits, having one spouse buy out the other to gain full ownership, or continuing to co-own the property.
- Bank accounts – Checking and savings accounts are often commingled after marriage, in which case they become marital property. The court may consider an account separate if it never had the spouse’s name on it and never had shared gifts or joint account funds in it.
- Retirement accounts – A marital IRA is considered marital property. Benefits from employer-sponsored retirement plans and pension plans must also be split in some circumstances.
- Businesses – Even if a business is only run by one spouse and predates the marriage, it may still be subject to valuation and equitable distribution. This is particularly the case for profits and assets gained during the marriage.
- Personal property – Personal property can include cars, furniture, and other valuables.
- Debt and liabilities – Marital debt is marital property, whether it stems from credit cards, loans, or back taxes.
New Jersey’s Equitable Distribution Law
New Jersey is one of 41 equitable distribution states. This means that property in divorce proceedings should get distributed in the fairest possible manner, not necessarily split half and half. According to New Jersey Revised Statutes 2A:34-23.1, these are some of the factors that a court should consider when it comes to property distribution:
- How long the spouses have been married
- The spouses’ age and health
- Each spouse’s income and earning capacity
- The standard of living both spouses had during the marriage
- Each spouse’s financial health after the divorce
- What the spouses have agreed to in a valid prenuptial or postnuptial agreement
Your legal team will work with professional appraisers and forensic accountants as needed for the most accurate valuation of marital property.
Prenups, Postnups, Negotiations, and Settlements
Many couples prefer to settle property-related issues out of court, which typically takes less time, costs less in fees, and results in a more amicable outcome.
If a couple already has a prenuptial or postnuptial agreement, the court will tend to follow it so long as it is legally valid. If there is no prenup or postnup, the spouses and their lawyers can still open negotiations. If both spouses agree to it, a neutral, third-party mediator can also participate and try to guide the spouses toward a settlement.
Tax Implications of Divorce Property Division
Generally speaking, the IRS doesn’t consider divorce-related asset transfers taxable if they are incident to the divorce. This means either of two things:
- The transfer must happen within one year of the end of the marriage.
- The transfer must be prescribed in the original divorce decree and happen within six years of the marriage’s end date.
Despite this general provision, there may still be tax implications for some types of property, like these:
- Non-liquid assets – The court must issue a Qualified Domestic Relations Order (QDRO) stating how the spouses must split retirement accounts, investments, and pension benefits. Actions taken without a QDRO may incur taxes or penalties.
- Real estate – The profits from selling or buying out a marital home are subject to capital gains taxes. However, you may qualify for a $250,000/$500,000 exclusion of gain if you are selling your primary residence. Your lawyer or tax preparer can advise you on this provision.
- Back taxes – Like other debts, back taxes from the spouses’ joint returns are subject to equitable distribution. Usually, the higher-earning spouse will be liable to pay a larger share.
- Alimony – For alimony agreements made in or before 2018, payments are tax-deductible for the payer and taxable for the recipient. For agreements in 2019 or later, alimony is not tax-deductible for the payer and not taxable for the recipient.
Your lawyer can outline what taxes you may be liable for and strategies to minimize the liability.
Contact a Paramus, NJ, Divorce Attorney
If you’re going through a divorce in Paramus, NJ, you deserve a legal team with the experience to pursue the fairest outcome for you and your children. Bozanian McGregor LLC is an inclusive practice that takes pride in helping our clients navigate a challenging and difficult process. No matter the circumstances, we’ll take a compassionate and personalized approach to protect your rights and financial future. Contact our Paramus office today for a confidential consultation.