There are many different ways that couples handle their finances, from going Dutch on everything to applying a “what’s yours is mine and what’s mine is yours” philosophy to their bank accounts.
Because there is such variety in how couples manage their money together, it can make it difficult to disentangle the issue complex during divorce. Deciphering ownership, equity, liability, and more all come with questions and concerns.
One of the most common questions is this: What assets are protected from division in a divorce settlement?
How assets are treated in a New Jersey Divorce
“Assets” refers to anything an individual or couple owns, including (but not limited to) bank accounts, cars, real estate, collectibles, jewelry, retirement accounts, and pensions. Debts and liabilities may also be subject to equitable distribution and may impact how other assets are handled during the divorce.
Couples may independently bring assets (and liabilities) into a marriage, acquire them independently during the marriage, or acquire them jointly. Whether or not you can protect your assets in divorce largely depends on three things—the family law precedents in your state, the type of assets in question, and whether there is a prenuptial or postnuptial agreement in place.
However, there are always factual nuances that can change the way an asset is divided or protected.
Family law in your state
There are two ways states divide property.
Community property states assign 50/50 ownership to all marital assets and debts. The other approach, which is used by the state of New Jersey, is equitable distribution. Under equitable distribution, divorcing couples must balance a variety of factors to ensure that marital property is divided fairly or equitably, which may not be the same as equally.
If you use an alternative dispute resolution method like mediation or arbitration, you have the opportunity to think creatively about personalizing your divorce, but it can be helpful to use equitable distribution principles for crafting your Marital Settlement Agreement (MSA).
All assets generally fall into two categories during a divorce: marital property and separate property. The line can be blurry, so it’s important to consult an attorney as you think through what belongs to whom.
Marital property generally refers to assets that were acquired during a marriage. This can include everything from jewelry to retirement accounts to airline miles.
Note that there are some exceptions to this, such as an inheritance or gifts to one spouse from the other or from a third party. Debt acquired during a marriage usually belongs to both parties, regardless of whose name it’s under.
Separate property, also known as personal property or individual assets, refers to assets that were owned by one spouse prior to the marriage or property acquired before or after the marriage but not connected to the marital enterprise (like a gift or inheritance).
In some cases, separate property can become marital property.
For example, if you owned a rental home prior to your marriage but added your soon-to-be ex to the deed after you said your vows, it can be considered marital property. A portion of a business can also be converted into marital property in some situations; for example, if one party starts a business before marriage and it grows significantly during the marriage, the increase in value could be considered a marital asset.
Separate property also includes assets already designated as individually owned through a marital agreement.
When it comes to property division, an existing prenuptial agreement provides a starting point for discussions about asset distribution.
If no one contests the terms of the prenup, it will control how assets are divided in the divorce. If one party contests the validity of it, though, there may need to be a separate finding as to whether or not to uphold it and, if so, whether the terms are modified in any way.
Postnuptial agreements may also hold some sway, but their effectiveness depends on the conditions under which they were drafted (e.g., a postnuptial agreement drafted soon after a wedding would have more legal weight than one drafted mid-marriage).
How the court decides what’s “fair”
If your divorce is litigated, the judge will rule on how to divide your property according to equitable distribution. They will consider personal and marital assets and debt and will analyze factors including:
- Personal assets not subject to equitable distribution
- Personal finances, earnings, and earning capacity
- Individual needs and responsibilities, such as child support (including from a previous relationship)
- Contributions to the marriage (monetary and non-monetary, such as childcare)
- Length of the marriage
- The parties’ ages and health
- Private or family-owned businesses
- Prenuptial agreements and other marital agreements
- Alimony obligations
What assets may be protected from division in divorce
Assets that may be protected from equitable distribution during a divorce are typically belong to one of two types: premarital property that has been kept from being commingled or transitioned and gifts or inheritances.
As a general rule, property or assets you owned prior to your marriage will be exempted from equitable distribution.
But there are always exceptions to every rule. The court may grant your ex a share of premarital assets if they have, among other things:
- Been added to a title or deed
- Assisted with loan payments or tax obligations
- Contributed time or labor to maintaining or improving the asset
- Proved extraordinary circumstances requiring unique distribution structure
If you’re concerned about maintaining control of your premarital assets, an experienced family law attorney can help you understand your options and establish a legal strategy that supports your goals.
Gifts and inheritances
Regardless of whether it was received before or during the marriage, gifted or inherited assets are generally considered separate property during a New Jersey divorce.
Every situation is unique, however, and there are scenarios in which the other spouse can be awarded a portion of a gift or inherited asset.
A caveat to asset division
The reality of equitable distribution can be more complicated than drawing a line in the sand with these categories.
How assets have been handled, such as commingling an inheritance with other assets in a joint bank account, can have an impact on the division of assets. Because of these complexities, it’s important to work closely with a divorce attorney who understands the nuances of asset division in New Jersey.
How to protect assets in case of divorce
There are things you can do to protect your assets even when you don’t have a prenuptial agreement.
1. Assess the value of your assets
If you are considering divorce, understanding the value of your assets is crucial.
To start, knowing the value of your assets helps give you a clearer picture of your financial well-being and how to plan for the future. But for the purposes of your divorce, this information can inform your divorce strategy and any negotiations for your marriage settlement. For example, understanding the extent of your retirement assets may allow you leverage in negotiations regarding your marital home.
2. Open a separate bank account
During the divorce process, opening a separate bank account (if you don’t already have one) can provide you with a measure of psychological comfort. It can also be a financial safety net if you’re concerned that your spouse might attempt to cut you off from shared funds.
However, if you have relied on joint banking throughout the duration of your marriage, you should not funnel money into a separate account to the financial detriment of your soon-to-be ex. You also may not want to open a new account prematurely or with funds which might not be “yours” to move freely. Keep detailed records of all the money going in and out of each account so you can answer any questions from the judge and support the arguments you plan on making.
You’ll want to check with your divorce lawyer in order to make sure that the timing of when you open an account works for your case, as well as ensuring that the funds you are using or depositing aren’t subject to claims from your spouse.
3. Explore your options with a financial advisor
If you have a particularly valuable asset you want to shield, consider talking to financial professionals in addition to your divorce lawyer about how to best protect them. There are numerous options, such as domestic asset protection trusts (DAPTs) that can help you manage your assets in a way that separates them from your divorce proceedings.
However, while financial professionals can offer financial advice, keep your divorce attorney in the loop. You should consult with your lawyer before you make decisions, because there are different perspectives on whether or not a court will view certain assets as “shielded,” depending on the nuances of your matter.
Consult with a trusted New Jersey divorce attorney
Dividing property in a divorce is a complex and nuanced process that requires the assistance of a knowledgeable divorce attorney.
Whether you wish to negotiate asset and liability division out of court or foresee a court divorce, you’ll have to take stock of your assets and be strategic, keeping your desired future in mind. Only a judge can determine what equitable distribution is, but you benefit from solid legal representation throughout the process.
The team at Jacobs Berger is here to help you protect your finances and reduce stress. We seek productive solutions to asset division that meet your unique needs. Contact us to schedule your strategy session.