As a general rule, most property owned by a divorcing couple in New Jersey is subject to equitable distribution. Equitable distribution is a legal phrase that basically means “dividing marital property.” There are, however, certain assets that are normally excluded from equitable distribution in New Jersey. Please note that for all of the following, there is no bright-line rule. Commingling funds, for example, may take away a property’s separate nature.
Premarital Property
Equitable distribution traditionally refers to property acquired during a marriage. If you enter into a marriage with a house, for example, that house will likely not be subject to equitable distribution at the time of the divorce. Again, this is a fact sensitive determination and you will have to speak with an attorney or other expert to determine whether your property is in fact excluded from equitable distribution. If property is commingled then it might become marital property. Same thing if someone puts their spouse’s name on the deed. Rental or other income may be considered for purposes of alimony and child support. Also, a spouse who contributes to the house or other property (and this could be financial or “sweat equity”) might also have a successful claim to a portion of a property. (These caveats will likely apply for all exceptions, and I will therefore not repeat them below, but it should be noted that they do likely apply).
Gifts
Gifts from third parties are often not subject to equitable distribution. Gifts to each other during the marriage, however, (think: jewelry) will likely be considered marital assets and thus subject to equitable distribution. If someone gives a gift to both spouses, then it is likely subject to equitable distribution. A common fact pattern involves in-laws giving a gift and now claiming it was only for their son or daughter but not the son-in-law or daughter-in-law. The burden of proof generally falls on the party seeking the exception.
Inheritances
As with gifts, most inherited property is not subject to equitable distribution, provided extenuating circumstances or commingling.
Personal Injury Awards
The portion of a personal injury (or other such lawsuit) award regarding physical or emotional pain is generally not subject to equitable distribution, although the rest of the award, if applicable, generally will be considered marital property.
Even when one party is the breadwinner and the other party does not work outside the home, unless there is an exception such as outlined above, most property will be subject to equitable distribution.
Again, the above exceptions are very fact sensitive. The above information is general in nature and should not be relied upon for your specific case. To see if your property falls into an exception to equitable distribution, you should speak with an attorney who is licensed in your area and practices in this area of law.
Let’s turn now to more complicated aspects of equitable distribution exemptions.
Equitable Distribution for personal injury awards, employment discrimination awards, or workers’ compensation – the impact on New Jersey divorces
Let’s say you or your spouse recently received or will receive monetary payouts for personal injury, for workers’ compensation, or for employment discrimination; what impact will receipt of such monies have on a subsequent divorce action or the drafting of a prenuptial agreement?
PERSONAL INJURY TORTS AND NEW JERSEY DIVORCE
Personal injury matters stemming from “slip and falls” and car accidents are among the most commonly encountered torts. With awards potentially ranging into six figures and beyond, it’s imperative to understand how to address such awards in a family law setting. The basic legal principal for the treatment of personal injury awards in equitable distribution was enumerated in the New Jersey Supreme Court case Landwehr v. Landwehr, 111 N.J. 491,495 (1988).
The Landwehr decision held that the portion of a settlement intended to compensate for personal pain, suffering, and mental and physical disabilities was personal and therefore is not subject to distribution. Likewise, any award for loss of consortium to the non-injured spouse was not distributable to the injured spouse and would therefore remain the non-injured spouse’s separate property. Finally, any portion of a settlement compensating for lost earnings, medical expenses, or the like, are subject to equitable distribution. ”
The philosophy behind this determination was that wages are generally marital in nature, and any reimbursement for lost wages must therefore be distributed. Likewise, medical expenditures deplete the marital estate. One interesting point not addressed directly by the case law is how such distribution impacts alimony, or when such awards may lead to an inappropriate “double dip.”
The Landwehrdecision also informs that the injured spouse has the burden of demonstrating what portion of his or her award represents separate property. As such, to the extent a party seeking to avoid equitable distribution fails to prove a portion of an award is separate; same must be classified as a marital asset subject to equitable distribution
In the chancery division case Ryan v. Ryan, 283 N.J. Super. 21 (Ch. Div. 1993), the court held that funds received for pain and suffering could be transmuted into joint funds subject to equitable distribution when commingled between spouses, unless it is demonstrated that there was no intent to so commingle and encumber the funds.
WORKER’S COMPENSATION AWARDS, DISABIILTY PENSION, MALPRACTICE, EMPLOYMENT DISCRIMINATION – IMPACT ON NEW JERSEY DIVORCES
The “dual-classification” holding evidenced by Landwehr helps to form the cornerstone of the intersection between family law and personal injury awards. For example, with respect to workers’ compensation awards, the portion of a workers’ compensation award attributable to loss of wages or reimbursement of medical expenses is subject to equitable distribution. The portion of an award meant to compensate a worker for permanent disability reducing future earning capacity, however, is ordinarily not subject to equitable distribution. See Lentini v. Lentini, 236 N.J. Super. 233,565 (App. Div. 1989).
Similarly, the portion of a disability pension representing the retirement portion is subject to equitable distribution, whereas any income compensation or reimbursement for personal loss from the disability would not be subject to equitable distribution. See Avallone v. Avallone, 275 N.J. Super. 575, 583-84 (App. Div. 1994), which also demonstrates how difficult a burden of proof it may indeed be for a party seeking exemptions as to a disability share.
The court in Weir v. Market Transition Facility of New Jersey, 318 N.J. Super. 436 rendered the interesting holding that an employer or carrier that provided workers’ compensation benefits to an injured employee is generally barred from asserting a workers’ compensation lien against that employee’s spouse’s per quod share of recovery obtained in any third-party action.
In the realm of medical malpractice, the same “dual-classification” principals hold (see Amato v. Amato, 180 N.J. Super. 210 (1981). In Amatothe Appellate court also addressed the issue of rights to sue for medical malpractice or other personal injury. For instance, if a divorce is finalized at a time when such claims remain pending, how should such “inchoate” or putative rights be addressed?
The Amato court made reference to the utilization of special jury interrogatories utilizing R. 4:39-1, 2 to address the proper disposition of such interests by way of future percentage (%) of any recovery. Although this portion of the Amato decision rests strictly within the realm of dicta (i.e. is not binding law) and therefore lacks statutory or case-law weight, this demonstrates a likely outcome for a case involving these issues should the parties fail to agree upon a reasonable allocation of such inchoate rights. The Amato court also stated that if either party thereafter believed the final determination of such rights was unfair, they could make application before a family court judge to determine pro rata responsibility.
Regarding employment discrimination or similar such claims, although there are no published cases directly on point, it is evident by analogy that any pain and suffering attributed to an employment discrimination lawsuit would likely not be subject to equitable distribution, whereas any lost wages or lost opportunities likely would be.
PUNITIVE DAMAGES: EQUITABLE DISTRIBUTION IN NEW JERSEY DIVORCE
There is no New Jersey case directly on point addressing distribution of punitive damages. Looking to other jurisdictions employing similar “dual classification” principals, case law is similarly scarce. In Lundquist v. Lundquist, 923 P 2d 42 (Alaska, 1996), the Supreme Court of Alaska held that punitive damage award distribution in a divorce should mirror the percentage (%) of the claim awarded to each party underlying the punitive damages. It is likely
New Jersey courts would likely follow this or a similar approach should this issue arise. As a practical matter, it would be rare in actual practice to come across a divorce case where distribution or division of punitive damages would be in issue. If so, Lundquist provides a roadmap for arguments to be made.
THE INTERPLAY BETWEEN PERSONAL INJURY ACTIONS AND FAMILY LAW MATTERS
The first thing we must do is ascertain whether or not personal injury or related claims, whether actual or “inchoate,” may impact a case. This issue should be discussed as early as the initial consultation. Both equitable distribution and support obligations should be viewed through this lens to ensure an appropriate outcome.
If a matter is pending, your divorce attorney may wish to speak with your personal injury attorney, for example, to determine how the settlement may be structured. Care should be given to not interfere with the personal injury attorney or to not inappropriately meddle with the structure of such an award. Evidence, however, should be maintained throughout the process should a hearing be ordered involving inchoate personal injury rights. To that end, discovery should be tailored—and perhaps depositions ordered—addressing such issues to ensure that these issues are aggressively pursued and resolved.
Because pain and suffering claims are generally not taxable (but lost wages generally are subject to taxation), there is already an inherent incentive in personal injury actions for the injured individual(s) to seek lump sum pain and suffering payouts. This course of action, however, could potentially cloud a fair distribution of marital assets in a subsequent divorce action as to the non-injured spouse.
Cases such as Amato could, by extension of legal argument, potentially provide the non-injured spouse an avenue of collateral attack to seek a portion of such funds. Should the parties have children, even more complex issues of trusts or allotment to children may become an issue in either the personal injury action and/or the divorce proceeding. Care should also be given to the date the injury accrued, as same may either trigger or bar equitable distribution to the non-injured spouse.
Although family law attorneys and personal injury attorneys often attempt to avoid any overlap between proceedings, such ensnarement may potentially occur and you should help as a client to facilitate such dialogue. A greater dialogue between both sets of practitioners, along with perhaps estate attorney practitioners, will provide a more holistic approach to these types of issues. Such dialogue along with a more nuanced understanding of the relevant case law can only assist clients and those attorneys confronting such issues on a regular basis.
Like most of family law, distribution of funds from worker’s compensation, personal injury, and the like is extremely fact-sensitive. Accordingly, it may be important to meet with an attorney to determine how your specific facts may be applied, particularly in a post-alimony reform world in New Jersey.
Partner with Carl Taylor, Esq.
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