Articles Posted in Equitable Claims

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For most people going through a divorce, their interests in real estate are often the primary assets that need to be divided. Whether it is the marital home, a vacation property, or commercial real estate, most litigants question how they are addressed in a divorce. Like all other assets acquired during the marriage, the law requires that they first be identified and then valued, after which the court (or the parties by Agreement) can effectuate their “ equitable distribution”. However, dealing with real estate in divorce has become more challenging given the ever-changing market. This blog post will attempt to briefly address some of these issues.pexels-karolina-grabowska-4506270-300x200

The first task is to identify those real estate holdings that may be subject to equitable distribution. To be subject to equitable distribution, they usually need to have been acquired “ during the marriage”, which is generally defined as between the date of marriage and the date the divorce complaint is filed. However, as with most things in divorce, there are some exceptions. Real Estate acquired “in contemplation of marriage”, often the marital home, may be considered subject to equitable distribution even though purchased prior to the date of marriage, if certain elements are established ( a topic for another blog post perhaps). Furthermore, sometimes real estate may change in value, not due solely to market forces, but through the “active” efforts of the owner or financial contributions towards improvements. If those “active” efforts or contributions occurred during the marriage, even if the property itself was originally acquired prior to the marriage, any change in value attributable to same may be considered a marital asset subject to equitable distribution.

Once marital real estate assets have been identified, they need to be valued. Often the parties may decide that they want to simply sell the real estate and divide any “net proceeds” in some fashion. In this case, the property may not need to be valued as the market itself will establish its “value” when it is sold. However, in other instances, real estate may not get sold either because one or both parties want to retain it (i.e. the marital home) or it may not be amenable to be sold ( i.e. commercial property housing a business). In these instances, its value will need to be established by way of appraisal done by a professional real estate appraiser. Sometimes to save the cost of an appraisal, the parties may go to a local realtor for a CMA or Comparative Market Analysis. This is not the same thing as an appraisal but is usually just an estimate based upon recent listings or sales in the area to support a possible listing price. Hence, courts generally do not accept CMA’s as proof of value. That is not to say that parties may also attempt to“stipulate” or agree as to a property’s value, but in today’s market that can be a challenging task. And frequently parties have different motivations concerning the disposition of the property which may lead them to either want to minimize or maximize its value in a case. While parties may also secure competing appraisals, discrepancies are usually small and generally reconciled between the appraisers or during discovery or at trial.

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Consistent with our firm’s position of being a leader in the field of Family Law, we have just received a decision on one of our appeals, meaning it is now law that will be binding for trial courts. The case is, Steele V Steele, and it was approved for publication today as I write this on, April 30, 2021.

This case analyzed the types of contracts that engaged and married couples can enter into. It makes clear that contrary to unreported decisions that premarital agreements are creatures of statute and that judges are bound by the statutory scheme and can not vary it. In the Steele case, the trial judge erroneously found that an agreement entered into after the marriage was a prenuptial agreement under the act because the husband had expressed an intent to have such an agreement.

The case then goes on to discuss when and if a marital agreement can become enforceable. Recognizing that divorcing adults are susceptible to entering into agreements that are enforceable because they are adverse to each other. It should also be stated that those with marital trouble on the potential path to divorce can contract so long as the agreement is fair at the time it was entered into and at the time enforcement is sought. In Steele, the wife had just conceived a child and was breastfeeding when she entered into the agreement. Unbeknownst to her, the husband had been preparing an agreement even before the parties were married changing the way he valued assets; ignoring some assets and sources of income altogether. The court indicated that for the post-marital agreement to be enforceable the agreement needed to be fair and equitable. Meaning that the dominant partner needed to make a full and complete disclosure of all assets and income without exception. In the Steele matter the husband who admitted to being worth at least 9 million dollars at the time of the agreement, did not decide to play fair and disclose all assets and used inconsistent means to value assets choosing in each instance the valuation technique that yielded the lowest monetary value. In this matter, the husband did not disclose all sources of income and ignored significant income-producing assets held in trusts. Another condition of enforcing such agreements is that they must be fair and equitable when the agreement is reached as well as when enforcement is sought. In this matter, a home selected and purchased after the parties’ marriage was excluded from property to be shared upon divorce and in the event of the husband’s death, his wife and young child would be left destitute as in the document the wife had waived any claim against the husbands’ estate. The overreaching of the husband is well documented in this exquisitely crafted appellant decision.

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We all know about the political civil war which has been taking place in Washington D.C. However, that is a mere skirmish when considering the thermonuclear battle which is about to engulf the Earth – the impending divorce between Kanye West and Kim Kardashian! There is nothing better than a good old fashioned celebrity divorce to take people’s minds off of their mundane troubles of the day. We can see it now. Banners blasting across the internet. Headlines across the covers of People Magazine or the National Enquirer (does it still exist?) Page Six in the New York Post. Whole episodes of TMZ or Access Hollywood. Who should get custody of the children? Is Kim unfit? Is Kanye crackers? Was there a prenup, and if not, how will they divide the millions each are worth? However, there was one recent story about this once loving couple posted on the internet which actually piqued my interest. Apparently, Kim and Kanye live in a mega-mansion located in Calabasas, California. While many divorcing couples share a home which may need to be disposed of in some fashion during the divorce, it was the headline of this article that I found most fascinating – “Kim owns the land and Kanye owns the house?”.

The discussion that followed focused on how this could be, and what the impact may be in the disposition of this property upon their divorce. Assuming this is true, how might this be possible? Could it be a land lease situation – think a trailer park on steroids – where someone owns the physical residence structure who then pays rent or dues to the owner of the land itself for the privilege of placing your residence on it? Does Kanye own the track of land upon which the residence is situated but Kim owns all of the adjoining properties? Did Kim pay for the land and Kanye pay for the construction of the house itself? Perhaps as is common in most celebrity situations, some type of trusts were created to hold certain property or assets, and which afford different rights or entitlements to the holders or beneficiaries thereof. Regardless of how Kim and Kanye’s Calabasas home is held, the real question is whether it truly makes a difference when it comes to the disposition of the property in a divorce.

When it comes to California, anything is possible. California is what is known as a “community property” state. As such, it has its own set of standards as to what would constitute property divisible upon divorce, and who would be entitled to what. Who may “own” or have title to a given property, or to the form in which it may be held, might make a difference in how that property is disposed of in the event of divorce under California law. However, things may be considerably different if Kim and Kanye were getting a divorce in New Jersey. When it comes to the division of assets in a divorce, New Jersey operates by what is referred to as “equitable distribution”. If an asset or property is acquired during the course of a marriage, usually defined as being between the date of marriage and the date a complaint for divorce is filed, that property is generally considered to be a marital asset and thereby subject to equitable distribution in the event of divorce. Exceptions would include gifts or inheritances a party may receive from a third party, or assets acquired in the name of one party using “premarital” funds of that party. Assuming these exceptions don’t apply, the name under which the property is held, nor in what form, generally does not matter. Nor does it matter who paid for it. The inquiry is rather simple. Was it acquired during the marriage? Were marital assets or funds used to acquire it? If in Kim and Kanye’s case, the answer was yes, then under New Jersey law their Calabasas mega-mansion would be deemed a marital asset. It would be subject to equitable distribution. Please note that I use the term “equitable”, and not “equal”. This is not mere semantics. Once it has been established what property and assets constitute the marital estate, there are a myriad of factors under NJSA 2A:34-23.1 which a court must consider in order to effectuate “equitable” distribution of marital property. Who paid for what. Custodial obligations. Relative contributions. Prior agreements. These and many other factors may impact what distribution of marital assets would be “equitable”.

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ABOUT THE PROGRAM

“High asset matrimonial litigation is complex involving a myriad of financial issues. Non is more vexing than asset valuation. Our informative webinar, featuring some of the state’s leading matrimonial lawyers, judges and matrimonial professionals will review the asset valuation questions that can arise in an high income divorce, and provide nuanced observations about how best to address these complex financial issues in settlement.”

TOPICS INCLUDE:

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When does it make sense to hire your own expert and when does it make sense to use a joint expert with your spouse? Using a joint expert saves money, obviously, but is the saving worth the lack of control and flexibility? It depends. The more sophisticated the issue related to the asset the more important it is to have your own expert. For example, under our law, a premarital asset is exempt from equitable distribution unless it appreciated by an active effort of a spouse during the course of the marriage. So if you started pexels-maitree-rimthong-1602726-300x200a business before the marriage the question is what part of any appreciation of the asset is related to market forces and what percentage is related to your efforts. This is a complex issue with many nuances if you have a joint expert they may not feel that all such nuances should be investigated without an agreement. You will not have the same freedom to speak to the expert and your lawyer will certainly be limited in his/her ability to instruct the expert and to discuss concepts. Market forces and the time value of money may play a role in the increased value of your business and the savings if you do not have to share a portion of your businesses’ appreciated value can far exceed the cost of an independent expert.

Inherited assets are also exempt from distribution however once again active appreciation in that asset is distributable. You may have inherited an office building during your marriage. The value of that building when inherited is exempt however if it has appreciated in value during your marriage you will need to prove that the appreciation is not due to your effort but due to market forces. Having your own expert to navigate the appreciation and to explain how the property appreciated could have a critical impact on how much you will need to pay your spouse. In February I will be giving a seminar for the New Jersey Institute of Continuing Legal Education dealing with valuation issues including identifying how to distinguish active from passive appreciation. Joining me will be a Real Estate Appraiser, a Forensic Accountant, and an Appellant Division Judge. This is a complex issue in matrimonial litigation and the outcome can have a tremendous impact on the outcome of your case. Money is a commodity and we use it to value other commodities such as Real Estate and Business Ventures. Money can change in value because of inflation or depression or simply over time. World opinion may also have an impact on the relative value of a dollar. If you use the dollar to value assets without further insight into the factors that affect the value of the dollar you could be economically harmed. If you are looking for a real appreciation you need to stabilize the dollar in the year of valuation relating it to the value of the dollar in the year of acquisition.

Not all appreciation is active distributable appreciation. World or local economic changes may affect value wholly unrelated to owner effort. For example, real estate may appreciate because of zoning changes unrelated to any owner effort or because of market factors that might inflate value; a perfect example is the appreciation in the value of residential real estate in New Jersey caused by the exodus of high-income people from New York City as a reaction to Covid and taxes. This spike in value is clearly due to market reaction to the demand for none urban housing.

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President-Elect Biden has stated that he would undo President Trump’s tax reforms if he is elected. From an individual’s viewpoint, those reforms included placing limits on mortgage deductions as well as state and local taxes such as real estate taxes. The 2017 tax cuts nearly double the standard deduction and eliminated the personal and dependent deduction but allowed the child tax credit to remain. The act is scheduled to expire in 2025 but there is little doubt the in a Biden presidency there will be some tinkering with taxes. Certainly, there will be an increase in personal taxes for the “wealthy” which the Democrats seem to define as those earning over four hundred thousand dollars ( $400,000) a year. Coupled with a rise in taxes for upper-income individuals is a concern of what happens to alimony in the Biden Presidency. The 2017 Tax Cuts and Jobs Act eliminated the deductibility of alimony for new awards dated after January 1, 2019. Subsequent to January 1 new alimony awards are no longer deductible by the payor or taxable to the payee. Current federal tax rates for single and married filers (married filing jointly) are as follows :

Tax Rate Taxable income single Taxable income joint return

10% Up to $9,875 Up to $19 ,750

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Cohabitation of a dependent spouse with another in a relationship tantamount to marriage may lead to the suspension or termination of a payer’s obligation. During COVID many people have begun nesting for companionship and resource sharing. Ma

ny of these new “quasi-family” unions are built upon established long term relationships; others are built on less firm footing. The question arises: do these arrangements give rise to the right of the payer to examine the nature of the relationship and the appropriateness of some financial relief?

An application to terminate or suspend alimony based on cohabitation is provided for by  Statute and Case Law and is frequently refined and defined by Property Settlement Agreements. Generally if one believes their spouse is cohabiting and the spouse is not conceding the fact, a  motion must be made to the Family Part seeking relief or a hearing regarding the payee’s status.

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Although Covid has dramatically affected how the Courts operate day to day divorce cases are still moving forward efficiently. Most matters are proceeding with e-filing of pleadings and motions while appearances are being hosted on Zoom as well as several other internet platforms.

The court buildings are also open to attorneys and litigants specifically involved in a matter on a limited basis. Through a combination of internet and limited physical appearance, matters are

moving through the courts efficiently.

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If you have listened to local radio in recent years, (certainly those stations geared to a more mature audience), you were hard pressed to miss commercials from a “large” insurance broker toutinginsurance-300x184 his ability to obtain “affordable” life insurance coverage for persons, notwithstanding whether you had various chronic health conditions, took medications, or were otherwise not in the best of shape. Recently, that same insurance broker has been running a new series of commercials clearly geared to divorced or divorcing spouses, who may be in the position of having to secure life insurance coverage for the benefit of their ex, maybe even more than one. Continue reading ›

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For many years Palimony actions were proliferating. Spurned on by the original landmark palimony case filed against actor Lee Marvin by his former girlfriend in California. palimony actions gave e3bc10d77963468f2705f7119c049b73-300x199 hope that people (usually women) in long term relationships without marriage would have some financial rights when the romantic relationship went sour. Palimony served a useful social function to level the proverbial social playing field once the concept of “common law marriage” was eliminated. For Palimony created legal right of support in situations were there was no legal marriage but there was a promise of support. Continue reading ›