In many families, the marital home is the most valuable asset owned by a couple. As a result, determining how to deal with the marital home as part of the division of property during a divorce is a critical, and often times a contentious aspect of a divorce. Nevertheless, before deciding whether and how to divide the marital home, it is important to determine whether the home is marital property.
The Basics
Under New Jersey law, a court is empowered to equitably, but not necessarily equally, divide any and all property that was “legally and beneficially acquired by them or either of them during the marriage”. Therefore, a house purchased by either spouse using marital assets will be considered marital property subject to division, regardless of in whose name the house is titled.
Importantly, gifts and inheritance are exempt from division, as are pre-marital assets. As a result, in general, a house that received by one spouse as a gift or inheritance, or acquired by one spouse prior to the marriage, is not marital property subject to division in the event of a divorce. Nevertheless, for every rule, there are exceptions, as addressed below.
Becoming Marital Property
The first, and likely most common exception comes directly from the statute governing the division of marital property. It explains that “interspousal gifts . . . shall be subject to equitable distribution”. In other words, if one spouse either retitles an otherwise non-marital house in the other spouse’s name, or in both spouse’s names, the house will be considered marital property subject to division. No consideration is necessary for this transfer to cause otherwise exempt property to instantaneously become divisible property, since the statute expressly uses the term “gifts”.
A second exception is that a house bought in contemplation of marriage in one spouse’s name is also subject to division.
A third exception, which has yet to be adopted by any New Jersey court, but which does present a compelling argument, is “transmutation”. Transmutation is an equitable argument where “property that once was classified as separate or non-marital can be transmuted into marital property when the spouse with title represents to the other spouse that the property will be shared.”
Equitable Considerations
In addition to the above, there is another situation that deserves attention. Even where a house is not marital property, and thus not subject to division, a spouse is entitled to share in any increase in value of the house for which he or she contributed. For example, if the spouses use marital assets to pay down the mortgage, to renovate the house, and even arguably for upkeep and to pay property taxes, any increase in value directly attributable to such expenditures can be considered marital property subject to division. Nevertheless, increases in value as a result of market conditions or inflation are not subject to division, since they are passive increases to which neither spouse contributed. It goes without saying that attempting to value such aspects can be incredibly costly and challenging, but they can also serve as critical bargaining tools in a divorce where the house is not considered marital property.
Taken together, if the marital home is not marital property, there are limited means for a spouse to claim that the home, or its increased value, should be subject to division. That said, effective posturing using the arguments presented herein may compel settlement on more favorable terms, particularly in the case of a long-term marriage. Contact Steven M. Cytryn, Esq., an experienced Central New Jersey Divorce Lawyer, today, to learn more about your rights in connection with property you own as part of your marriage.
