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Valuation of Property - Your Home, Other Assets, and Pensions
The Date of the filing of the Complaint for Divorce historically has been the date that assets are valued for purposes of equitable distribution. If the asset increases or decreases in value due to fluctuating market conditions, as in the real estate and stock markets, the gain or loss is realized by both parties at the time of the actual distribution or sale of the asset. However, when an asset has increased in value due to the sole efforts and industry of one party, the gain usually will be awarded to the person responsible for the increase in value. Losses are similarly treated. Recent case law has created several exceptions to the general rule depending upon whether an asset was premarital, active or passive, and whether a non-owner spouse contributed to the increase in value during the marriage.
Who Keeps the Marital Home?
A pervasive principal of equitable distribution is to liquidate and distribute all assets at the time of the entry of the Final Judgment of Divorce. That theory likens partnership dissolution where the partners receive their distributive share of partners assets upon termination. If there are offsetting assets that the non-custodial parent can receive, it is desirable for the custodial parent to remain in the marital home thus avoiding the children having to move from what usually has been a somewhat stable and nurturing environment. When there are insufficient offsetting assets to permit the custodial parent remaining in the marital home, the Court generally takes the view that the marital home must be sold at a time when it is least detrimental to the best interest of the children. The Judge will weigh the needs of the non-custodial parent to receive their equitable share in the marital home against the needs of the children to maintain a stable environment.
For example, if the divorcing couple have children ages 3 and 5, the Court generally will Order the immediate sale of the marital residence because children of those ages are extremely resilient to change and usually do not have strong attachments to neighborhoods, schools and neighborhood activities. Children who are in high school create more of a need to permit the custodial parent and children to remain in the marital home until completion of the high school program including extra-curricular and athletic programs attendant to high school. Children in the middle category post the most difficult of situations. For example, if the children were ages 8 and 11, the Family Court Judge would then look for the closest possible date to sell the former marital residence yet attempting to preserve some stability. Often children of those ages change schools from either an elementary to middle school or middle school to a junior high school. Those change dates are ideal for the sale of the former marital residence because the children will be experiencing new friends, new schools and new teachers.
Valuation of Assets - The Appraisal
We may boast at cocktail parties that our businesses are worth millions, we may inflate our assets and deflate our debts on mortgage applications, but in Divorce Court it is important to establish valuation by expert opinion. By agreement of the parties, value can be stipulated but more often an expert is required. Real estate is inexpensive to value and a certified real estate appraiser is preferred. However, most Realtors will provide comparable sales analysis at little or no cost with the promise of a future listing. Certified Public Accountants, tax attorneys and business appraisers, if qualified, can offer opinions as to the value of businesses and business assets.
Pensions, annuities, 401K Plans, Keoghs, IRAs and any form of deferred compensation plan is subject to equitable distribution. Only that portion of the asset accruing during the marriage through the date of the Complaint for Divorce is included in equitable distribution. However, cost-of-living increments and appreciation earned on that portion accruing during the marriage but distributed in the future is part of equitable distribution.
The value of 401K Plans, Keogh plans and assets such as IRAs are easily valued by simply obtaining account balances. The valuation of a pension or annuity is more difficult. Actuaries or pension evaluators routinely provide the present dollar value of pensions. To understand the value is more challenging. A pension is usually the right to receive monthly payments at a given retiremnet age payable until death. Often there are additional survivor benefits which continue until the death of the spouse. Conceptually, the value of that pension (or that portion of the pension accruing during the marriage) is the amount of money it would take to purchase a single premium annuity through a life insurance company that would yield the same benefit. Another way to value the pension is to compute the monthly payments from retirement to the date of death determined by published mortality tables and discount that sum back to the present value using an interest rate discount factor.
The value, once determined, must again be factored by the anticipated tax consequences of distribution. If the retirement benefit was funded by pre-tax dollars it will be taxed upon distribution. If funded with after tax dollars it will not. There are plans which are combinations of pre-tax and after tax contributions.
What is a QDRO?
The Divorce Reform Act of 1988 created a mechanism by which non-participating spouses, through a Court Order, can become a participant in the pension plan or deferred compensation plan of the participating spouse. The Qualified Domestic Relations Order (QDRO) is an Order from the Family Court directing the pension plan administrator to segregate that amount or percentage of pension that a spouse either settles or is awarded by way of equitable distribution. The spouse then has a vested pension right along with the rights of distribution or withdrawal similar to those of the employed spouse. The net result is that the non-employed spouse will receive a negotiated or Court ordered amount of pension benefits and will be taxed on the amount received. QDROs are utilized when a spouse desires the security of a pension or when there are insufficient assets for a buyout of the pension value at the time of divorce. There may also exist survivor benefits or a joint annuity available for equitable distribution.
New Jersey is an equitable distribution state, meaning that the division of property in a divorce is to be done fairly, not necessarily equally. The court can take into consideration any factor it deems relevant when dividing property, but it must consider certain factors, such as how long the couple was married and the age and health of both spouses, the income or property brought to the marriage by each spouse, the standard of living that was achieved during the marriage, and the extent to which one spouse may have deferred career goals, among others.
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