In this video, attorney Jordan Rickards dispels some of the myths about pre-marital assets under New Jersey divorce law, in particular as relates to houses purchased prior to a marriage, and financial assets brought into a marriage.

The following is a transcript of the above video:

Hey guys, Jordan here. I hope you’re doing well. As you can see, I’m actually shooting from my office today instead of my studio. And actually the reason I’m doing that is because I keep getting phone calls from people who I think have some real misconceptions when it comes to what qualifies as a premarital asset and what doesn’t. I just thought I’d take a few minutes real quick to clear it up while it’s on my mind. And here’s what basically happens, the misconceptions tend to fall into basically two different groups. Misconceptions relating to say the house and misconceptions relating to other kinds of money, other kinds of wealth. And the ones relating to the house are actually very common, it goes like this. Somebody will call me up and I’ll be trying to go through their premarital assets and what’s subject to equitable distribution and not. And equitable distribution is just a fancy way of saying what is subject to being divided in the course of a divorce.

And they’ll say to me something like, “well yeah, I have a house, but I bought it ahead of the marriage, so that doesn’t count.” And it’s like, well, wait a minute, I’ll tell you if it doesn’t count and tell me more about it. And what these people usually mean is that prior to the marriage, yes, they put a down payment on a house and yes, they entered into a contract on the house and yes, they have the house deeded in their name, but the house wasn’t paid off before the marriage. And so during the course of the marriage, they continue making payments. Well, a couple of things about this. First of all, having the name on the deed is totally irrelevant. I see this all the time where people say, “Well, yeah, we have three cars, but they’re all in my name.” Well so what?

The issue is whether it was acquired during the marriage with marital funds. And if so, it doesn’t really matter whose name it was in. The whole thing about the name has to do with creditors and who they can collect against. It has nothing really to do with what equal distribution determines. But as far as the house being bought ahead of time, understand that while maybe your down payment can be segregated from equitable distribution, that during the course of your marriage you’ve been making payments on that house with marital money and therefore marital equity is accruing and marital equity is subject to equitable distribution.

So here’s an example just using easy numbers. Let’s say year one, somebody goes out and they buy a house for a hundred thousand dollars. Which I know in New Jersey is impossible to do, it’s just an easy number to work with. They put 20% down, which is $20,000. And then for years two through ten for the marriage, they’re putting $3,000 down per year. So they put three times nine is $27,000. Well, when it comes time to get divorced, he can’t just say, “All right, well bought the house ahead of time therefore it’s not subject to division,” because no, you put your down payment down ahead of time, you’re still paying off the house.

So maybe your 20% can be excluded, but then the rest of the payments from years two through ten are still going to be factored in when we figure out how much equity there is in the house and how to divide it. And what’s probably just going to happen is we’ll figure out you had 20% interest in the house in the beginning, we’re going to appraise the house now, see how much 20% equals now, segregate that part out, and the remaining equity is going to be split 50/50. That’s how that’s going to work.

So this idea that you can just sort of bring the house into the marriage and then it’s just yours outright is kind of flawed. And I’ll tell you something else. There are some judges where they’ll say, look, even your premarital equities shouldn’t count because the wife,” and we’ll just use the wife as the example here, the wife during the course of the marriage has invested what’s called sweat equity in the house. And there are some judges who will say, look, for every year of marriage, I’m going to give her another 8% of whatever equity is in the house, whatever equity you guys have, or 10% or 12%, lets say 10%, so that after 10 years, whatever equity you brought in is completely evaporated.

So understand that just because you bring a house into a marriage, doesn’t mean that it’s not subject to equitable distribution. Now I had a case one time, this is another bit of an extreme where there was a house, I think it was in Hillsborough where you have a lot of houses that date back to the revolutionary war, and this was such a house. And this one guy’s family had owned the house, I’m not kidding, for over 200 years. And this woman had married the gentlemen and they were getting divorced after eight years and she wanted equity in the house. Well, that’s a little bit different because that’s something that’s been established, again, for 200 years. That’s an extreme example, but she could still see her marital share increase simply by virtue of having been married and contributed to household maintenance, that kind of thing. Because again, remember, family law is not a court of law, it’s a court of equity. And so it’s really just subject to whatever a judge thinks is fair. And what’s fair is very subjective, hence the term, subject to.

Which brings me to my second point, money that’s brought in. Now the general principle with money that’s brought into a marriage is that if that money starts getting co-mingled with marital assets, you can forget about it. If you’re going to bring money into a marriage, you better keep that money segregated in its own account. You better not be using it for marital expenses. You better not be putting marital money in it. It better just be separate and apart from the marriage, and then you have a shot of getting it held as a premarital asset. The problem becomes people bring money into a marriage, they’re putting their paychecks in that account, they’re spending money in the account, now it’s commingled, and you can forget about it. Now it’s a marital asset.
With retirement accounts, it can get kind of complicated because you will have contributed a certain amount before the marriage, and then that amount will have grown. And what you have to do then is you really have to segregate that initial amount from the rest of it. Which can be done. There are companies that do that, and that’s not that much of a problem. Where it becomes more of a problem is trying to figure out how much it should have grown over the course of time. Especially if there’s been what’s called active management of that money. In other words, it’s one thing if you’re just putting money into a brokerage account and it’s some generic fund or whatever, some mutual fund and all of the money is growing equivalently. It’s quite something else if you’re day trading money. It’s really difficult to see how much this amount would have grown relative to the rest of the amount. So it can get kind of complicated.

But I’ll give you another complication that people don’t think about. If you bring money into a marriage and the result of a divorce is that you’re going to be leaving much better off than the person you’re divorcing. So let’s say a husband because I’ve dealt with this situation. Let’s say a husband brings about $50,000 into a marriage, which is segregated. It’s on its own, nobody doubts that. But for whatever reason, the marital assets, when they’re divided, leave the wife in such a condition that she really can’t care for herself, can’t enjoy the marital standard of living. But let’s say it’s a really extreme example where she’s got some problems. She’s going to be out in the streets, a long-term marriage. She doesn’t have any education. She’s not going to be able to get on her feet. That sort of thing. And husband, he’s not getting anything in the division of assets, but he still at least has $50,000 to walk away with.

Well, the court might not exactly divide that asset up because again, it’s not going to be subject to division, but what the court can do is manipulate the spousal support award, in other words the alimony award, to award more alimony to the wife, reflective of the fact that the husband can pay for it. Reflective of the fact that the husband is in a superior financial position. And you can say, well that’s fair or that’s not fair. That’s irrelevant. I’m just saying, that’s what the court can do. That if you’ve got a situation where two people are going to exit a marriage and husband, for example, is going to exit it in a vastly superior financial position to wife and the husband’s going to be able to maintain the marital standard of living and wife is not.

And let’s just add that. Let’s say wife has a hardship. Maybe it’s a medical hardship. Maybe it’s just the hardship where it’s just, she doesn’t have any education. If there’s already going to be a spousal support component, don’t be surprised if the judge factors into the spousal support component that the husband is in a vastly superior financial condition. So the court isn’t actually touching the money that the husband brought into it, but the court is basically penalizing, I hate to use that word but that’s what it is, penalizing the husband for having the extra money and thereby increasing his spousal support obligation. So even though that’s a premarital asset, the effect of that premarital asset is to increase spousal support. Again, it doesn’t matter if it’s fair or not, I’m just telling you that’s what you’re subjecting yourself to.

So just keep that in mind, guys. If you’re really concerned about this whole premarital asset situation, get a prenuptial agreement. Spell out what it is that you guys expect to enter the marriage with and what it is you expect to leave the marriage with, in case it decays. I did another video on that so I’m not going to get too much into it now. If you haven’t seen it, I certainly commend it to you, but that’s really critical. One of the great benefits of the prenuptial agreement is not just that it spells out what everyone’s going to leave the marriage with, it explains what everyone’s bringing it into so everybody’s going into the marriage with eyes wide open. Again, go watch that video, that’s separate. But these are just a brief primer on the concept of premarital assets.

I’ll do a video later on equitable distribution to kind of explain that in greater depth, but just for today’s purposes, just understand if you’re bringing the house in, you’re probably not excluding the whole house. If you’ve entered into a contract, you made a down payment on a house ahead of time, that’s one thing, but that doesn’t mean that you now own the whole house such that it’s not subject to equitable distribution. And the same thing is really true with retirement assets. Just because you had it ahead of time, doesn’t mean it’s always entirely excludable. Especially when it becomes co-mingled and especially when one party is going to be leaving the marriage in a vastly inferior financial position to the other person. If you have more questions about this, please feel free to give me a call. I’d be happy to give you a free consultation, just mention that you saw this video and I’d be happy to help you out. All right guys, take care of yourselves.