1. Are gifts subject to equitable distribution in a divorce case?

No. N.J.S.A. 2A:34-23 specifically excludes from equitable distribution all gifts received by either spouse from a third party. The third party is in most instances the parties’ parents. However, it is important to note that interspousal gifts are subject to equitable distribution. The burden of proving that an asset is an interspousal gift rests upon the party alleging the status of the property.

Many disputes have arisen over whether a gift was to one or to both spouses, or whether a gift to one spouse lost its separate and immune character by virtue of being commingled with marital property – for example, by deposit in a joint savings bank account. See Dotsko v. Dotsko, 224 N.J. Super. 668 (App. Div. 1990).

A typical type of interspousal gift is the conveyance of a home owned by one spouse prior to the marriage to both spouses as tenants by the entireties after the marriage. Such a gift converts what would otherwise have been separate premarital property into marital property subject to equitable distribution. See Perkins v. Perkins, 159 N.J. Super. 243 (App. Div. 1978).
 
It is important for a spouse to keep any of his/her assets that were derived from a gift(s) separate and distinct from the rest of the marital property. Separate property that is brought into the marriage is not eligible for distribution upon divorce. However, quite frequently the spouses commingle their resources. Consequently, separate property that was a gift is often commingled with marital funds. If this should occur, then an argument can be made that the gift was converted into marital property. Cases of this nature are decided on a case-by-case basis. If possible, it is always strongly advisable to keep gifts from your parents and your inheritance separate from your spouse’s finances.

2. I purchased a beautiful new home with my wife. I paid the entire $100,000 deposit with my own money that I earned prior to the marriage. Our marriage is a disaster and we are now getting divorced. Is the $100,000 deposit subject to equitable distribution?

When a couple are in love they rarely consider the financial consequences if the marriage fails. In many marriages one spouse comes in the marriage with most of the money. Quite frequently, the husband pays for the entire home deposit with premarital monies. If the couple ultimately gets divorced, the husband will try to claim that the deposit monies consisted of premarital monies to be excluded from the marital estate. This type of analysis is flawed and the reality will shock many spouses.  

A very illustrative case is Weiss v. Weiss, 226 N.J. Super. 281 (App. Div. 1988). In Weiss, the husband made a $5,000 down payment on the marital home and executed a mortgage and note on the home four months before the marriage. The title to the home was placed in his name only. Together, the parties made substantial repairs and improvements to the home both before and after the marriage. The Weiss court held that the down payment was a marital asset. The court further held that a marital partnership was commenced before the marriage ceremony. Moreover, the court held that the home was specifically acquired in contemplation of their marriage. As a result, the home purchased by Mr. Weiss prior to the parties’ marriage was subject to equitable distribution.

This case is frequently cited by courts when they analyze the issue of whether a down payment is considered a marital asset. The bottom line is that if one spouse pays for the down payment to purchase a marital home, then those monies are converted into marital property which will be subject to equitable distribution.  

In summary, when one party contributes money toward the purchase of the marital home, and places title to the home in the name of both husband and wife, the contribution of that money is considered a gift unless there is a prenuptial agreement to the contrary. Thereafter, the entire down payment will be considered as marital property. 

If a spouse is making a significant down payment consisting of premarital monies, then it is always advisable to have a basic prenuptial agreement. The parties can agree that in the event of a divorce, the deposit used to purchase the marital home will be repaid to the contributing spouse before any proceeds are equally divided. This issue also arises when one set of in-laws provides the funds to pay for the down payment for a marital home. A prenuptial agreement can provide that the in-laws shall receive their contribution back if the marriage is terminated and if the marital home is then sold.

3. I owned my home prior to my marriage. Once I married, I placed my wife on the deed with me. Is the marital home still considered a joint asset notwithstanding the short duration of the marriage?

When one party owns a home prior to the marriage, but during the marriage transfers title to both parties, the transfer is considered to be a gift which then transforms the property into a marital asset subject to equitable distribution. It is important to note that, even though the case law consistently holds that a premaritally-owned residence is converted into an asset subject to equitable distribution when the title is placed in joint names, it does not necessarily follow that the value or equity of the home will be equally divided by the spouses. If the marriage is a short one, then the spouse who owned the home before the marriage will receive a credit for other contributions. The longer the duration of the marriage, the less likely it is that the spouse who owned the home before the marriage will receive any contribution credit.

4. My parents gave me $40,000 to use as a down payment on the marital home. Unfortunately, the marriage is a disaster because my wife is a cheater and a “spendaholic.” Is the $40,000 gift from my parents subject to equitable distribution?

Parents often are very generous to their children at the wedding. The parents want their children to get their marriage off to a good start. A generous check often can be used as a down payment to purchase a new home. Moreover, in many cases, parents gift lots of land to their child and to his or her future spouse. The parents have visions of a happy marriage and of many happy and healthy grandchildren. If this vision “pans out” then the gifts are worth it in the eyes of the parents.

Unfortunately, in many instances marriages turn out to be disasters. Once a marriage ends, quite often the in-laws will contend that the gift was only made to their child. Alternatively, the in-laws could maintain that the gift was actually a loan. The black letter law in this type of situation is that a gift by a third party (usually an in-law) to both spouses, typically the down payment on their house, is subject to equitable distribution. However, the fact that the gift was made by the parents of one spouse is a factor that the court may take into consideration when it decides on equitable distribution. Nonetheless, the asset is still subject to equitable distribution.

Disputes frequently arise in a divorce case as to whether monies or other property provided by the parents of one spouse were a gift or a loan. The maxim that gifts given in good times cannot be taken back in bad times often applies. Unfortunately, in most cases there is no writing or contract to corroborate the fact that the parties and the generous parents viewed the money as a loan, say of a down payment on a house, at the time when it was made. Once the marriage breaks down, the other spouse claims that it was a gift. If a loan is made by parents to a child and his or her spouse, it should be carefully documented so that there can be no dispute in the future. If the monies advanced were a loan to both spouses, then it is a marital debt that should be repaid. The best evidence that it was a loan is a promissory note that is given by both parties. But other evidence may be sufficient, such as canceled checks by the spouses to the parents for a period of time, indicating repayment of a loan.

5. I blew $20,000 on an engagement ring for my wife. Unfortunately, the marriage has been a disaster. Is the engagement ring subject to equitable distribution?

Unfortunately, this issue arises frequently in my practice. I always advise the divorcing couple to sell the engagement ring and use the proceeds to pay off marital debts, because in most cases the marital debts include high credit card balances. However, if the divorcing wife is knowledgeable of the law, she would “hold to her guns” and keep the ring. The law is clear and holds that an engagement ring is not an asset that is subject to equitable distribution. An engagement ring is a conditional gift. Once the marriage is solemnized, then the ring is only returnable if the engagement is broken and the marriage does not take place. Winer v. Winer, 241 N.J. 510 (App. Div. 1990); Guglielmo v. Guglielmo, 253 N.J. Super. 531 (App. Div. 1992); Goldman v. Goldman, 248 N.J. Super. 10 (Ch. Div. 1991).