Equitable Distribution & Discovery in Divorce Actions

Equitable Distribution & Discovery in Divorce Actions

New Jersey is what is referred to as an “Equitable Distribution” state when property is divided between two spouses when a marriage or civil union is terminated. In an Equitable Distribution state, property acquired during the marriage belongs to the spouse who earned it; however, that does not mean that the other spouse is not entitled to share in the division of these assets. Thus, in an Equitable Distribution state, the property will nevertheless be divided between the spouses in a fair and equitable manner. While there is no specific set rule in determining how much each spouse will get as part of the property division, the court considers a variety of factors set forth in The Rules Governing The Courts Of The State Of New Jersey (“Court Rules”) as well as case law interpreting the Court Rules. The Equitable Distribution approach is contrary to the concept of community property. In a community property state, each spouse is deemed to equally own all income and assets acquired during the marriage, regardless of who purchased it or whose income was used to purchase it.

Equitable Distribution applies to all assets acquired during the marriage, as well as the enhanced value of pre-marital assets. It includes all forms of personalty such as businesses, bank accounts, brokerage and stock accounts, retirement accounts, deferred compensation plans, jewelry, artwork, furniture, automobiles, copyrights, etc. and all forms of real property. There are certain exceptions to Equitable Distribution. N.J.S.A. 2A:34-23 (h) provides that “Except as provided in this subsection…all such property, real, personal or otherwise, legally or beneficially acquired during the marriage or civil union by either party by way of gift, devise, or intestate succession shall not be subject to Equitable Distribution, except that interspousal gifts or gifts between partners in a civil union couple shall be subject to Equitable Distribution.” Additionally, a court is prohibited from making an Equitable Distribution award of property on behalf of a party convicted of an attempt or conspiracy to murder the other party.

N.J.S.A. 2A:34-23.1 provides the criteria by which a court determines the award of Equitable Distribution. In addition to the below factors, a court may consider any other additional factors it may deem relevant. The enumerated factors are as follows:

a.      The duration of the marriage or civil union;

b.     The age and physical and emotional health of the parties;

c.      The income or property brought to the marriage or civil union by each party;

d.      The standard of living established during the marriage or civil union;

e.      Any written agreement made by the parties before or during the marriage or civil union concerning an arrangement of property distribution;

f.      The economic circumstances of each party at the time the division of property becomes effective;

g.     The income and earning capacity of each party, including educational background, training, employment skills, work experience, length of absence from the job market, custodial responsibilities for children, and the time and expense necessary to acquire sufficient education or training to enable the party to become self-supporting at a standard of living reasonably comparable to that enjoyed during the marriage or civil union;

h.     The contribution by each party to the education, training or earning power of the other;

i.     The contribution of each party to the acquisition, dissipation, preservation, depreciation or appreciation in the amount or value of the marital property, or the property acquired during the civil union as well as the contribution of a party as a homemaker;

j.     The tax consequences of the proposed distribution to each party;

k.     The present value of the property;

l.     The need of a parent who has physical custody of a child to own or occupy the marital residence or residence shared by the partners in a civil union couple and to use or own the household effects;

m.     The debts and liabilities of the parties;

n.     The need for creation, now or in the future, of a trust fund to secure reasonably foreseeable medical or educational costs for a spouse, partner in a civil union couple or children;

o.     The extent to which a party deferred achieving their career goals; and

p.     Any other factors which the court may deem relevant.

Generally, when a court makes an entry of an order of Equitable Distribution, a court must not only determine what assets are subject to Equitable Distribution, but it must place a value on the assets before deciding how each asset is to be distributed. The assets subject to equitable distribution must first be identified and evaluated (i.e., a dollar value is placed on each asset). Some assets are valued as of the filing date of the divorce complaint, and others as of the date of trial. The process by which the assets are valued typically occurs during the course of litigation during the “Discovery Period.”

Discovery

Discovery is the process by which each side discovers and ascertains facts relevant to prove or defend their respective claims. Parties may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action. For purposes of matrimonial and family court proceedings, discovery in the Family Part is governed by Part V of the Court Rules.

More specifically, Rule 5:5-1 provides the guidelines for engaging in discovery in divorce actions. It enumerates certain discovery devises, many of which are also used in other civil actions. These discovery devices typically include: Interrogatories, Depositions, Production of Documents, and Requests for Admissions and Appraisals of property (e.g., real estate, businesses). There is no affirmative duty to voluntarily provide discovery. Thus, most discovery is provided in response to demands made by each side. Typically, when a divorce action is commenced, the court will schedule a case management conference whereby a plan for discovery is entered by the court in the form of a court order. In addition to the forgoing, each side is required to exchange and file a Case Information Statement in all contested divorce actions pursuant to R. 5:5-2 where there are assets subject to Equitable Distribution. A Case Information Statement is a multi-page document where each side must disclose employment information, monthly expenses, assets, debts, insurance information, etc.

Interrogatories

Interrogatories is a discovery device whereby one party submits questions to the other party, which are to be answered under oath as further set forth in R. 4:17. Interrogatories may be directed to all issues in the divorce proceeding, including financial issues. In the absence of a Court Order modifying the time-frame, written Interrogatory answers must be provided within the statutory-time frame of sixty (60) days. However, for good cause shown, a court may enlarge or shorten the sixty (60) day time-frame. If a party has furnished answers to an interrogatory, he or she may amend his answer(s) with twenty (20) days of the close of the discovery period if the previous answer is incorrect, incomplete or the party obtains additional information responsive thereto. Amendments to interrogatory answers may only be made thereafter if the party seeking to amend his/her answers certifies that he information requiring the amendment was not reasonably available or discoverable by the exercise of due diligence prior to the discovery end date.

Furthermore, a party upon whom interrogatories have been swerved may object to a propounded interrogatory by objecting to the propriety of the same within the answers or by filing or serving a Notice of Motion seeking to strike the interrogatory in question by within twenty (20) days after being served with the interrogatory.

Production of Documents and Things for Inspection and Other Purposes

Rule 4:18-governs discovery device that is also referred to as a “Notice to Produce.” The Rule permits a party to serve upon the other party a request to produce, inspect and photocopy documents, including electronically stored information, that are discoverable in accordance within R. 4:10-2. More specifically, Rule 4:18-1 (b)(1) states that the request must set forth the items to be produced, inspected or photocopied, and describe each item and category with reasonable particularity. The request must also specify a reasonable time, place, and manner of making the inspection and performing the related acts. The party upon whom such a request is made must serve written responses to the request within thirty-five (35) days after service of the request. However, if such a demand for documents is made together with the service of the Summons and Complaint, the defendant may serve a written response within fifty (50) days after the request was served upon him/her. Like interrogatories, a specific request may be objected to.

Deposition

A deposition pursuant to 4:14-1 is the taking of out-of-court oral testimony of a witness, including the parties. It may be taken at any time after the commencement of the action. A party desiring to take the deposition of another person shall give not less than ten (10) days written notice to every other party to the action, stating the time and place for the deposition. A deposition is generally conducted by the lawyers, and outside the presence of the judge. Examination and cross-examination of the witness proceeds in similar as occurs during trials, except cross-examination need not be limited to the subject matter of the examination in chief. Pursuant to R. 4:14-3 no objection shall be made during the taking of a deposition except those addressed to the form of a question or to assert a privilege, a right to confidentiality or a limitation pursuant to a previously entered court order. The right to object on other grounds is preserved and may be asserted at the time the deposition testimony is proffered at trial. Once the deponent has been sworn, there shall be no communication between the deponent and counsel during the course of the deposition while testimony is being taken except with regard to the assertion of a claim of privilege, a right to confidentiality or a limitation pursuant to a previously entered court order.

Deposition testimony is typically recorded by a stenographer and reduced to a writing. In some circumstances the court will allow the deposition to be videotaped.   A deposition may be taken of any person (i.e., anyone in addition to the parties), with the exception of family members under the age of 18 (e.g., children of the parties). The scope of the deposition may include all topics, except those matters constituting the grounds to the divorce. A party may also be permitted to depose the other party’s expert witness (e.g., business and real estate appraiser).

Request for Admissions

Although not commonplace in divorce actions, parties are also allowed to use the discovery method known as a Request for Admissions. Pursuant to R. 4:22-1 a request for admission seeks a written request for the other party to admit the truth of certain matters of fact. Each matter for which an admission is being requested must be separately stated. A Request for Admissions may be made at any time after commencement of the action, or together with the service of the Summons and Complaint. Pursuant to the rules governing this device, a matter of fact will be deemed as admitted unless, within thirty (30) days after service of the request, the party to whom the request is directed serves a written answer or objection thereto. However, a defendant shall not be required to serve answers or objections before the expiration of forty-five (45) days after being served with the summons and complaint. If a party fails to answer a request for an admission, it will be deemed admitted at trial. The response or objections to a Request for Admissions must be made in writing and signed by the party or by the party’s attorney.

Appraisals

During the course of a divorce action, certain assets such as real property, jewelry, small businesses, etc. may need to be appraised. Property appraisals constitute a significant aspect of a divorce proceeding for purposes of Equitable Distribution. Parties in a divorce action may consent to a joint or mutual appraiser or retain their own, separate appraisers. The facts and circumstances of the case will impact the decision of whether to utilize one joint appraiser retain separate appraisers. With respect to real property, it is not uncommon for the parties to utilize the services of a mutual appraiser to reduce litigation costs. Business appraisals are a bit more complex. Often times, like with a business, the asset will constitute the family’s sole source of income, and one party will want to retain ownership and operation of the business. There is no single formula that applies in all situations involving the evaluation of a closely-held corporation or small business. When determining the value of a closely-held corporation or small businesses for purposes of Equitable Distribution, New Jersey courts utilize three principal methods: the income or capitalized method, the market method and the cost approach method. However, the valuation process itself is not an exact science. The cost associated with a business evaluation can be quite expensive. However, where the value of a business is in sharp distribute, it may be necessary for a party to retain their own appraiser rather than agree to a mutual appraiser. Indeed, such disputes arise because people may have different views about the value of the business. Furthermore, it may also be important to have your own separate appraiser; one who will not quickly accept the business operator’s claims as to the day-to-day business operations and income in a primarily “cash” based business.

Failure to Make Discovery

There are potentially severe ramifications for failure of a party to make discovery. With respect to a party’s failure to provide interrogatory answers or a produce documents requested, a party may make an application via motion to the court for the dismissal or suppression of pleadings of the delinquent party. This motion may seek a dismissal or suppression on what is typically referred to as “with or without prejudice basis.” If the motion is properly made, the court is required to enter an Order of dismissal or suppression without prejudice unless good cause for other relief is shown. Such an Order can be vacated only by a formal motion and further requires the delinquent party to supply fully responsive and certified answers to the pending discovery requests.

The above is for information purposes only and does not constitute legal advice. For more information or to consult with our attorneys, please feel free to contact The Choi Law Group, LLC.