Gifts and Loans in New Jersey Divorce
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 are 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 for 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 an interspousal gift is the conveyance after a marriage of a home owned by one spouse prior to the marriage to both spouses as tenants by the entireties during 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).
In many marriages one spouse comes in the marriage with most of the money. Quite frequently the husband pays for the entire deposit to purchase the marital home with premarital monies. If the couple ultimately gets divorced, the husband will try to claim that the deposit monies consisted of premarital monies, and that it is not part of the marital estate. This type of analysis is flawed and it will shock many upset spouses.
A very illustrative case is Weiss v. Weiss, 226 N.J. Super. 281 (App. Div. 1988). In the Weiss case, the husband made a $5,000 down payment on the marital home and he executed a mortgage on the home and a note four months before the marriage. The title to the home was placed in his name solely. 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 a marital partnership was found to have commenced before the marriage ceremony. Moreover, the court further 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 as to whether a down payment is considered by a marital asset. The bottom line is that if one spouse pays for the down payment to purchase a marital home, then these monies are converted into marital property and it will be subject to equitable distribution.
If a spouse is making a significant down payment that consists 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, then the deposit used to purchase the marital home will be repaid to the contributing spouse before any proceeds are equally divided. The prenuptial agreement can be short and sweet and provide that the contributing spouse must receive their deposit returned to them before the proceeds from the sale of the marital home are split. This issue also frequently 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.
In summary, when one party contributes money toward the purchase of the marital home, and places title to the home in both the husband's and wife's names, unless there is prenuptial agreement, the contribution of that money is considered a gift. Thereafter, the entire down payment will be considered to be marital property.
Gifts from Parents
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 were 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 then contend that the gift was only made to their child. Alternatively, the in-laws could maintain that the gift was instead only a loan. The black letter law on 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 parties of one spouse were a gift or a loan. The maxim that gifts given in good times cannot be taken back in bad time 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 any loans are ever made by parents to a child and their 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 would be 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 of a period of time that indicates repayment of a loan.
The Engagement Ring
Unfortunately, this issue arises all too frequently in my practice. I always advise the divorcing couple to sell the engagement ring, and to use the proceeds to pay off the marital debts. In most cases the marital debts include high credit card balances. In most instances the parties listen to my advice. However, if the divorcing wife is knowledgeable about the law, then she would "hold to her guns" and keep the ring. The law is clear and it 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).
In summary, it is important for any spouse to keep any of their 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. If this type of situation should occur, then every case is decided on a case by case basis. However, if possible it is always strongly advisable to keep your gifts from your parents and your inheritance separate from your spouse's finances.
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