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Equitable Distribution of Negative Equity

 

The factors that must be considered by the court for purposes of determining equitable distribution of assets and debts acquired during marriage are identified in N.J.S.A. 2A:34-23.1.

Items included for purposes of equitable distribution are:

  • marital properties
  • vehicles
  • bank accounts
  • stock options
  • retirement accounts
  • mortgages
  • credit card debts
  • automobile loans
  • any other assets and debts obtained or incurred by the parties during the marriage.

An interesting issue arises, however, when one party to a marriage seeks to retain a marital asset that, at the time of trial or settlement, is underwater. Presented another way, how do courts determine equitable distribution of negative equity, whether a residence, automobile, or the like? New Jersey has not explicitly determined this yet. However, the District Court of Appeals of Florida has suggested that a court must consider negative equity of a marital property as a joint marital liability subject to equitable distribution and to allocate the negative equity among the parties. Byrne v. Byrne, 128 So. 3d 2, 4 (Fla. Dist. Ct. App. 2012).

Florida case

In so deciding, the Appellate Court opined that the trial court “erroneously assumed that the negative value associated with the [parties’] condominium would simply vanish if the parties were to ‘abandon the residence’ or ‘return the keys to the banks holding the indebtedness.” Id. The Florida court additionally relied upon the fact that debtors remain liable for any debt that is not satisfied following foreclosure proceedings. Id. For these reasons, the lower court was directed, on remand, to consider the condominium’s negative equity as a joint marital liability for purposes of equitable distribution. Id. This principle would appear to apply similarly in New Jersey, and thus suggests that a determination as to negative equity in this state is similarly subject to the statutory factors set forth in N.J.S.A. 2A:34-23.1.

Please contact me at jlawrence@lawlawfirm.com if you have questions about this post or any other family law matter.

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