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It is completely reasonable that divorcing couples may choose to litigate matters relating to the well-being and best interests of their children. It is also not surprising that divorcing litigants may contest the obligation that one party may have to contribute to the financial support of the other. However, too often in divorce matters the public's widely held belief that divorcing couples will fight over the distribution of absolutely anything, is proven correct. Sadly, couples in the midst of their acrimony will fight over valueless personal property like dishes and towels. They will fight over frequent flyer miles and credit card points. Many even argue with one another about items of sentimental value, such as pictures, that can now easily be duplicated through technology.

After the Appellate Division's recent unreported decision in Flockhart v. Flockhart, you can add the division of a negative to the pot.

In this instance, the court was referring to the division of “negative equity.” Negative equity, as the term was used by the Appellate Division, applies to the distributable value of property where the mortgage or other liability on the property exceeds the appraised equity. The amount of the shortfall from the appraised equity is the amount of negative equity in the property.

In Flockhart, the Appellate Division held that the parties had accumulated negative equity in a timeshare, the appraised value of the timeshare being less than the value of the existing mortgage. Like most other timeshares, there was no true market for the sale of the timeshare, so the court had no other choice but to award title to that timeshare to one of the parties upon entry of the judgment of divorce instead of ordering the sale of the property. Further, in Flockhart, the trial court awarded the timeshare to the plaintiff to the exclusion of the defendant.

Thus, instead of receiving anything of value, the defendant received a share of the debt attributable to the existence of the negative equity in the timeshare. On appeal, the defendant believed the trial court erred by the fact that, even though she did not receive the actual legal interest in the timeshare, she was nevertheless distributed and awarded with one-half of the debt, without any further right to use the timeshare.

While the outcome of the distribution of the timeshare itself may on its surface seem unfair or inequitable to the defendant, when it is considered in the overall context of the facts and circumstances of this case, the result is not surprising. Equitable distribution is not just the division of the assets of the parties; it is the division of their liabilities, as well. The overall fairness of an equitable distribution scheme should not be dissected and determined in piecemeal. Instead, it must be viewed within the totality of the total award to determine if the mandate of a fair and just division of marital property has been achieved. Steneken v. Steneken, 183 N.J. 290 (2005).

Equitable distribution is the vehicle by which marital assets are awarded incident to a divorce. It was created by statute in 1971 upon the recommendations of the Divorce Law Study Commission, which the legislature itself created to “study and review the statutes and court decisions concerning divorce and nullity of marriage and related matters.” Before 1967, the legislature had not revised any of the statutes relating to divorce or other phases of the “law of domestic relations” since 1907. Consequently, the commission itself went on to point out that, except for the Blackwell Act of 1923, which added extreme cruelty as a ground for divorce, there had been no significant legislation during this period pertaining to the dissolution of marriages, notwithstanding that during the same time period societal concepts of both marriage and divorce had been drastically altered.

Accordingly, the legislative investigation and study were deemed an essential and a necessary prerequisite to the drafting of any new law by the legislature that would adequately respond to the actual and then-current needs of society.

Thus, on May 11, 1970, the final report of the commission was submitted to the governor and the legislature. In very large part, the findings of that commission have shaped the practice of matrimonial law in New Jersey ever since, including the creation of the Equitable Distribution Statute.

In the years that have passed since the enactment of the Equitable Distribution Statue, our courts, as a threshold matter, essentially have held that the most basic definition of marital property is any and all property acquired during the marriage by any one of the parties from the date of the marriage until the date of the filing of the Complaint for Divorce or other agreed upon cut-off date. And marital property is subject to distribution. Further, it has been determined that the actual undertaking of equitable distribution is essentially a three-step process. First, the eligible assets must be identified. Next, the value of each eligible asset must be determined. Finally, a decision needs to be made as to how such allocation can most equitably be made. Rothman v. Rothman, 65 N.J. 219. In accordance with N.J.S.A. 2A:34-23.1, courts must make findings of fact on the evidence relevant to all issues pertaining to asset eligibility or ineligibility, asset valuation and distribution after considering the factors delineated in the statute. In making an equitable distribution of property, the court shall consider, but not be limited to, the following factors:

1. The duration of the marriage or civil union;
2. The age and physical and emotional health of the parties;
3. The income or property brought to the marriage or civil union by each party;
4. The standard of living established during the marriage or civil union;
5. Any written agreement made by the parties before or during the marriage or civil union concerning an arrangement of property distribution;
6. The economic circumstances of each party at the time the division of property becomes effective;
7. 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;
8. The contribution by each party to the education, training or earning power of the other;
9. 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;
10. The tax consequences of the proposed distribution to each party;
11. The present value of the property;
12. 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;
13. The debts and liabilities of the parties;
14. 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;
15. The extent to which a party deferred achieving their career goals; and
16. Any other factors which the court may deem relevant.

Even though N.J.S.A. 2A:34-23.1 creates a rebuttable presumption that each party made substantial contributions to acquire assets during the marriage, there is not an automatic entitlement to a 50/50 equal division of the marital assets. Instead, the statute compels the court to consider the statutory factors on a case by case basis and consider the complete and total factual circumstances surrounding each relationship. McGee v. McGee, 277 N.J. Super 1 (App. Div. 1994).

From the Appellate Division's decision in Flockhart we learned that before trial even began, the parties stipulated as to the mortgage balance on the timeshare at $254,385. At trial, the plaintiff provided expert testimony from a qualified appraiser that had experience valuing timeshares who opined that the five-week timeshare had a value of $45,000, leaving negative equity in the amount of $209,385. In its award of equitable distribution, the trial court calculated the equity in the timeshare by subtracting the amount of the outstanding mortgage from the sale of the property. This valuation approach was not contested by the defendant for any of the other properties at issue in this matter. As the Appellate Division properly pointed out, the only difference was that the mortgage on the timeshare was higher than its appraised value, so whichever party received the timeshare was entitled to a credit from the other party for one-half of the amount of the negative equity.

The decision by the Appellate Division in Flockhart, expressly rejected the argument of the defendant that since she had to contribute to the debt securing the property that she should be allowed use and enjoyment of the timeshare. At trial, the plaintiff testified to the significant expense that was required to use the timeshare over and beyond the mortgage payments, namely, approximately $20,000 per year in dues, plus an additional $24,000 for activities and food. The fact that the mortgage was “netted out” from the value and the defendant had to share in the negative equity, did not provide her with a right to use the property, especially without sharing in its expenses. Further, and more important to the Appellate Division in it is holding, was the reliance on the doctrine that “elimination of the source of strife and friction is to be sought by the Judge in devising the scheme of distribution, and the financial affairs of the parties should be separated as far as possible.” Bowen v. Bowen, 96 N.J. 36, 41 (1984) (quoting Bordinsky v. Bordinsky, 162 N.J. Super 437, 443 (App Div.1978)

In other words, if the defendant was allowed use of the timeshare, she would have been inserted back into the life and into the financial affairs of the plaintiff, which equitable distribution itself was intended to eliminate.

The trial court calculated and applied credits to the parties before reaching a final allocation of equitable distribution. The court then apportioned all assets equally between the parties. Interestingly, there is nothing in the Appellate Division's decision that discusses whether or not it was fair to distribute all of the assets on a 50/50 basis. In any event, the Appellate Division affirmed the methodology of the trial court in tallying up the net value of all of the properties and businesses, and then divided that amount in half, finding that each party was entitled to a little less than $1 million. From the defendant's share of $1 million, the court subtracted $100,000 for the defendant's portion of the negative equity in the Florida timeshare. After subtracting other credits owed to the plaintiff, the defendant received approximately $675,000.

The takeaway from Flockhart, is that it is entirely fair to divide a negative so long as same is considered appropriate and part of a fair and just allocation of all the marital assets. This is especially true when it is viewed in connection with the court's overall companion goal incident to a divorce of minimizing the interaction of divorced persons in the financial lives of their former spouses. In Flockhart, the plaintiff may be retaining the Florida timeshare, but he is retaining an asset that has no equity and requires substantial financial contributions each year which will not be made at all by the defendant.

Further, by awarding the timeshare solely to the plaintiff, the parties will have no other obligation to each other as it relates to the use and retention of a timeshare that has no real market for resale. The outcome simply makes sense and, based on the facts and circumstances, is consistent with our pre-existing view of fairness.

Evan R. Weinstein is a partner in the Short Hills law firm of Weinstein Lindemann & Weinstein, a firm that is devoted exclusively to Family Law and related matters.