Are Lawsuit Proceeds Subject to Equitable Distribution in a New Jersey Divorce? Sometimes Yes and Sometimes No.
One of the questions that New Jersey divorce lawyers are often asked during the course of a divorce is: Am I entitled to share in the proceeds from a personal injury lawsuit that was filed by my spouse?
The answer is: It depends.
Under New Jersey divorce law, the portion of any judgment which is intended to compensate the injured spouse for his/her lost earnings and medical expenses is subject to equitable distribution. However, the uninjured spouse is not entitled to share in the remainder of the damages, which is intended as compensation for the injured spouse’s pain, suffering and disability, as well as the loss of consortium suffered by the uninjured spouse.
What about an employment discrimination lawsuit? Presumably, much of the proceeds from that kind of lawsuit would be for lost earnings and therefore would be subject to equitable distribution in a New Jersey divorce.
In addition, shouldn’t those proceeds be considered in deciding how much alimony and child support should be awarded in a New Jersey divorce? That seems to make sense.
Those were the claims made by the husband in the case of Pandya v. Shah, which was recently decided by a New Jersey appeals court.
When the couple in that case got divorced, they signed a Marital Settlement Agreement (“MSA”) which provided for equitable distribution of the property acquired during the marriage.
The MSA said that any personal property not specifically discussed in the MSA would be considered distributed, and each party would keep property then in his/her possession. The MSA also stated that both parties had informed each other of all assets and liabilities, and each party released the other party from any claims arising out of any matter up to the date the MSA was signed.
In addition, the MSA provided that the husband agreed to pay the wife $180 of child support each week.
About a year and a half after their divorce, the New Jersey family court granted the ex-wife’s application to increase the amount of that child support obligation.
The ex-husband then filed a motion in which he asked the court to reconsider that decision and decrease his child support obligation, based on a document which showed that six (6) months after their divorce, the ex-wife had won $400,000 in a settlement against her former employer for sexual harassment.
Believing that the ex-wife had contemplated filing the suit against the former employer before their divorce was final, the ex-husband also asserted that the ex-wife had acted in bad faith by not disclosing her pending lawsuit during divorce negotiations and, therefore asked that the court vacate the MSA.
In response to the ex-husband’s motion, the ex-wife asserted that she did not even know she had a sexual harassment claim during the marriage, and she did not even consult an attorney about it until a few months after the divorce. Therefore, the settlement proceeds were not subject to equitable distribution, because they were not earned during the marriage.
The New Jersey Family Court judge agreed with the ex-wife. In addition, the judge ruled that the ex-husband had waived any claims to that money in the MSA, because he did not avail himself of the opportunity to investigate his ex-wife’s employment via discovery during the divorce process.
However, the judge did acknowledge that the interest that the ex-wife could earn from the settlement proceeds would count towards her annual income and, therefore, should be considered in determining child support.
The husband’s appeal of the New Jersey Family Court’s decision was unsuccessful. In its opinion, the New Jersey appeals court agreed with essentially everything that the lower court judge had said.
Salvaggio Law Group devotes its entire practice to New Jersey Divorce and Family Law matters, including those cases in which equitable distribution and child support are significant issues. If you want to talk, please call us at 973-447-4981 or fill out the Contact Form on our firm’s website.