Does Inclusion of “Income” on a Joint Tax Return Result in Commingling an Asset for Purposes of Equitable Distribution?

May 9, 2025 | Written by: Diana N. Fredericks, Esq. | Share

In divorce, assets acquired during the marriage are subject to equitable distribution.  In the recent unpublished NJ Appellate Division decision of Hendrie, the court addressed this important topic.

The Trial Court concluded that the wife’s interest in capital accounts relating to real estate properties gifted to her by her parents were not subject to equitable distribution.  The defendant (husband) argued that these accounts were funded with the parties’ joint income during the marriage, as reflected on their joint tax returns.  There was no dispute that the interest in the capital was a gift.  However, the defendant husband argued that the capital accounts were passive assets acquired during the marriage, and therefore subject to equitable distribution.  The Trial Court disagreed with the Husband and so did the Appellate Division. 

The husband attempted to argue that the accounts, not the assets themselves, were subject to equitable distribution.  The Appellate Division specifically rejected his contention that the income from the capital accounts was converted to joint property because it was included on the parties’ joint tax returns.  

The court specifically held, “The capital accounts were merely accounting mechanisms established to record the gifts to plaintiff, which she was required to report on her tax return.”    

 "The theory of equitable distribution is that marriage is a partnership whose assets should be fairly and equitably distributed when the partnership breaks up."  Brown v. Brown.[ii

The trial court undertakes a three-part inquiry when determining whether to equitably distribute property.[ii]

1. The court first decides whether an asset is subject to equitable distribution. Real and personal property legally and beneficially acquired constitutes the parties' "marital estate."[iii] Only property acquired during the marriage is subject to equitable distribution.
2. Under the second step of the Rothman analysis, the court determines the asset's value.
3. And third, the court determines the allocation of both marital assets and debt. The equitable distribution of marital property is guided by the following statutory factors:
4. The duration of the marriage or civil union;
5. The age and physical and emotional health of the parties;
6. The income or property brought to the marriage or civil union by each party;
7. The standard of living established during the marriage or civil union;
8. Any written agreement made by the parties before or during the marriage or civil union concerning an arrangement of property distribution;
9. The economic circumstances of each party at the time the division of property becomes effective;
10. 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;
11. The contribution by each party to the education, training or earning power of the other;
12. 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;
13. The tax consequences of the proposed distribution to each party;
14. The present value of the property;
15. 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;
16. The debts and liabilities of the parties;
17. 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;
18. The extent to which a party deferred achieving career goals; and
19. Any other factors that the court may deem relevant.[iv]

This unpublished opinion is instructive and useful to practitioners, as it provides some guidance for how and when to consider the income on a jointly filed tax return for purposes of determining equitable distribution.  In the case of Hendrie, this writer wonders if the result would have differed had the husband contributed to the expenses of the marriage, or if more significant tax liabilities/consequences would have been more impactful. 

Like all family law matters, the Hendrie case represents an extremely fact-specific inquiry.  If you are divorcing, you should consult with experienced counsel to discuss your individual case. 

[i] 348 N.J. Super. 466, 490 (App. Div. 2002)

[ii] Rothman v. Rothman, 65 N.J. 219, 232 (1974)

[iii] Chalmers v. Chalmers, 65 N.J. 186, 194 n.5 (1974)

[iv] [N.J.S.A. 2A:34-23.1.]

Diana N. Fredericks, Esq., devotes her practice solely to family law matters.  She is a Certified Matrimonial Law Attorney and was named to the NJ Super Lawyers Rising Stars list in the practice of family law by Thomson Reuters from 2015 through 2021, to the NJ Super Lawyers list in 2023, 2024, and 2025, and to the New Leaders of the Bar list by the New Jersey Law Journal in 2015.  Contact Ms. Fredericks for a consultation at 908-735-5161 or via email.

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Any statements made herein are solely for informational purposes only and should not be relied upon or construed as legal advice.