The New Economics of Divorce
in New Jersey

There are several differences to focus on between divorce New Jersey-style as it existed prior to 2008, versus how it exists now and for the foreseeable future. One of these is the matter of what the practitioner, whether he or she is a forensic accountant who specializes in divorce or is a traditional accountant, must provide in professional advice to clients who are going through the process.

More than 30 years ago, Census data indicated that nearly 50 percent of first marriages ended in divorce, and today this basic statistic still holds true. In 2003, New Jersey ranked as the 16th lowest state for number of divorces. The real estate market was strong and home values were high; retirement plans and stock investments were still generally strong. Most importantly,employment was robust. In 2003, the unemployment rate was less than half of what it is today. People had more discretionary income to spend and, accordingly, had the financial means to get divorced. Despite the emotional woes and concerns of divorce, people still had economic confidence and a sense of economic security and stability. This stability allowed them to make necessary, but difficult, financial decisions.

New Jersey Divorce

Divorces trigger property distribution of the marital estate and income distribution (i.e., alimony). In New Jersey, there are a dozen factors that are considered for spousal support (alimony), Half of these factors are not substantially impacted by location or economic cycles:

• Marriage length.
• Age and health of each party.
• Parental role of each party.
• Time and expense to acquire sufficient education or training to become selfsupporting.
• Consequences to both parties.
• Factors that the court deems relevant (New Jersey Statutes, Title 2A, Chapters: 34-23).

The following factors can be impacted by geographic location and the economy:

• Actual needs and ability of a party to pay alimony.
• Standard of living established during the marriage.
• Earning capacities of the parties, education level, job training and skills.
• Length of a bsence from the job market of the party seeking maintenance.
• Property a ward.
• Income-producing assets (e.g., rental real estate).

The economy obviously plays a potentially significant role in many of these latter factors. For example, the ability to be gainfully employed and thus establish a standard of living depends greatly on the current state of the employment market. Even if the standard of living itself is not in dispute, the ability to continue that standard may be significantly impacted. The job or position may simply be eliminated on a temporary, long-term or permanent basis. Some of these issues were not as prevalent pre-2008 as they are today. The prior economic situation allowed various customs for income and asset splitting to take hold and become part of what was, and to an extent still is, in New Jersey divorce cases.

Post-2008 and Future Expectations

As the economy started its decline in 2007, the number of divorces in New Jersey also started to decline. By 2008, New "Jersey had the second-lowest divorce rate in the country. After 2008, the divorce rate has been declining at an even greater rate as the recession took its toll on family finances. New Jersey's economy suffered due to its proximity to the financial services sector. The number of new divorce cases filed in New Jersey during the first six months of 2009 fell by 9 percent, compared to the same period in 2008. People are choosing to stay together until prices of real estate and stock portfolios rebound. Despite a belief held by many family law attorneys that there will be an increase in divorces as the economy recovers, there has not yet been a significant increase in cases filed.

In the past, divorces were caused by numerous factors, such as financial disputes, adultery and children-related matters. Couples who typically rely on salaries may endure excess stress as a result of a layoff. Even if a divorcing spouse has a job, the fact that he or she may lose a job can impact the decision-making process. Previously, the consequences for stress were marital dissolution. Paradoxically, financial stress caused by one or both spouses losing a job may be the reason the couple remains together. Simply put, the couple may not be able to afford to live apart as well as pay professional fees coincident with divorce.

The Role of the Accountant

Accountants should expect to tell their clients the plain truth: It will take years to recover equity in the home, the job may never come back, a lifestyle funded with debt cannot continue and so on. Accountants deal with economic reality daily. They should communicate to their clients honestly and openly, since clients may not know or be willing to admit certain things. Avoiding certain truths does not make these realities go away.

CPAs can help a divorcing couple conserve what likely may be fewer assets than either spouse wants to acknowledge. This is the time for the CPA to educate both parties as to the actual financial picture. Most often, neither spouse understands the entire picture. For example, one spouse typically is aware of the big ticket items, such as the mortgage and car payments, but has no idea how much food and school activities cost.

As we look forward to 2012 and beyond, the economy does not appear to be rebounding anytime soon. With a weak economy and growing costs, couples will be forced to remain unhappily married just to survive. Perhaps the saying "in good times and bad" has more meaning than ever.

Published January/February 2012 New Jersey CPA