While an inheritance is generally not subject to equitable distribution in New Jersey, the income or interest received from an inheritance can be used to determine an appropriate level of alimony. Thus, for instance, the income a spouse receives from an inheritance can decrease that spouse’s need for a certain level of alimony, even if that spouse never worked during the marriage.
Notably, it is the inheritance’s potential to generate income that matters, so a spouse who receives an inheritance cannot deliberately shield an inheritance in an attempt to affect to raise or lower the alimony award. It also does not matter if that spouse chooses to actually receive the income derived from the inheritance, choosing instead to reinvest it.
This issue was recently addressed again by the Appellate Division in the unreported decision of Overbay v. Overbay, where the Appellate Division affirmed the trial court’s finding that the Wife who had received an inheritance was able to generate additional investment income from the inheritance without any risk of loss or depletion of the inheritance principal. In so doing, the trial court considered expert testimony from both sides, as well as testimony from a court-appointed expert, to determine an accurate imputed rate of return on the inherited investments.
The rate of return for imputation that the trial court ultimately came to was also based on historical rates of return, the Wife’s age, and her health issues. The Appellate Division essentially affirmed the trial court’s willingness to take a prudent ground between the parties’ respective approaches to investment – not surprisingly, the Husband, who possessed financial expertise, favored an aggressive approach that could potentially lead to greater returns, while the Wife favored a more conservative approach, especially as she dealt with her own health issues.
This was not the first time that the Appellate Division had reviewed the issue between the parties, as it had previously determined in a 2005 reported (precedential) decision that the Wife’s interest earned on the inheritance should be imputed to her as income for purposes of determining alimony. In so doing, the Appellate Division there concluded that, where a spouse has underearning investments and can generate additional earnings – without risk of loss or depletion of principal – but does not do so, a court can impute to that spouse a more reasonable rate of return to such assets. The Appellate Division noted there that if a prudent rate of return is applied, then additional income need not be imputed even if a more aggressive investment strategy would provide additional earnings. In other words, someone with a lower tolerance for risk historically would not likely be imputed the highest possible rate of return.