Is Marital Real Estate Beyond a Creditor’s Reach in New Jersey?

Some people involved in litigation lose sight of the fact that obtaining a judgment against the person or company they are suing is the first step in obtaining justice. I often must remind people that the courts do not write checks in the amount of the judgment. To get paid, the victor in a lawsuit must collect on the judgment. This requires an asset search to determine whether the defendant has assets available that can be liquidated and used to pay the judgment.

In New Jersey, a judgment creditor, i.e. the person who obtained the judgment, may ask the sheriff to levy on any personal property of the defendant. The sheriff may then sell the property after which the proceeds, less any commissions due the sheriff, are paid to the judgment creditor. The judgment is then reduced accordingly. A judgment creditor may also levy on any real estate owned by the defendant provided the judgment has been docketed with the Superior Court in Trenton. However, before levying on real estate, a judgment creditor must ensure that no personal property remains available to satisfy the judgment. This is typically accomplished by a combination of asset searches and post-judgment depositions or other discovery.

Levying on real estate can present hurdles for a judgment creditor. In many instances, the real estate owned by the defendant is mortgaged to the hilt. Thus, at a sale the judgment creditor (or any other buyer at the sheriff’s sale) would take title subject to the mortgage. In addition, it is not unusual for a defendant to have multiple judgments of record which are also liens on the real estate. Another problem that often arises is that the real estate is titled in the name of the defendant and his or her spouse. In that instance, the couple would typically hold title as “tenancy by the entireties” which is a special form of ownership available only to married couples.

Prior to 1988, New Jersey courts could compel the partition and sale of a spouse’s interest in real estate held by a married couple as tenants by the entirety. A judge was permitted to exercise his or her discretion and order a sale of the spouse’s interest provided there were equitable reasons to do so.

That all changed in 1988 when the New Jersey Legislature passed a law that “neither spouse may sever, alienate, or otherwise affect their interest in the tenancy by the entirety during the marriage or upon separation without the written consent of both spouses.” Apparently, the Legislature decided that it was important to protect an innocent spouse from having his or her interests in real property detrimentally affected by a profligate spouse. Nonetheless, if the spouses sell the property then the judgment creditor’s judgment be paid or settled for the sale to go through. Also, if the couple divorces, or if the non-defendant spouse dies, then the property is subject to levy by the judgment creditor.

Collecting on a judgment can be difficult. The key is gathering good information and knowing what assets are available for levy. As it stands now, marital real estate is off limits to judgment creditors in New Jersey.

If you have any questions about this post or any other related matter, please contact me at tpmckeown@norris-law.com.