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Vander Weert v. Vander Weert

304 N.J. Super. 339, 700 A.2d 894 (App. Div. 1997)

MORTGAGES; MATRIMONIAL; LIENS—In the course of a matrimonial matter, the husband’s lawyers negotiated a mortgage on its client’s interest in the family home as security for payment of legal fees. In a contest over priority against the husband’s other debts, the law firm learned that the lien created by the mortgage extends only to that portion of the property awarded to the law firm’s client by way of equitable distribution, i.e., the Court’s equitable distribution order overrides what the law firm expected to be its priority.

A law firm was retained by a husband to represent him in a divorce proceeding. As security for attorney’s fees, the husband gave the law firm a mortgage on the marital residence. The equitable distribution plan handed down by the divorce court ordered the residence sold and proceeds split evenly and provided that the husband’s share would be further reduced by amounts owed for various outstanding debts (including his wife’s attorney’s fees). The Court ordered that these debts be satisfied before the husband’s own attorney’s mortgage lien was satisfied. The law firm argued that its mortgage had priority over the other debts owed by the husband. At trial, the law firm conceded that its mortgage was subject to equitable distribution, but claimed that once the divorce judge declared the proceeds to be split evenly, its mortgage immediately attached to the husband’s 50% and had priority over the other debts despite the equitable distribution scheme handed down by the divorce court.

The Appellate Division dismissed the law firm’s claim, holding that once the law firm conceded that its lien attached only to the husband’s interest, it must be deemed also to have conceded that its interest is subject to the equitable distribution scheme of the divorce court. The Court addressed the issue of the encumbering of marital property by one spouse in contemplation of divorce and the effect of a distribution scheme on a creditor of one spouse who holds a lien, perfected prior to entry of judgment of divorce, on the marital residence. In other words, the Court considered whether, once a divorce complaint has been filed, unilateral action by one spouse may be permitted to impinge on a court’s power to deal with marital property as part of its overall distribution scheme. It concluded that no such unrelated action could impair the Court’s ability to deal with the property. By way of analogy, the Court found support for its ruling against the law firm’s predecessor in stating that the marital estate includes assets diverted by one spouse in contemplation of divorce for the purpose of diminishing the other spouse’s distributive share. The Court held that a mortgage taken after the filing of a divorce complaint conveys no more interest in the property than is given to the mortgaging spouse by the distribution scheme of the divorce court. The Court further held that equity compels such a result, since holding the law firm’s interest to be in the entirety of the residence would result in the non-debtor spouse involuntarily contributing to payment of her spouse’s legal fees for the divorce. The Court felt its analysis applied to all mortgages taken in contemplation of divorce, not just those taken after divorce proceedings had been instituted. The Court concluded that the lien created by the mortgage extended only to that portion of the property, if any, awarded to the law firm’s client by way of equitable distribution.


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