Sheridan v. Sheridan
247 N.J. Super. 552, 589 A.2d 1067 (1990)
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Rule of Law:
Marital property acquired with illicit funds that were not legally obtained or reported for tax purposes is not "legally and beneficially acquired" and is therefore not subject to equitable distribution in a divorce proceeding. A court of equity will not aid in the division of tainted assets, leaving the parties in pari delicto as it finds them.
Facts:
- Suzanne E. Sheridan and Charles L. Sheridan married in 1977.
- In 1983, the couple purchased a house for $57,000, paying in cash from a paper bag.
- Between 1983 and 1987, the Sheridans spent over $325,000 on real estate, vehicles, personal property, and living expenses.
- During this period, Charles Sheridan's declared income was less than $20,000 in total.
- Suzanne Sheridan testified, and the court found credible, that the source of the funds was an illegal oil-skimming scheme operated by Charles Sheridan, generating at least $250,000.
- Charles Sheridan claimed the money was a large cash gift from his father but could not explain its origin.
- Both parties admitted that no income, gift, or inheritance taxes were ever paid on any of the cash used to acquire their assets.
- The court found it impossible to trace or segregate the funding sources for the marital property, as the illicit funds were commingled with any potentially legitimate funds.
Procedural Posture:
- Suzanne E. Sheridan filed a complaint for divorce against Charles L. Sheridan in the Superior Court of New Jersey, Chancery Division, Gloucester County.
- During the divorce proceedings, Suzanne Sheridan petitioned the court for equitable distribution of marital property, alimony, child support, and counsel fees.
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Issue:
Is marital property acquired with illicit funds from criminal activity and untaxed cash subject to equitable distribution under New Jersey's divorce statute?
Opinions:
Majority - Herman, J.S.C.
No. Marital property acquired with illicit funds is not subject to equitable distribution. The equitable distribution statute permits the division of property that is 'legally and beneficially acquired,' and property purchased with money from criminal activities does not meet this standard. A court of equity, as a court of conscience, cannot become a party to the division of tainted assets or grant relief to admitted wrongdoers. To do so would demean public policy, which dictates that no one shall be allowed to benefit from their own wrongdoing. Since both parties here were in 'pari delicto' (equally at fault), the court will leave them as it found them with respect to the illegally-acquired assets. The court will not act as a 'counting house' for the division of 'dirty money'.
Analysis:
This case establishes a significant public policy limitation on the scope of equitable distribution in New Jersey. By interpreting the statutory phrase 'legally and beneficially acquired' to exclude assets derived from criminal activity, the decision applies the 'unclean hands' doctrine directly to the division of marital property. It solidifies the court's role as a gatekeeper of morality, preventing the judicial process from being used to legitimize or distribute the proceeds of crime. This precedent requires family law practitioners and courts to scrutinize the source of marital assets and creates a clear bar to distributing property that is not acquired 'in conformity with or permitted by law'.
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