What is typically used as the imputed rate of return for investments in a divorce ?
Spouse has a partnership interest in an office building that does not consistently generate a positive rate of return. If he was bought out of his interest, he could get a higher rate of return in the market. In a divorce today, what is typically the imputed rate of return for investment assets? Do they use the average stock market rate of return of 10% if his other assets are typically invested in the market?
When it comes to divorce proceedings in New Jersey, the concept of imputing income to assets plays a crucial role. This means that the court may attribute income to a spouse based on their underutilized capital like earning potential or asset-based capital, such as investments. The goal is to ensure fairness and prevent one spouse from being “equity rich but alimony poor.
The New Jersey Supreme Court previously held that a reasonable rate of return could be imputed to a payor’s investment assets, even if it differed from the actual rate of return.
In other words, if a spouse has investment assets (like your hypothetical office building partnership interest) that aren’t consistently generating positive returns, the court may impute a more reasonable rate of return to those assets for the purpose of calculating alimony or child support.
This imputed rate of return is often based on long-term corporate bonds, as determined by Moody’s Composite Index on A-rated Corporate Bonds.
The court’s approach is pragmatic. If a spouse has investments that could generate additional earnings without risking loss or depletion of principal, but they choose not to do so, the court may step in.
For instance, if your hypothetical spouse could get a higher return by selling their partnership interest and investing elsewhere, the court might impute income based on that potential return.
The New Jersey Superior Court has clarified that interest income from an inheritance could be considered in alimony calculations.
Other cases went further, allowing imputation of interest income to an inherited asset that had been converted into a non-income-bearing asset.
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