## Facts

- Suzanne E. Sheridan (plaintiff) and Charles L. Sheridan (defendant) were married and later became parties to a divorce action in New Jersey Superior Court, Chancery Division (Family Part).
- Suzanne sought equitable distribution of marital property and testified about how the family acquired and spent large amounts of cash during the marriage.
- Charles worked as an oil-delivery truck driver and reported relatively modest earnings; Suzanne was primarily a homemaker during the relevant period.
- Despite Charles’s limited declared income, the family’s standard of living increased sharply between roughly 1983 and 1987, including major purchases and extensive cash spending.
- Suzanne testified that Charles obtained the money through an illegal “skimming” scheme tied to his oil deliveries, selling excess oil to third parties for cash.
- The cash was kept outside normal financial channels, including in shoe boxes and dog-biscuit boxes, and was used for purchases with little or no conventional documentation.
- The evidence showed that no federal or state taxes were paid on the cash proceeds used to acquire and maintain the marital lifestyle.
- Financial information presented to the court indicated that the family spent sums far exceeding Charles’s declared income (including hundreds of thousands of dollars in expenditures during the mid-1980s).
- Charles offered an alternative explanation for the cash (including claims of legitimate sources), but the court found that account not credible in light of the record.
- The court found that a substantial amount of the funds used to obtain marital assets was the product of illegal activity and that the parties’ use of cash and lack of records made it impracticable to separate lawful from unlawful funds for distribution purposes.

## Issues

1. Whether marital property primarily acquired with proceeds of illegal activity that were not reported for tax purposes is subject to equitable distribution in a New Jersey divorce action.
2. Whether a Family Part judge, faced with credible evidence of criminal tax violations revealed in the divorce record, should refer the matter to appropriate governmental authorities.

## Decision

- The court held that equity is not an appropriate forum to divide marital property primarily purchased with funds derived from illegal activity.
- The court refused to grant equitable distribution of the marital assets to the extent doing so would require the court to allocate “tainted” property obtained through criminal conduct and tax evasion.
- Because the parties’ financial practices and missing records prevented meaningful tracing, the court declined to undertake an allocation that would inevitably distribute unlawful proceeds.
- The court directed that evidence of apparent tax-related criminal conduct revealed in the proceeding be referred to the proper authorities rather than being ignored in the course of the matrimonial judgment.

## Legal Principles

- Equitable distribution in New Jersey applies to property “legally and beneficially acquired” during the marriage; property acquired primarily through criminal conduct and untaxed income does not meet that standard for equitable allocation.
- A court sitting in equity is a court of conscience and will not assist litigants by dividing, validating, or legitimizing assets that are the fruits of unlawful activity.
- Where the marital estate is dominated by illegal proceeds and commingling or lack of records makes segregation impracticable, a court may deny equitable distribution rather than risk distributing criminal gains.
- The doctrine of unclean hands may bar relief when both parties seek the court’s help in allocating benefits derived from illegality.
- When a matrimonial record presents credible evidence of tax fraud or related crimes, the court may refer the matter to the appropriate taxing or law-enforcement agencies to avoid judicial participation in the concealment of criminal conduct.

## Conclusion

In Sheridan v. Sheridan, the New Jersey Chancery Division held that it would not equitably distribute marital property primarily acquired with illegal, untaxed cash because a court of equity cannot participate in allocating tainted assets; the court also directed that apparent tax violations disclosed by the divorce proofs be referred to the proper authorities.


Sheridan v. Sheridan, 247 N.J. Super. 552, 589 A.2d 1067 (1990)