Equitable distribution and down payment

When my wife came to live with me she owned a house in another state. After she left the guy she was living with was supposed to make the payments but the house stayed in her name. After a couple of years, and after we were married he stopped making payments. My wife went back, fixed up the house and put it on the market. After it sold she put the money in our joint account, and later we used some of this money to make a down payment on the house we have now. She believes that this money is not part of equitable distribution and she should get all this money back off the top of any money we make from selling the house we have now, I believe that this regular money from the marriage and should be treated as so.

The money will be considered a gift to the marriage so it is not her separate property anymore.

Yes, this will be considered a gift to marriage. If it’s a substantial amount of money, she could argue for an unequal distribution of marital assets, but that will be up to the court to decide.