Equitable Distribution

It may be difficult to reconcile two recent decisions of the Appellate Division, Second Department, as they relate to awards of interest on delayed equitable distribution payments due under a divorce stipulation of settlement. The first raises questions as to the impact of failing to expressly include the payment obligations in the judgment of divorce as opposed to merely incorporating the stipulation by reference. The second decision raises questions as to the date from which interest should run.

In O’Donnell v. O’Donnell, the parties had entered into a stipulation of settlement of their divorce action in March, 2014. Among other terms, the stipulation obligated the husband to “pay the Wife a lump sum of $1,000,000 on or before September 30, 2014.”

The judgment of divorce, entered in March, 2015, incorporated, but did not merge the stipulation. At the time the judgment was entered, the husband had not paid the $1,000,000 distributive award.

After the entry of the divorce judgment, and by order to show cause issued June 5, 2015, the ex-wife moved, inter alia, to compel the ex-husband to execute a confession of judgment, or in the alternative, for leave to enter a money judgment against him in the principal sum of $1,000,000 plus interest at the statutory rate of 9% per annum.

In opposition to the motion, the husband produced the confession of judgment he signed in March, 2014, which rendered academic the branch of the motion which was to compel him to execute a confession of judgment. The confession of judgment made no provision for interest.

The husband stated that he paid the $1,000,000 in full on June 19, 2015 (two weeks after the order to show cause was issued). He claimed that he had been unable to pay the $1,000,000 until that time because he had to secure those funds by mortgaging the real properties which remained in his name.

Nassau County Supreme Court Justice Jeffrey A. Goodstein denied the wife’s motion for an award of statutory interest on the $1,000,000, because the stipulation of settlement did not provide for such interest. The wife appealed.

Continue Reading Interest on Asset Payments Due Under Divorce Stipulation of Settlement

If the IRS determines that as between spouses only one is liable for a tax debt, should that finding be binding on a divorce court determination as to whether the marital tax debt should be allocated to only one spouse?

Married couples who choose to file a joint tax return are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise from the joint return, even if they later divorce. Joint and several liability means that each taxpayer is legally responsible for the entire liability. Thus, both spouses on a married filing jointly return are generally held responsible for all the tax due even if one spouse earned all the income or claimed improper deductions or credits. This is also true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns.

In some cases, however, a spouse can get relief from being jointly and severally liable. Such “Innocent Spouse Relief” relieves a spouse from additional tax owed if based upon the other spouse’s failure to report income, improper reporting of income, or the claiming of improper deductions or credits.

In order to qualify for Innocent Spouse Relief:

  • The understatement of tax (deficiency) must be solely attributable to the other spouse’s erroneous item (omitted income, or incorrectly reported deductions, credits, or property basis);
  • The innocent spouse must establish that at the time the joint return was signed the spouse didn’t know, and had no reason to know, that there was an understatement of tax; and
  • taking into account all the facts and circumstances, it would be unfair to hold the innocent spouse liable for the understatement of tax.

Justice Catherine M. DiDomenico, in her August 29, 2017 Richmond County (Staten Island) Supreme Court opinion in S.M. v. M.R. (the subject of last week’s blog post on the effect of an attorney retainer agreement cap), appeared to hold that a Tax Court innocent spouse finding should, conclusively, result in the equitable distribution of the entire tax debt to the other spouse.

Continue Reading IRS Innocent Spouse Relief’s Impact on Equitable Distribution in Divorce

If you were fortunate enough to buy stock in Apple Inc. in early 2009, you might have paid $13 per share. It’s now worth $150.

If you’re getting a divorce holding Apple shares with a substantially lower-than-market cost basis, you must plan your trial evidence or settlement to deal with the embedded capital gains tax exposure. In the example above, the gain would be $137 per share. When sold, under current tax laws, a capital gains tax of perhaps tens of thousands of dollars or more could be incurred.

If you settle this issue, you may negotiate the impact of capital gains on the spouse retaining the shares. It will always be easier, fairer, to simply divide the shares, but care must be taken to divide it “traunch” by traunch; to divide each group of shares purchased at any one time. In that way, the spouses will be assured that not only will today’s fair market value be the same, but so will the embedded capital gains issue.

If you don’t settle, the issue will be far more difficult. The court may not recognize nor account for the potential tax liability incurred if and when the stock as sold. The transfer from one spouse to the other incident to the divorce itself is not viewed as a taxable event. Even if the court computes the transfer using the current fair market value, the transferring spouse reports no capital gains; the recipient spouse keeps the original cost basis. If and when the recipient sells the shares, the recipient will bear the entirety of the capital gains tax, computed on the gain over the original cost basis.

Continue Reading Considering Potential Capital Gains Tax Liabilities in Divorce

Egyptian MarriageWhat happens when cultural and religious traditions clash with the presumptions underlying New York’s Equitable Distribution Law, negating the concept that a marriage is an economic partnership? To what extent should those traditions impact New York Law affecting long-term marriages?

In the March, 2017 case, Yehia v. Goma, the parties had been married in 1977 in Egypt in both civil and religious ceremonies, and resided in New York since 1992, (although the wife returned to Egypt between 2008 until 2011). They had three adult children.

During the trial, the parties entered into two stipulations: one resolving the isues of properties held in Egypt; the second addressing the division of the sale proceeds of the marital residence in New York, and the wife’s claim for counsel fees. As a result of the two stipulations, the issues left open for decision included equitable distribution of pension and 401(k) Plan assets, maintenance, and credits against Equitable Distribution.

Westchester County Supreme Court Justice Victor G. Grossman recognized that a significant issue affecting the claims of credits arises from how the parties managed their economic spheres during the marriage. He noted that the parties both remained Egyptian citizens and had led a devout life and marriage in accordance with Islamic Law. Both parties’ actions had been consistent with their religious and/or cultural traditions.

Continue Reading Should Religious and Cultural Traditions Impact Equitable Distribution?

1% sale high resolution renderingDivorce cases are supposed to have an ever-increasing set of rules. Last week’s decision of the Appellate Division, First Department, in Campbell v. Cambell demonstrates that while a judge must follow the rules, the judge still has many tools to accomplish an equitable result. Perhaps the most powerful is discretion.

In Campbell, the parties were married in 1973. After living together as husband and wife for only 52 months, the husband vacated the marital residence in 1978. The parties’ minor son remained with the wife. For the next 37 years, the parties lived separate and apart, the husband providing no economic or non-economic support to the wife and child.

In 2011, the wife retired from her job at Lincoln Hospital, where she began working in 1973, the same year as the marriage. She is now collecting $4,241.95 per month in pension benefits.

In 2013, the wife commenced this action for divorce. The wife’s pension was the parties’ primary marital asset. Supreme Court, Bronx County Justice Doris M. Gonzalez awarded the husband 50% of that portion of the wife’s pension that was accumulated during the 52 months the parties lived together. The husband appealed.

Continue Reading Husband Who Left Wife and Child Awarded 1% of Wife’s Pension

Zipped LipsThe judgment of divorce awarded by Orange County Supreme Court Justice Paul I. Marx, in Gafycz v. Gafycz, granted the wife, among other relief, 100% of two parcels of marital real property, 25% of properties located in Port Jervis, and $1,000 per month in nondurational (permanent) spousal support. The husband appealed.

In its March 1, 2017 decision, the Appellate Division, Second Department, affirmed. It held that Justice Marx providently exercised his discretion when awarding the wife 100% of the marital properties located in Chester and Pond Eddy. The appellate court noted, “The trial court is vested with broad discretion in making an equitable distribution of marital property . . . and unless it can be shown that the court improvidently exercised that discretion, its determination should not be disturbed.”

In this case, Justice Marx had considered that the husband secreted assets, willfully failed to comply with court orders, and was deliberately evasive in his testimony in fashioning its equitable distribution award of the marital property.

Continue Reading Division of Assets Adjusted Due To Evasiveness of Husband

In its August 24, 2016 decision in Maddaloni v. Maddaloni, the Appellate Division, Second Department, upheld the rulings of Supreme Court Suffolk County Justice Justice Carol Mackenzie that invalidated the all-but-complete maintenance waiver contained in a 23-year-old postnuptial agreement, awarding the wife maintenance for 10 years. The appellate court also upheld Justice Mackenzie’s award to the wife of 25% of the $2,000,000 appreciation during the marriage in the value of the husband’s pre-marital business, Maddaloni Jewelers of Huntington.

The Maddalonis were married in January, 1988. At the time of the marriage, the husband owned several cars, a house, and a jewelry business, and he was in contract to buy a shopping center. On August 22, 1988, less than eight months after the parties were married, they experienced marital difficulties and entered into a postnuptial agreement. Among other things, this agreement provided that, in the event that the parties divorced after the first five years of marriage, the wife agreed to accept the sum of $50,000, payable in five equal annual installments of $10,000, “in full satisfaction of any and all claims of whatsoever kind and nature she may have at that time for past or future support or for distribution of assets.”

Continue Reading Maintenance Provision of Postnuptial Agreement Voided; Wife Awarded 25% of Appreciation of Husband’s Premarital Business

Focused man paying his bills in the living room

The filing of a divorce summons commences the action and terminates the marital economic partnership. As noted by the Court of Appeals in Mesholam v. Mesholam, 11 N.Y.3d 24, 27, 862 N.Y.S.2d 453 (2008), that partnership is to be considered dissolved when a divorce action is commenced.

Retroactive to the first request for support, often contained in the divorce summons, itself, the trial court has the power to order both spousal and child support. It can also determine the parties’ relative responsibilities for marital residence carrying charges and other expenses.

In light of the trial court’s power to determine the parties’ rights and obligations for the period the divorce action is pending, what should be done if a party’s uses marital assets to pay living expenses accruing after the divorce action is commenced.

In its June 30, 2016 decision in Carvalho v. Carvalho, the Appellate Division, Third Department, held that marital assets may be used while a divorce action is pending to pay for legitimate household and living expenses without needing to later offset the division of those assets. Moreover, the burden is on the non-spending party to prove that the marital assets were not used for such “legitimate” purposes.

Continue Reading Charging a Party for Spending Marital Assets During the Divorce Action

The ever-changing landscape of Equitable Distribution case law makes it difficult, if not impossible, to rely on the “law.” A parent cannot (or rather, should not) make a gift to a married child without bringing the lawyers into it.

Take the April, 2016 decision of the Appellate Division, Second Department in Mistretta v. Mistretta. There, the parties had been married in 1991. During their marriage they lived in a home, at first owned by the husband’s mother, and deeded to the husband in 1996.

At the trial of this 2010 divorce action, the husband claimed that the residence was a gift from his mother, and therefore constituted separate property. However, he acknowledged that for many years, he paid his mother $500 per month “rent” (the opinion does not state whether rent was paid after the property was deeded to the husband). The husband and his sister both acknowledged that rental income from the subject premises was paid to the husband’s mother pursuant to the written agreement between the husband and his mother that was introduced into evidence.

Supreme Court, Suffolk County Justice Joseph Santorelli held that the home was marital property subject to equitable distribution. He directed the sale of the premises, with the parties to share equally in any net proceeds or deficiency from such sale.

Continue Reading You Can't Make A Gift To Your Married Child Without Getting The Lawyers Involved

It Need Not Be Rocket Science
It Need Not Be Rocket Science

A business, professional practice, or (until recent statutory amendments) license may be valued as a asset for divorce purposes based upon the amount of income it generates for the owner/holder. That asset may then be equitably distributed by granting the non-owner a monetary award equal to some percentage of the value.

Double-dipping, or double-counting, is the term for using the same stream of income both to value the business/practice, and then, after distributing an award to the non-owner based on the asset’s value, using the stream of income generated by the business/practice to base an award of spousal support (or child support, for that matter). If the non-owner spouse receives a “piece” of the income stream as an asset award, should the spouse get another piece as spousal support (maintenance)?

The “law” is yes, no and maybe. There is a rule against double-dipping, except when there’s not.

For the most part, if the business/practice is recognized as a “tangible asset,” just as the court would characterize a piece of real property, or publicly-traded stock, or a privately-held company whose income is a result of the work of many people, then it is generally held that the rule against double-dipping does not apply. The non-owner would get a distributive award based on the asset. Maintenance may also be awarded based upon the income generated by the tangible asset business. The rule against double-dipping rule does not apply.

If however, the business value is recognized as an “intangible asset,” then the rule against double-dipping applies, and the same stream of income may not be twice used.

Continue Reading Double Dipping and the Distinction Without a Difference