In its November 20, 2012 decision in Kang v. Kim, the First Department affirmed what appears to be an unwarranted interpretation of a divorce settlement marital residence buyout provision. In doing so, the appellate court yielded to the construction of the provision used by the “trier of fact” to resolve the ex=wife’s post-divorce motion to enforce the parties’ property settlement agreement.
That agreement gave the ex-wife the right to purchase the husband’s interest in the marital residence, a cooperative apartment. The clause provided:
If the parties are unable to agree as to the terms for such purchase within 30 days of the day that the Wife gave notice to the Husband then the value of the Husband’s interest (the ‘buy-out price’) shall be one half of the value of the apartment as determined by a Real Estate Appraisers [sic ] agreed to by the parties less the outstanding amount owed upon the First Mortgage.
The wife claimed that the provision was unambiguous. The price (“P”) she was to receive was one half of the value of the apartment (“V”) less the entire outstanding mortgage (“M”). The entirety of the mortgage was to be subtracted from the ex-husband’s half-share of the gross value.
Recalling math class from, oh, so many years ago, the wife successfully argued:
The husband had argued that the buyout price was half the value of the apartment less the wife’s one-half share of the outstanding amount of the mortgage. Mathematically, the husband argued:
Thus, the husband asserted that the buyout price was one half of the equity in the apartment. This might also be written:
The First Department noted that the lower court, New York County Supreme Court Justice Matthew F. Cooper, found the provision “unambiguous.”
However, the First Department disagreed on the issue of ambiguity, nevertheless deferring to the construction used by the lower court. The appellate court found that:
upon examination of the settlement agreement in its entirety, and considering the relation of the parties and the circumstances under which it was executed, the agreement is ambiguous because the provision is reasonably susceptible of more than one interpretation.
Indeed, the First Department noted, the settlement agreement also provided that all marital property was to be divided 50/50 and that if the premises were sold to a third party, the “net proceeds of sale” were to be divided equally.
Finding there to be an ambiguity, the First Department left the construction of the provision for the “trier of fact.” Ironically, it does not appear that Justice Cooper made a finding of fact. There does not appear to have been a hearing at which testimony was taken on the issue of the parties’ intent. Justice Cooper, instead. did not find the provision ambiguous. No apparent attempt was made to resolve the differing interpretations by reference to the intent of the parties.
With hindsight, the agreement drafter(s) could have chosen different language to make the provision clearer. For example, the agreement could have set forth that the price to be paid the ex-wife was “one half of the parties’ equity in the apartment to be determined by subtracting the balance due on the mortgage from the fair market value of the apartment (both as of the date of the election to be bought out) and dividing the result by two.”
Alternatively, the agreement could have been “structured” to convey visually the meaning suggested by the First Department:
. . . the value of the Husband’s interest (the ‘buy-out price’) shall be one half of:
a) the value of the apartment as determined by a Real Estate Appraisers [sic ] agreed to by the parties; less
b) the outstanding amount owed upon the First Mortgage.
Still further, an example could have been provided.
If at the time of the buyout, the value of the apartment is $500,000 and the remaining mortgage is $300,000, then the price to be paid the wife would be $100,000.
Ironically, if the above hypothetical was applied to wife’s interpretation, validated by Justice Cooper, the buyout price would be $-50,000. The husband would have to transfer to the wife his interest in the apartment and pay the wife $50,000, as well ($500,000/2 [$250,000] minus $300,000).
Precision in the narrative presentation of mathematical calculations is a difficult skill, if not an art. Such narratives should not be the sole method used to present agreement calculations. Use of the ‘visual’ narrative, mathematical formulae, and examples should eliminate disputes of the type presented in this case.
Speaking with hindsight, though, makes it a lot easier.
The wife was represented by Richard L. Derzaw, Esq., of New York; the husband was represented by Barry Elisofon, Esq., of Brooklyn.