Once again, it has been made clear that where either or both spouses have assets or liabilities at the date of marriage, it is foolhardy (or at least imprudent) to enter the marriage without a prenuptial agreement and/or the assembly of proof of the extent, nature and value of those assets or liabilities.

Take the January 8, 2015 decision of the Appellate Division, Third Depatrtment, in Ceravolo v. DeSantis. In that case, the parties were married in July, 1996. The wife commenced the action for divorce in June, 2010. Acting Albany Supreme Court Justice Kimberly O’Connor determined, among other things, that the marital residence, which had been purchased by the husband prior to the marriage, was marital property and awarded the wife, among other things, half of its value. The husband appealed.

The Third Department agreed with the husband that Justice O’Connor erred in classifying the marital residence as marital property. Marital property is defined as “all property acquired by either or both spouses during the marriage” (Domestic Relations Law §236[B][1][c]), while “property acquired before marriage” is separate property (D.R.L. §236[B][1][d][1]).

Title is a critical consideration in identifying the nature of real property acquired before the marriage. The circumstances surrounding the purchase of the residence and the parties’ intent relative thereto are irrelevant to the legal classification of the residence as separate or marital property.

Here, the husband purchased the marital residence in January 1994 — 2½ years prior to the parties’ marriage — paying $130,000 of his own funds and borrowing an additional $100,000 from his father, secured by a note and mortgage. Although the wife contributed $30,000 of her separate funds to the initial purchase of the residence, the husband took title to the property in his name alone.

Continue Reading Title Controls Premarital Contributions To The Acquisition and Expenses of Property

Six years before the parties’ marriage in June 2000, the wife became the sole owner of real property, which would later become the parties’ marital residence. At the time of marriage, the wife owned the property free and clear of any liens or encumbrances. In 2005, apparently in an effort to consolidate debt, the husband and the wife jointly applied for a mortgage on the property (based upon her limited income, the wife was unable to qualify for a mortgage on her own). To satisfy the requirements of the mortgage lender, the wife executed a deed conveying ownership of the residence from her alone to both her and the husband and the mortgage was issued jointly to the parties that same day.

In December 2011, the wife commenced this action for divorce. The parties resolved all issues except the distribution of the marital residence and the debt attached thereto, which had amounted to approximately $160,000. Following a trial, Supreme Court Justice Gerald William Connolly issued a decision finding, among other things, that the marital residence and its accompanying debt should be equally divided between the parties. No credit for any separate property contribution was given.

The Appellate Division, Third Department, in its July, 2014 decision in Myers v. Myers, affirmed.

The wife acknowledged that the residence had become marital property when she deeded it to herself and her husband. The wife contended that it was error to deny her a separate property origination credit in the amount of $165,000 for the estimated value of the marital residence at the time she did so.

The Third Department held that to the extent that a prior decision of the Third Department in Campfield v. Campfield (95 A.D.3d 1429, 944 N.Y.S.2d 339 [2012], lv. denied 21 N.Y.3d 857, 969 N.Y.S.2d 443 [2013]), may be read to limit a court’s discretion to award a separate property credit to a spouse, like the wife, who transmutes separate property into marital property without changing the nature of the property itself, it should no longer be followed.

The appellate court noted that credits are often given for the value of the former separate property. The decision to award a separate property origination credit in such a situation is a determination left to the sound discretion of the trial court. A court is not precluded as a matter of law from giving a credit when separate property has been transmuted into marital property.

Nonetheless, the appellate court was unpersuaded that the denial of the wife’s request for a separate property origination credit under the specific circumstances herein constituted an abuse of discretion. Justice Connolly had found “the overall picture is of the parties engaging generally in a financial partnership, of which the marital residence, and the loans thereupon, was simply one agreed-upon portion.”

The funds received from the mortgage, as well as the subsequent refinancing and home equity loan, enabled the wife and the husband to consolidate their debts, go on numerous family vacations, make improvements to the marital residence and, generally, live a lifestyle that may have been above their means. Notably, the wife’s individual debt was eliminated by the proceeds of a new, jointly-held debt which, in turn, was primarily paid from the husband’s income for a number of years.

Inasmuch as a separate property origination credit “is not strictly mandated since the property is no longer separate, but is part of the total marital property,” the Third Department could not say that Justice Connolly improperly denied the wife a credit.

Comment: This is not a rare scenario, particularly with second marriages. Rather than leaving such matters to the discretion of a trial judge, dealing with assets brought into marriage is properly the subject of a prenuptial agreement, or a post-nuptial agreement entered at the time the “separate” asset is “transmuted.” At that time the parties would have been independently counseled to consider the effect of using the mortgage proceeds for various purposes and paying the mortgage debt.

Cynthia Feathers, of Glens Falls, represented the wife. Paul W. Van Ryn, of Maxwell & Van Ryn, of Delmar, represented the husband.

The August 21, 2013 decision of the Appellate Division, Second Department in Patete v. Rodriguez may have expanded the credits available to the non-titled spouse when marital funds are expended on a separate-property asset.

When New York adopted its Equitable Distribution Law in 1980, courts were now longer bound by which spouse held title to an asset generated during the marriage. Upon divorce, the non-titled spouse could be awarded an equitable share.

Not all property of parties getting divorced, however, is “marital property” subject to Equitable Distribution. The law recognizes as “separate property,” assets owned by one of the spouses either before the marriage, or acquired through inheritance, or by gift from someone other than the other spouse, etc. The appreciation in the value of separate property is also separate property, subject to a claim that such appreciation is due to the contributions or efforts of the non-titled spouse.

Determining what is or should be marital and separate property, and each spouse’s equitable share of marital property is not always clear. Indeed, the rules and guidelines are not free from doubt.

Take last week’s decision in Patete, for example. This divorce was the second time around for these parties. They married for the first time in 1978. Incident to their first divorce in 1981, the wife conveyed her interest in the 68th Street, Maspeth, Queens marital residence to the husband.

The parties married again in 1985. At that time the husband still owned the 68th Street home. Again it was used as the marital residence. As the home was the husband’s property before the second marriage, it was deemed his separate property when the second marriage here ended in divorce. 

In 1987, two years into the second marriage, however, the husband sold the 68th Street property. $125,000 of the proceeds were used to purchase the parties’ jointly-owned new marital residence on 64th Street in Maspeth.

The appellate court acknowledged that the 68th Street property remained the husband’s separate property until its sale in 1987. Thus, the $125,000 in sales proceeds used to purchase the jointly-owned 68th Street home was also his separate property. The husband was entitled to a separate property credit for his use of separate funds to purchase the 68th Street home.

However, between the date of the second marriage and the sale of the 68th Street home, marital funds were used to pay the mortgage on the husband’s separate-property 68th Street home. As a result, the Second Department held:

The [wife] should receive a credit for one-half of the marital funds used to the pay this mortgage on the plaintiff’s separate property.

The Court reported that the total amount of marital funds used for this purpose was $7,338.94.The Court did not state that this was the amount by which the principal amount due on the mortgage was reduced, just that such was the amount used to pay the mortgage.

Continue Reading Credits on Divorce for Using Marital Funds for Separate Property Assets

In order to prevent the foreclosure of the marital residence, a court in a divorce action, and prior to judgment, may order the spouses to cooperate with a refinance application. Moreover, if the property is not successfully refinanced, the court, before divorce judgment, may compel a spouse to satisfy (at least) one half of the current mortgage in default.

Such was the holding of the Appellate Division, First Department, in its January 3, 2013 decision in Nederlander v. Nederlander. That decision unanimously affirmed the Order of New York County Supreme Court Justice Deborah A. Kaplan.

In this case, the bank was planning to foreclose on the marital residence. Until the wife made her motion, below, the husband had failed to submit a requested application and financial information to the bank. This was months after such was requested by the bank, and months after the wife submitted her information and application to the bank. The appellate court would not speculate whether the husband’s actions, which in effect contributed to the foreclosure, were by design or neglect.

The First Department based the authority to grant the wife her requested relief on Domestic Relations Law §234. That section empowers the court to determine questions of title to property and to “make such direction, between the parties, concerning the possession of property, as in the court’s discretion justice requires having regard to the circumstances of the case and of the respective parties.”

Continue Reading Husband in Divorce Action Ordered to Refinance Home, or Pay Off Half of Mortgage Balance

Bigamy.jpgDistinguishing the 2009 Court of Appeals decision in Mahoney–Buntzman v. Buntzman, the Second Department, in its October 24, 2012 decision in Levenstein v. Levenstein, has held that if marital funds are used to pay pre-marital support arrears, the non-obligated spouse may be awarded a credit towards equitable distribution.

In 1995, before the current marriage, Mr. Levenstein was convicted in the United States District Court for the Eastern District of Virginia, for the failure to pay child support (see 18 USC § 228). Incident to the criminal conviction, he was directed to pay arrears of $132,718.49 to his first wife by July 13, 1995. Mr. Levenstein failed to fully satisfy that obligation by that deadline.

Thereafter, the husband remarried twice. The second remarriage took place four years after the criminal conviction, but before the husband secured a divorce from his second wife. During the purported third marriage, the husband paid the remainder of his criminal restitution obligation, and made additional child support payments to his first wife that became due during the purported marriage.

In 2006, the third wife sought an annulment for bigamy. In 2008, grounds were established and a trial was held to determine the apportionment of the putative marital debt. In a decision dated February 25, 2009, now-retired Rockland County Supreme Court Justice Alfred J. Weiner awarded the wife a credit of 50% of the marital funds used to satisfy premarital maintenance and child support obligations that the defendant had paid to his first wife, including the amounts due under the criminal judgment. A judgment of annulment was entered in April, 2009.

One month later, in May, 2009, the Court of Appeals held in Mahoney–Buntzman v. Buntzman (12 N.Y.3d 415) that a spouse is not entitled to a credit for marital funds paid to a former spouse or a child pursuant to an order of maintenance or child support.

Based on Mahoney–Buntzman, Mr. Levenstein moved for a reconsideration of the decision which had granted the 50% credit. Justice Weiner granted the husband’s motion and denied the credit. The putative marital debt was reapportioned accordingly.

On appeal, the Second Department reinstated the credit. The appellate court noted that in Mahoney–Buntzman, the wife had sought credit for maintenance payments made to the husband’s former spouse that had become due and were paid during the marriage. In holding that such payments were not subject to recoupment by the wife, the Court of Appeals reasoned that maintenance obligations to a former spouse and to children pursuant to a support order “are obligations that do not enure solely to the benefit of one spouse.” Nevertheless, the Court of Appeals cautioned:

This is not to say that every expenditure of marital funds during the course of the marriage may not be considered in an equitable distribution calculation. … There may be circumstances where equity requires a credit to one spouse for marital property used to pay off the separate debt of one spouse or add to the value of one spouse’s separate property.”

Continue Reading Payment of Husband's Pre-marital Support Arrears Results in Equitable Distribution Credit to the Wife

House on money flipped.jpgDealing with the appreciation in value during the marriage of a marital home owned by one spouse before the marriage has been, perhaps, the most troublesome area of New York’s Equitable Distribution Law. Inconsistencies in decisions abound. The entire area may have been turned on its head in 2010 by the Court of Appeals in Fields v. Fields (see prior blog), 15 N.Y.3d 158, 905 N.Y.S.2d 783.

In its July 12, 2012 decision in Biagiotti v. Biagiotti, the Third Department appears to have handled the issue conservatively, but logically.

The parties were married in September 2002. Their action was commenced in 2010. The husband owned the marital residence before the marriage. Title to the home was not changed during the marriage. It was conceded to be the husband’s separate property.

The wife, however, made a claim to share in the home’s increase in value over the course of the marriage. The Third Department noted that:

Appreciation in value of separate property can become marital property if the appreciation is due to the contributions or efforts of the nontitled spouse.

Although, the parties stipulated that the residence had increased in value by $105,500 between the date of the marriage and the date of commencement of the divorce action, they did not stipulate on what caused that appreciation.

The parties had spent $185,000 of marital funds during the marriage to improve the home. The renovations were paid for with marital funds. The trial evidence showed that defendant was more personally involved in the renovations than plaintiff.

According to an appraisal in the record, however, the improvements only accounted for approximately $11,000 of the increase in value. The appellate court considered the parties’ different levels of involvement, and that most of the appreciation was passive based on market forces rather than related to the improvements. As a result, the Third Department affirmed the award to the wife by Albany County Supreme Court Justice Joseph C. Teresi of 15% of the amount of the property’s appreciation.

Moreover, before the marriage the residence had been encumbered by a mortgage and a home equity line of credit. In 2003, shortly after the marriage, the husband refinanced the mortgage and paid off the existing line of credit by rolling them into a new mortgage. The mortgage payments were thereafter made from a checking account into which both parties deposited their paychecks. The amount of the refinanced mortgage was reduced by $24,028 during the marriage. The Third Departed noted:

If marital assets are used to reduce one party’s separate indebtedness, the other spouse can recoup his or her equitable share of the expended marital funds.

As it was payments from marital funds that reduced the husband’s indebtedness on his separate property, the wife was entitled to recoup $12,014, or half of the reduction of this separate debt.

On the other hand, after so refinancing the mortgage in 2003, the husband also took out a home equity line of credit. The parties agreed that the line of credit had been repeatedly borrowed against and used, according to the husband, to pay for home maintenance and repairs, vehicles, furniture and other living expenses.

As the evidence established that the line of credit was used for marital expenses and the wife’s evidence did not refute this, the appellate court held that Justice Teresi did not abuse his discretion by equally dividing this debt between the parties.

The wife was represented by Jennifer P. Rutkey, Esq., of Gordon, Tepper & Decorsey, LLP, of Glenville, NY. The husband was represented by Daniel D. Cunningham, Esq., of Rhoades, Cunningham & McFadden PLLC, of Latham, NY.

House of money.jpgThe May, 2011 decision of the Appellate Division, Second Department, in Many v. Many, seems, at first blush, to be a rather routine matter. While their divorce action is pending, the interests of the parties are balanced. However, below the surface lurk issues which highlight the frustration and anxiety which spouses must feel as their case is squired through the judicial process.

By Order to Show Cause issued June 13, 2009, two years before this decision, the wife sought interim support.  She also sought a restraint against her husband refinancing the marital residence. One may surmise that Mr. Many was sole owner of the home; it was his “separate property,” subject to his wife’s claim to an equitable share.

Ms. Many received her award of temporary maintenance. However, by his Order of April, 2010, Supreme Court, Westchester County, Justice Edgar G. Walker, denied that branch of Ms. Many’s motion which was to restrain her husband from encumbering the marital residence.  In effect, Mr. Many was authorized to refinance the equity in the marital residence, but restricted from using the funds for any purpose other than paying his pendente lite maintenance obligation.

Continue Reading When Mortgaging the Marital Residence Is Necessary to Pay Temporary Support

Have you looked at an IRS Form 1040 (pdf) lately?

Looking at the 1040 is supposed to begin the C.S.S.A. calculation for determining child support.  For actions commenced on or after October 13, 2010, it is also the first step when determining temporary maintenance. When computing child support under either the Family Court Act or the Domestic Relations Law, the calculation starts with a determination of parental income. F.C.A. §413(c)(1) or D.R.L. §240(1-b)(c)(1). Determining parental income under either F.C.A. §413(b)(5)(i) or D.R.L. §240(1-b)(b)(5)(i) begins by looking at the:

gross (total) income as should have been or should be reported in the most recent federal income tax return.

The recent amendment to D.R.L. §237(B) adopts the C.S.S.A. definition to begin the calculation of a temporary support award under D.R.L. §237(B)(5-a)(b)(4):

“Income” shall mean:

(a)  income as defined in the child support standards act . . . .

There actually is a line on the federal income tax return which reports the “total income.”  It’s line 22: Total Income.jpg

Although “gross” income is a term in the statute, but not the 1040, its context is made clear when reference is made to the calculation of Adjusted Gross Income which begins on line 23.

Continue Reading "Gross (Total) Income" for the Purposes of Child Support and Temporary Maintenance

Calulator on 100s 11 red.jpgThe way you phrase the credit is just as important as the amount.

Let’s assume that when the divorce action was filed, the parties’ marital residence was encumbered by a mortgage with a principal balance of $250,000.

Let’s further assume that while the divorce action is pending, the wife, only, makes all the mortgage payments.  The parties get divorced three years later and the marital residence is then sold.  At the time of sale, solely due to the payments of the wife, the mortgage principal has been reduced to $200,000.  Finally, assume there are $300,000 of sales proceeds remaining after paying off the mortgage, the broker and other closing expenses.

Is the wife entitled to a credit for “her” $50,000 reduction of the mortgage, and if so, how much?

That was the issue facing the Second Department in its March 8, 2011 decision in Le v. Le.  In that case, the Court modified the decision of Westchester County Supreme Court Justice Linda Christopher  which, I believe, correctly awarded the wife a credit against the marital residence sales proceeds for “the difference between the princip[al] balance of the mortgage as of March 22, 2007 and the amount due at closing . . . .”

As in our example, the wife had made the mortgage payments while the action was pending without any contribution from the husband. The Appellate Division recognized that the wife was entitled to be reimbursed:

Where, as here, a party has paid the other party’s share of what proves to be marital debt, such as the mortgage, taxes, and insurance on the marital residence, reimbursement is required . . . .

Here, however, the Court held that the wife was entitled to a credit equal only to 50% of the reduction in the mortgage principal.  Such, the Court stated, reflected that it was the responsibility of both parties to maintain the marital residence while the divorce action was pending.

When reducing the credit from 100% to 50%, the Second Department cited its 2004 decision in Palumbo v. Palumbo,  In that case, the Court directed that the plaintiff wife’s “share of the proceeds” be reduced by “by one half of the total of the defendant’s payments of principal on the mortgage . . . .”

Using the numbers in our example, Mr. Palumbo would receive his own 50% share of the $300,000 in net proceeds, or $150,000.  In addition, Mr. Palumbo would receive from the wife’s share, another $25,000 (50% of the reduction).  Mr. Palumbo leaves the sale with $175,000 in proceeds; the wife with $125,000.

On the other hand, Ms. Le would only walk out with $162,500.  Ms. Le is first to receive her $25,000 credit (50% of the mortgage reduction) against 100% the net sales.  So, from the $300,000 in net sales proceeds, first give Ms. Le her $25,000.  Then, split the remaining $275,000: $137,500 to each party.  Ms. Le ends up with $162,500; Mr. Le with $137,500.

In order to give Ms. Le the 50% of the mortgage principal reduction with which her husband should be charged. you take 50% of the mortgage reduction from the husband’s share, as was done in Palumbo.  Alternatively, as was done by Justice Christopher in Le, you return to the wife 100% of the mortgage reduction off the top.  What you cannot do, is only give Ms. Le 50% off the top.