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

What do you do upon divorce when the home purchased during the marriage and titled in one spouse’s name was purchased using the proceeds from the sale of the home owned at the date of marriage solely in the name of that same spouse?

The Appellate Division, Second Department, in its March 2, 2016 decision in Ahearn v. Ahearn, applied well-established equitable distribution principles to affirm the determination of now-retired Suffolk County Supreme Court Justice William J. Kent, III, and hold that the home purchased during the marriage was marital property even though titled in only the one spouse’s name. Moreover, the titled spouse was entitled to a dollar-for-dollar separate property credit against the equity in the marital-property home for the use of the first home’s net sales proceeds.

The fact pattern was straightforward. In June 1996, the wife-to-be purchased a house on Salem Street in Patchogue. Approximately nine months later, the parties were married and lived together in the Salem Street house. In December 2004, the wife sold the Salem Street house and used the $143,000 in net proceeds from that sale toward the purchase, in March 2005, of a house in Holbrook. Only the wife’s name was on the Holbrook deed, but, at the time of trial, both parties were listed on the mortgage.

Continue Reading Tracing One Spouse’s Pre-Marital Home Sold During Marriage To Purchase Another

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

In last month’s decision in Lowe v. Lowe, the Third Department upheld subtracting one half of the amount spent by a wife on TV home shopping from her distributive award.

The parties had married in 2005 and had no children together. In February 2012, the husband commenced this action for divorce. Following the non-jury trial, Tompkins County Supreme Court Justice Phillip R. Rumsey ordered the distribution of the marital property, including several bank and investment accounts and the marital residence. The court also ordered that the husband pay the wife $23,000 in counsel fees, as well as $3,000 per month in spousal maintenance for approximately 2 1/2 years. The husband appealed and the wife cross-appealed.

The Third Department upheld Justice Rumsey’s award to the wife of 50% of the appreciation of the husband’s separate property investment portfolio, 401(k), pension and residence. However, offsetting what may have been that very generous percentage of separate property appreciation [comment: no part being attributed to market forces] was Justice Rumsey’s decision to subtract from the wife’s distributive award one half of the total amount the wife spent during the marriage on television home shopping.

The Third Department agreed. The almost $32,000 the wife spent over this seven-year marriage was a wasteful dissipation of marital assets.

It is undisputed that, during the course of the marriage, the wife developed a shopping problem and, despite the husband’s effort to stop her, bought over $30,000 worth of items from television shopping channels. Thus, we find no abuse of Supreme Court’s considerable discretion in reducing the wife’s award by one half of the amount dissipated, or $15,955.

Dirk A. Galbraith, of Holmberg Galbraith & Miller, of Ithaca, represented the husband. Sharon M. Sulimowicz, of Ithaca, represented the wife.

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.

It depended on what the definition of “the” was.

In Babbio v. Babbio, the Appellate Division, First Department, on July 17, 2014 defined “the” and otherwise interpreted a prenuptial agreement in ways that cost a husband millions of dollars of separate property credits he sought in his divorce action.

Under the parties’ agreement, marital property, generally, was to be divided equally. However, the agreement also provided:

[i]n the event of an Operative Event, Marital Property [as defined elsewhere in the agreement] shall be distributed equally between [the parties] in accordance with the following provisions, except that if the parties have been married for ten (10) years or less and either party is able to identify One Million ($1,000,000) Dollars or more of Separate Property that was used for the acquisition of the Marital Property, that party shall first receive the amount of his or her contribution of Separate Property prior to the division of the remaining value of such property, if any. [emphasis added]

“Operative Event” was defined, inter alia, as “the delivery by [either party] to the other of written notification … of an intention to terminate the marriage.” Here, the Court held that it was the date of the notification, and not the date of distribution that was determinative. As a result, the husband became entitled to the benefits of this provision.

However, construing the parties’ prenuptial agreement in what the Court viewed as being in accord with the plain meaning of its terms, and interpreting every part of the agreement “with reference to the whole”, the First Department found that the party seeking the credit must have contributed $1 million or more of his or her own separate property directly to the acquisition of the particular item of marital property at issue.

Continue Reading Husband Denied Millions in Separate Property Credits Because of the Definition of "The"

The failure of a prenuptial agreement to specify that earnings during the marriage were separate propertywarranted a breach-of-contract recovery as part of a distribution on divorce when those earnings used to pay sparate liabilities. So held Supreme Court New York County Justice Laura E. Drager in her January 15, 2014 decision in R.B. v. M.I (New York Law Journal published decision).

Once again, the focus of the court’s attention was on the import of a prenuptial provision that limited marital property to that held jointly by the parties.

In Zinter v. Zinter, Saratoga County Supreme Court Justice Thomas D. Nolan, Jr., last month held it was unconscionable for a prenuptial agreement to give the husband  power to control whether earnings and other after-marriage acquired property would be placed into joint or indiviual accounts, and thus marital or separate property (see, my March 17, 2014 blog post).

Here, the Justice Drager held that whether pproperty was owned jointly or individually at the commencement of the divorce action did not end the inquiry, if a breach of contract claim arising during the marriage is viable.

Continue Reading Failure in Prenup to Specify Earnings as Separate Property Warrants Recoupment

Sometimes developing divorce case law seems like a bad game of telephone.

Take the February 7, 2014 decision of the Fourth Department in Foti v. FotiHere, the Court reversed the order of Supreme Court, Monroe County Justice Kenneth R. Fisher which had granted a wife partial summary judgment determining that various real estate entities and management companies were her separate property. She had proven that her interests were received from her father by gift.

Generally, under New York’s Domestic Relations Law §236B, property that is owned by a spouse before the marriage constitutes “separate property,” and is not divided on divorce, except, under some circumstances, to the extent of some portion of appreciation in value of the separate property over the course of the marriage. Inheritances and gifts (from someone other than the other spouse) are also “separate property.” On divorce, the court will divide  the parties’ “marital property,” property acquired during the marriage which is not “separate property.”

In Foti, the Fourth Department held that there was an issue of fact whether the wife commingled her interests in the entities, transforming the nature of those interests to marital property. The possible “commingling” arose from deductions taken on the parties’ joint tax return: “Here, the parties filed a joint federal tax return in which defendant reported her interest in the entities as tax losses, and ‘[a] party to litigation may not take a position contrary to a position taken in an income tax return,’” quoting from the 2009 decision of the Court of Appeals in Mahoney-Buntzman v. Buntzman, 12 N.Y.3d 415, 881 N.Y.S.2d 369.

In Mahoney-Bunztman, the Court of Appeals held that a husband’s decision to declare on his joint income tax return that money he received on the disposition of his interest in a real estate development company was ordinary earned income prevented him from later claiming that that money was merely a transformation of his separate property.

Continue Reading Deducting Separate Property Business Losses on Joint Tax Return May Transform Property to Marital

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