Equitable Distribution

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

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

House on moneyAdjusting the financial rights between divorcing spouses for the payment of marital residence carrying charges while the divorce action is pending can be problematic. Claims for such adjustments are not always made and the results may be affected by other issues. Calculation of the credits may be illogical.

In its September, 2015 decision in Goldman

For the second time in six weeks the Appellate Division, Third Department, reduced an award of spousal maintenance for the failure to adjust for the distributive award based on the husband’s business. In its October 22, 2015 decision in Gifford v. Gifford, the Appellate Division, Third Department, modified a maintenance award because of the trial court’s failure to adjust the husband’s income for computation purposes to account for the distributive award to the wife based on the husband’s business. In September, in Mula v. Mula, the Third Department held that once valued, the income attributable to ownership of a professional practice may not also be the basis on which to award spousal maintenance (see, the September 14, 2015 blog post).

In Gifford, the parties in this divorce had stipulated a resolution of Equitable Distribution issues, including a $210,000 award to the wife based on the value of the husband’s geotechnical engineer business. After a trial on maintenance on counsel fees, Supreme Court Justice Vincent J. Reilly awarded the wife nondurational maintenance of $6,000 per month from January 1, 2014 through January 31, 2020, $3,000 per month from February 1, 2020 through June 1, 2022, and $800 per month thereafter, terminating upon either party’s death or the wife’s remarriage.

The Third Department held that Justice Reilley erred in utilizing the husband’s total average annual income of $332,431 for purposes of calculating a maintenance award, without making an adjustment for the distributive award of the company.


Continue Reading Double-Dipping: The Interrelationship of Business-Based Distributive Awards and Spousal Support

A professional practice is an asset which may be valued and equitably distributed in a divorce. Generally, that value is a function of the income generated by the practice after deducting reasonable compensation being paid to the professional. However, once valued, the income attributable to ownership of the practice may not also be the basis on which to award spousal maintenance.

Take the September 10, 2015 decision of the Appellate Division, Third Department, in Mula v. Mula. There, after 42 years of marriage, the husband commenced this action for a divorce. The wife counterclaimed for divorce and, by agreement, the parties were awarded mutual divorces on the grounds of irretrievable breakdown. During the marriage, the husband earned his C.P.A. license in 1981 and became the sole proprietor of an accounting practice in 1997. During the course of the marriage, the wife was primarily involved with the upkeep of the parties’ home and raising their three children.

Among other rulings, Ulster County Supreme Court Justice Anthony McGinty awarded the wife durational maintenance of $1,500 per month.

On appeal, the Third Department reduced this award to $1,000 per month, holding that Justice McGinty had double-counted the value of the husband’s professional practice. The lower court had valued the income generated by the practice as an asset and equitably distributed that asst. However, Justice McGinty also deemed the husband’s income to include the entire income generated by the practice when calculating the maintenance award to the wife.

The accounting practice was valued at $255,000. Apparently, the husband’s C.P.A. license was separately valued at $39,000.The husband contended on appeal that Justice McGinty had erred when calculating maintenance by failing to reduce his available income to reflect the court’s distributive award of his professional practice and license.

At issue is the rule against double counting, which provides that once a court converts a specific stream of income into an asset, that income may no longer be calculated into the maintenance formula and payout.

The husband’s solely-owned accounting firm was a service business for purposes of this rule.


Continue Reading Double-Dipping: Using an Income Stream as Both an Asset and to Calculate Maintenance

A belated qualified domestic relations order (QDRO) is not barred by the contract Statute of Limitations. It may also be used to collect arrears in the ex-spouse’s share of pension payments paid to the retiring employee before the post-retirement QDRO first goes into effect. Moreover, while the employee’s post-divorce loan against the pension will be charged only against the employee’s share, the reduction in monthly benefits attributable to the employee electing after the divorce joint and survivor benefits with the next spouse is to be shared with the first spouse.

So held the Appellate Division, Second Department, in last month’s decision in Krause v. Krause. In that decision the appellate court addressed for the first time the question of whether the submission for judicial approval of a proposed QDRO, instead of a motion made on notice, may be employed by a party to a matrimonial action to obtain pension arrears. The Second Department held that a QDRO may be used for such a purpose. [A QDRO is a court decree recognized by the Internal Revenue Service that allows the division of retirement plan benefits incident to a divorce, without triggering current income taxation or early withdrawal penalties.]

Carol and Richard Kraus were married in 1973. During a portion of the marriage, the wife was employed by the State of New York as a hospital nurse. The husband was employed by the Fire Department of the City of New York (the FDNY) as a firefighter from 1977 to 2008. As a firefighter, the husband was a member of a pension system for much of the parties’ marriage. The wife was also a member of a pension system as a State employee.

In 1993, the wife commenced a divorce action. On November 1, 1995, the parties reached a settlement, pursuant to which each spouse was entitled to a marital share of the other spouse’s pension in accordance with the formula set forth in Majauskas v Majauskas (61 N.Y.2d 481). The stipulation expressly provided that “[a] Qualified Domestic Relations Order shall be prepared in the course of any divorce and forwarded to the Court for signature and filed with the Husband’s employer.” A judgment of divorce was signed by the Supreme Court on February 21, 1996.


Continue Reading Oops! I Forgot To Submit A QDRO: Delays, Arrears, Loans and Options