Among other errors the Appellate Division, Second Department, addressed in its May 6, 2015 decision in Sawin v. Sawin, was the award to the wife of an $8,000 credit for her post-divorce action assumption of a $16,000 credit card debt. At trial, the wife testified that she incurred this debt over a two-year period
Divorce Agreement Reformed Where DRO Not Available To Divide Deferred Compensation Plan
It’s always nice to see a court cut through the red tape and do the right thing. It doesn’t always work out that way. Here it did.
In its April 29, 2015 decision in Dickson v. Dickson, the Appellate Division, Second Department, reversed Westchester County Supreme Court Justice John P. Colangelo to solve a practical problem resulting from a mistaken assumption in a couple’s divorce settlement agreement.
That agreement provided that the wife would receive one half of the husband’s Time Warner Deferred Compensation Plan benefits. The transfer of the wife’s interest was expressly to be effectuated pursuant to a Qualified Domestic Relations Order (hereinafter QDRO) or a Domestic Relations Order (hereinafter DRO).
What is a Domestic Relations Order? It is common for employers to provide retirement or deferred compensation benefits to their employees. With appropriate plans, there are no income taxes paid by the employee now at time of the employer’s current contributions. Indeed, the employee may also contribute to such plans using “pre-tax” dollars. Income taxes will not be paid on the employer’s or employee’s contributions, or the growth thereon, until the employee withdraws funds from the plan, usually upon retirement.
Incident to a divorce, a share of such plan benefits is often to be paid over, now, to the employee’s spouse. Were that to be accomplished by the employee withdrawing the spouse’s share and paying over the funds withdrawn to the spouse, such could constitute a current invasion of the plan, a withdrawal from the fund subjecting the employee, now, to income taxes, if not early withdrawal penalties, as well.
A Domestic Relations Order 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. Rather, the employee’s spouse will be subjected to income taxes only when the spouse accesses that share when, as and if withdrawals are made (or if the share is not properly rolled over into an appropriate tax-deferred account of the spouse).
That is precisely what the Dicksons contemplated here. The wife was to receive half of the husband’s Time Warner Deferred Compensation Plan. A Domestic Relations Order was to be used to prevent the transfer to the wife being a taxable event. Rather, the wife would pay income taxes on the amounts she received when, as and if she did so.
However, in this instance the Time Warner Deferred Compensation Plan was not the type of benefit plan that could be made the subject of a Domestic Relations Order. Instead, for the husband to pay over to the wife her 50% share, such would be treated as a current invasion. The husband would, now, be subjected to income taxes on the amount withdrawn and paid over to the wife.
Title Controls Premarital Contributions To The Acquisition and Expenses of Property
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
Wife’s TV Home Shopping Was Wasteful Dissipation Of Marital Assets
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
Separate Property Credit Granted For Home Down Payment, But Sale of Home Delayed For 10+ years
In its January 8, 2015 decision in Albertalli v Albertalli, the Appellate Division, Third Department, upheld the granting of a separate property credit to a husband for the contribution of his separate funds to the purchase of the parties’ home, even though he deposited those funds in a joint account a month before the home was purchased.
Among the issues decided in this divorce action was the equitable distribution of the marital residence, the main asset of the parties, purchased five months after the marriage. The husband contributed $33,000 of his separate property (funds received by the husband prior to the marriage as a gift from his grandfather) into a joint account created one month prior to the purchase of the residence. The parties then used $24,915 from the joint account as a down payment on the purchase price of $71,000 and mortgaged the balance. At the time of trial, the residence was encumbered by a remaining balance on the mortgage of approximately $45,000 and a home equity loan of approximately $6,500. The evidence at trial established that, in its current condition, the home would be listed for sale at $64,500 and expected to sell in the low $60,000 range.
In distributing the residence, Chemung County Supreme Court Justice Judith Ferrell O’Shea concluded that the funds used for the down payment were the separate property of the husband and granted him a credit for that amount. The court also directed that the home be listed for immediate sale. The wife appealed, challenging the credit and the immediate sale.
Although the funds received by the husband as a gift from his grandfather prior to the marriage were considered separate property (see Domestic Relations Law § 236 [B] [1] [d] [1]), they presumptively became marital property once the husband deposited them into a joint account. In order to rebut the presumption that the funds became marital property, the husband was required to come forward with clear and convincing evidence that the joint account was created for convenience. Justice O’Shea concluded that the funds remained separate property based on the timing of the deposit, the ability to clearly trace the source of the funds used for the down payment and the husband’s testimony that the funds were placed in the joint account only because it was at the same bank from which the parties were obtaining the mortgage. Deferring to the court’s credibility determination, the Fourth Department found no basis to disturb that conclusion. Having determined that the funds were separate, it was within the trial court’s discretion to determine whether to credit the husband for the use of his separate property in acquiring the marital residence.
While “partial use of separate funds to acquire a marital asset does not mandate that a credit for separate funds be given”, the appellate court found no basis to disturb Supreme Court’s exercise of its discretion here.
Wife Denied Separate Property Credit Against Home Deeded By Her to Herself and Husband
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
Husband Denied Millions in Separate Property Credits Because of the Definition of "The"
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.
Being Bound by Statements in Tax Returns and Court Papers
“Estoppel” is the principle that precludes a person from asserting something contrary to that inconsistent with a previous statement, position or ruling. Two decisions last month bringing the principal and to focus.
First, the June 4, 2014 decision of Kings County Supreme Court Justice Jeffrey S. Sunshine in Zito v. Zito primarily resolved the wife’s motion for temporary relief in a divorce action commenced by the husband on June 7, 2011. The parties had been married 10 years before that, and had a daughter (then 5) and a son (then 3).
The husband works in the family-owned Smiling Pizzeria. The wife, although a licensed pharmacist, alleged that she had been a full-time homemaker since the children were born. Those children attend private school and participate in a number of organized activities.
However, in addition to the wife’s motion for temporary relief, Smiling Pizzeria, itself, had moved to be allowed to intervene in the divorce action. The pizzeria wanted to establish that it was owned only by the husband’s father; that the husband had no ownership interest. Without an ownership interest of the husband, it was argued, it could not be subject to equitable distribution.
Continue Reading Being Bound by Statements in Tax Returns and Court Papers
“Clear and Beyond Doubt” is Burden of Proof for Correction of Mutual Mistake in Divorce Settlement Agreement
The Second Department has imposed what may be an impossible burden of proof needed to correct a mathematical miscalculation (the alleged mutual mistake) in a divorce settlement agreement. That is the effect of the March 19, 2014 decision in Hackett v. Hackett.
After 22 years of marriage, the husband commenced an action for a divorce in 2005. A year later, the parties executed a written settlement agreement, which was incorporated, but not merged into their judgment of divorce.
Under the terms of the settlement agreement, the wife received the marital residence, which the parties estimated to be worth $465,000, and she assumed responsibility for repayment of a first mortgage and a home equity loan with combined outstanding balances of $195,124. The husband retained sole ownership of his restaurant business, which had an appraised value of between $360,000 to $385,000, but which the parties agreed to value, for purposes of their settlement, at only $325,000. The wife also agreed to waive valuation of the husband’s certification as a public accountant, which he acquired during the marriage. “Schedule A” to the divorce settlement agreement listed the dollar values of the assets being allocated to each party. The settlement “purportedly” [the Court’s word] equalized the division of assets by requiring the husband to pay the wife $19,336.
Approximately two years later, the ex-husband commenced this action, seeking to reform the settlement agreement on the ground that an alleged mutual mistake had resulted in the unequal division of the marital assets. He alleged that the settlement agreement contained a “computational error” on Schedule A. As a result the wife’s share of the marital assets was undervalued, resulting in a windfall to her in excess of $100,000. The husband maintained the expressed intent of the agreementcertain was to equally divide the parties’ assets.
Failure in Prenup to Specify Earnings as Separate Property Warrants Recoupment
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