It is certainly not a rare problem. When confronted with fraudulent income tax returns, what is a divorce court to do? Should they be used as swords or shields?
In her January 31, 2014 decision in Morille-Hinds v. Hinds, Supreme Court Queens County Justice Pam Jackman Brown appears to have disregarded the failure to report a husband’s income on the parties’ joint income tax returns when recognizing his claim to a 50% share of marital property. Nevertheless, those returns were honored when fixing the wife’s entitlement to child support.
The parties, both 54, married in 1993. The wife had commenced this divorce action in 2007. The husband had appealed from the 2009 decision of Judicial Hearing Officer Stanley Gartenstein who had awarded him only 15% of the marital property. The J.H.O. had also imputed to the husband an annual income of $80,000 for the purpose of determining his child support obligation. The Second Department reversed, holding that decision was patently unfair to the husband. The case was sent back for a retrial on the issues of equitable distribution and child support.
At the retrial, only the parties testified. The wife did not alter her contention that her husband should not receive an equal share because, as she testified, he was lazy and did odd jobs.
However Justice Jackman Brown noted the parties lived a shared economic partnership consisting of the wife working at her full time employment as a microbiologist and the husband taking care of the marital home, caring for the parties’ child, finding and fixing real property for investment. He was a “fixer upper” involved with searching for buildings and renovating them for resale on the real estate market.
The income during the marriage came from the wife’s earnings, rental from investment properties and the husband’s handyman work which were pooled toward in the parties’ real estate investments. The earnings from the investment were used to sustain the parties’ investment life style. Although the wife stayed steadfast with her belief that her income was the sole source of the parties’ investments, the evidence show that the husband’s non-economic contributions significantly improved the parties’ lavish lifestyle and helped fostered the wife’s successful career.
The husband had always sporadically worked as a handy person fixing people’s homes, bathrooms, kitchens, plumbing, tiling and electrical repairs. His highest annual income throughout the marriage was $18,570.00.
The martial residence and other real property were acquired during the marriage. The investment properties were renovated and resold on the market by the husband. The marital residence was converted by the husband from a one level ranch home with 900 square feet purchased for $140,000.00 into a 2600 square foot three level bungalow home with a rental unit with an approximate value of $850,000.
Notably, both sides agreed that throughout the marriage they filed joint tax returns and never reported any income for the husband. The joint tax returns clearly showed that the marriage was based on concealing income while the parties used tax loopholes to receive credits from IRS.
Justice Jackman Brown recognized that contributions to the marital economic partnership can be economic or non-economic. Here, the wife failed to show by fact and law that her income alone was the determining fact for the acquisition of assets. Indeed, the Appellate Court had referenced that the husband’s skilled labor, value to the parties’ real property, and child care responsibilities as factors to be considered when equitably distributing the marital assets.
Here, the credible testimony showed that the parties’ wealth and lifestyle were garnered mostly from the husband’s insight to acquire lucrative buildings to exchange for financial gain. The monies came from sale of their investments, refinancing of properties, rental income and employment income. The husband single-handedly searched for buildings, renovated them and then sold them on the real estate market. The wife refused to account for the manual labor of the husband that significantly increased the wealth for the family. (On the other hand, the wife failed to show that she contributed anything more that the money she earned.)
The wife continued to insist that the husband earned nothing, paid nothing and therefore his distributive share should be no more than 15% as determined by the prior trial court. However, the wife failed to show how the invested properties increased in value other than through the husband’s contributions.
The wife’s employment required her to work outside of the home traveling nationally and internationally as a microbiologist. The husband was the stay-at-home parent caring for the parties’ son, fixing their properties and doing handyman odd jobs. In addition, the husband volunteered at their son’s school.
Justice Jackman Brown noted that:
The fundamental purpose of the Equitable Distribution Law is the recognition of marriage as an economic partnership in which “both parties contribute as spouse, parent, wage earner or homemaker” . . . . Under the equitable distribution theory, the Court “possesses flexibility and elasticity to mold an appropriate decree because what is fair and just in one circumstance may not be so in another” . . . .
As a result, the Court found that the husband was entitled to 50% share of equitable distribution of all the assets based on his substantial non-economic contribution and home and child care services. The evidence amply supported the husband’s claim to an award of equal equitable distribution.
When it came to the child support determination, the wife sought to have income imputed to the husband that which she claimed the husband was capable of earning. (J.H.O. Gartenstein had found that to be some $80,000.00 per year. Between his undeclared handyman income and the income generated through the business of the acquisition, improvement and resale of investment properties, this might not be unreasonable.)
However, Justice Jackman Brown refused to reward the wife for both her lack of appreciation of the efforts of her husband, as well as the wife’s failure to produce during discovery and at trial various documents that had been requested by the husband.
Again, it was noted by the Court that the parties throughout their marriage engaged in a scheme whereby all incomes were not reported in their tax returns. For unexplained reasons, the rental income from investment properties and the marital property was not reported, the incomes of the husband’s odd jobs were not reported. There was no record shown for monies and income transfer in and out of the United States to and from St. Lucia where the parties owned properties. There was no proof from the wife of monies transferred from and between accounts.
The Court held the wife failed to prove that any other income should be imputed to the husband. The incomes shown on the parties’ tax returns for the respective years would be used to compute child support to be paid by the husband from date of commencement of this action until the age of emancipation. The reported income to IRS shall be used to calculate 17% of the husband’s income as and for child support. All add-on expenses would be paid pro rata by both parents.
In my February 22, 2011 blog post, it was noted that Justice Robert A. Bruno of Nassau County, in PP v. KP, was troubled by the parties’ admissions that each of them had excluded rental income from 2009 Form 1040 tax returns.
Faced with these candid admissions, this Court believes it appropriate to forward a copy of this decision and order to the United States Internal Revenue Service for their review.
In making the decision to “report” the couple, Justice Bruno relied on former Justice Jacqueline Silbermann‘s opinion in Hashimoto v. De La Rosa and now Appellate Division, Second Department, Associate Justice Ruth C. Balkin‘s decision in Beth M. v. Joseph M.
The impact of going to trial with fraudulent tax returns simply cannot be predicted.
Martin A. Pollak, of Pollak & Slepian, LLP, of Bayside, represented the wife. David S. Dikman, of Dikman & Dikman, of Lake Success, represented the husband