It’s one of my pet topics. How do you provide — how do you write a provision awarding one spouse credit for paying down the mortgage principal while a divorce action is pending or thereafter?

Consider the August 29, 2018 decision of the Appellate Division, Second Department, in Westbrook v. Westbrook.

In April 2008, the wife commenced this action for a divorce and ancillary relief. In a pendente lite order, the Supreme Court, inter alia, directed the husband to pay temporary child support in the sum of $150 per week. The court also directed the husband to pay a majority of the carrying charges on the marital residence, which included a first mortgage on the two-thirds share of the value of the marital residence that had been purchased from the husband’s siblings, as well as a home equity line of credit (hereinafter HELOC) that was secured by the marital residence.

On or about November 24, 2009, the parties executed a stipulation agreeing, inter alia, that the husband would have exclusive use and occupancy of the marital residence effective December 1, 2009, and that the husband would pay child support to the wife in the sum of $350 per week commencing on December 1, 2009. Thereafter, the wife moved, inter alia, to increase the husband’s temporary child support obligation. In a pendente lite order dated May 21, 2010, the Supreme Court directed the husband to pay $700 per week in temporary child support during the pendency of the action.

Following the trial, as is here relevant, Suffolk County Supreme Court Justice Marlene L. Budd declined to award the husband a credit for the payments made by him during the pendency of the action to reduce the principal balances of the first mortgage and the HELOC. In addition, the court directed that the marital residence be listed for sale, and that the husband make the payments towards the first mortgage and the HELOC if he continued to reside in the marital residence until the residence was sold.

On the husband’s appeal, the Second Department held that Justice Budd properly declined to grant the husband a credit against the proceeds of the sale of the marital residence for payments he made to reduce the principal balance of the first mortgage and the principal balance of the HELOC during the period from the commencement of the action through November 30, 2009. Although the husband was directed to pay a majority of the carrying charges on the marital residence during the pendency of the action, the court also directed the husband in the pendente lite order dated August 12, 2008, to pay a relatively small sum of temporary child support to the wife.

However, after the parties executed the stipulation dated November 24, 2009, the husband’s temporary child support obligation increased commencing on December 1, 2009. That obligation was further increased to $700 per week. As a result, the husband was no longer, in effect, receiving a discount on his temporary child support obligation in recognition of the carrying charges that he was paying. As a result, the appellate court held, Justice Budd had improvidently exercised her discretion in failing to award the husband a credit against the proceeds of the sale of the marital residence for payments he made to reduce the principal balance of the first mortgage and the principal balance of the HELOC beginning on December 1, 2009, through the pendency of the divorce proceeding. The appellate court stated:

“Since these expenses should have been allocated on a 50-50 basis, the court should have awarded the husband a credit against the proceeds of the sale of the marital residence for 50% of the amount that he expended from December 1, 2009, through the pendency of the divorce action to reduce the principal balance of the first mortgage and the principal balance of the HELOC.”

Justice Budd did providently exercise her discretion in directing in the decision after trial that the husband was to be solely responsible for the balance of the first mortgage after the court issued its decision, if he continued to reside in the marital residence. The court providently exercised its discretion in directing that the husband was to be solely responsible for the remaining balance of the interest only HELOC after the court issued its decision, if he continued to reside in the marital residence.

“However, because both the wife and the husband derived benefit from a portion of the funds from the HELOC during the marriage in that the funds were used to invest in securities, it was appropriate for the wife to share in repayment of the principal balance of the HELOC until entry of the judgment of divorce.

Accordingly, we modify the judgment by adding thereto a provision awarding the husband a credit against the proceeds of the sale of the marital residence for 50% of the payments made by him beginning on December 1, 2009, through the pendency of the action to reduce the principal balance of the first mortgage and the principal balance of the HELOC, and by adding thereto a provision directing that the parties are equally responsible for the balance of the HELOC until entry of the judgment of divorce. We remit the matter to the Supreme Court, Suffolk County, for a determination of the amount that the husband expended beginning on December 1, 2009, through the pendency of the action to reduce the principal balance of the first mortgage and the principal balance of the interest only HELOC, and for the entry of an appropriate amended judgment thereafter.”

Let’s do the math.

Suppose that from December 1, 2009 through the pendency of the divorce action, the husband paid $20,000 towards the mortgage, of which $18,000 was interest and $2,000 was applied to reduce the principal. Let’s assume the husband also paid $10,000 towards the interest-only HELOC, none of which reduced the principal. How much of a credit does the husband get; and how do you get it to him? If the husband pays another $5,000 in interest only towards the HELOC, what happens?

First, if the mortgage is a 50/50 obligation for which both parties are responsible, should not the wife be responsible for “her” portion of the interest?

If the credit is only for reductions in principal, and the husband is to get a credit for 50% of the payments made to reduce the mortgage principal, and the mortgage principal was reduced by $2,000, the “credit” should be $1,000, correct? If so, how do you give him the credit? You shouldn’t give him the $1,000 credit by paying him $1,000 from proceeds before the balance is split between the parties. For example if the proceeds available after mortgages and closing expenses is $100,000, you don’t give the husband $1,000, and then split the balance: $49,500 to the husband and $49,500 to the wife. That results in the husband receiving $50,500, and the wife receiving $49,500.

But without the husband paying down the principal by $2,000, there would only have been $98,000 to divide: $49,000 to each party. By taking 50% of the principal reduction “off the top,” the wife gets a $500 benefit from the principal reduction, although she paid nothing.

If the object of the credit is to give the husband back the money by which he reduced the principal, pay 100% of the reduction to the husband off the top. Here the husband would get the first $2,000 of the $100,000 in net proceeds and the $98,000 remainder would be split equally, each party then getting $49,000. The husband ends up with $51,000; the wife with $49,000.

Said differently, the 50% credit comes out of the wife’s share. She repays the husband her half of the amount by which he reduced the mortgage. Thus, each party gets $50,000 of the $100,000 in net proceeds. Then, the wife repays the husband $1,000. The husband ends up with $51,000; the wife with $49,000.

As to the HELOC, it appears the Second Department directed that the husband be responsible for the interest portion of the interest-only HELOC payments, although the wife should “share in repayment of the principal balance of the HELOC until entry of the judgment of divorce” [although apparently there will be none].

The appellate court, however, told us that the HELOC was used to invest in securities; that it was the equivalent of a margin account obligation. If so, and the securities have been otherwise distributed, why should the fact that the money used to purchase the securities is secured by the residence result in only the husband having to pay the interest. The debt is not a result of purchasing or improving the residence; why should its payment be tied to occupancy? Of course, if the husband does pay down the principal, we are left with how to give them the credit.

Christopher J. Chimeri and James N. Salvage, Jr., of Quatela Hargraves & Chimeri, PLLC, of Hauppauge, represented the husband. Dean J. Sallah , of The Sallah Law Firm, P.C., of Holtsville, represented the wife.