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.
The wife commenced the divorce action in 2011. After a nonjury trial, Justice Kent determined that the Salem Street house had remained the wife’s separate property until it was sold, and that the Holbrook house was marital property. On the issue of equitable distribution, the court determined that the wife was entitled to a $143,000 credit for the use of the Salem Street net sales proceeds to purchase the Holbrook house only three months later. On appeal, the husband contended that Justice Kent had erred insofar as he awarded the wife that separate property credit.
The Second Department affirmed. Justice Kent correctly determined that the Salem Street house was the wife’s separate property. Moreover, Justice Kent did not improvidently exercise his discretion when concluding that the wife was entitled to a separate property credit for the separate property funds she used in the purchase of the Holbrook house. The evidence supported Justice Kent’s determination that the wife used $143,000 in separate property funds which derived from the sale of the Salem Street house to purchase the Holbrook house.
The effect of the ruling is that both the husband and the wife shared equally in all of the appreciation of the house purchased during the marriage. It made no difference that the house was titled in the wife’s name alone or titled in the names of both parties jointly. To that extent, it may represent the continuing eroding of prior caselaw.
What was not discussed was whether there was any effort by the husband at trial to demonstrate an entitlement to share in the appreciation of the Salem Street house by showing his direct or indirect contribution to that appreciation. That would have eaten into the $143,000 separate property credit given the wife.
What is also apparent is the benefit to both parties of a prenuptial agreement addressing the maintenance and sale of the Salem Street home, and a postnuptial agreement addressing the rights and obligations as to the Holbrook home in the event of sale or divorce (or death, for that matter).