The August 21, 2013 decision of the Appellate Division, Second Department in Patete v. Rodriguez may have expanded the credits available to the non-titled spouse when marital funds are expended on a separate-property asset.
When New York adopted its Equitable Distribution Law in 1980, courts were now longer bound by which spouse held title to an asset generated during the marriage. Upon divorce, the non-titled spouse could be awarded an equitable share.
Not all property of parties getting divorced, however, is “marital property” subject to Equitable Distribution. The law recognizes as “separate property,” assets owned by one of the spouses either before the marriage, or acquired through inheritance, or by gift from someone other than the other spouse, etc. The appreciation in the value of separate property is also separate property, subject to a claim that such appreciation is due to the contributions or efforts of the non-titled spouse.
Determining what is or should be marital and separate property, and each spouse’s equitable share of marital property is not always clear. Indeed, the rules and guidelines are not free from doubt.
Take last week’s decision in Patete, for example. This divorce was the second time around for these parties. They married for the first time in 1978. Incident to their first divorce in 1981, the wife conveyed her interest in the 68th Street, Maspeth, Queens marital residence to the husband.
The parties married again in 1985. At that time the husband still owned the 68th Street home. Again it was used as the marital residence. As the home was the husband’s property before the second marriage, it was deemed his separate property when the second marriage here ended in divorce.
In 1987, two years into the second marriage, however, the husband sold the 68th Street property. $125,000 of the proceeds were used to purchase the parties’ jointly-owned new marital residence on 64th Street in Maspeth.
The appellate court acknowledged that the 68th Street property remained the husband’s separate property until its sale in 1987. Thus, the $125,000 in sales proceeds used to purchase the jointly-owned 68th Street home was also his separate property. The husband was entitled to a separate property credit for his use of separate funds to purchase the 68th Street home.
However, between the date of the second marriage and the sale of the 68th Street home, marital funds were used to pay the mortgage on the husband’s separate-property 68th Street home. As a result, the Second Department held:
The [wife] should receive a credit for one-half of the marital funds used to the pay this mortgage on the plaintiff’s separate property.
The Court reported that the total amount of marital funds used for this purpose was $7,338.94.The Court did not state that this was the amount by which the principal amount due on the mortgage was reduced, just that such was the amount used to pay the mortgage.
The Second Department awarded the wife a credit for one half of the amount of marital funds used to pay the mortgage. The husband’s $125,000 separate property contribution credit was reduced by $3,669.47 (one half of the $7,338.94 of marital funds so used). This resulted in an award to the husband of a final separate property credit of $121,330.53.
We are not told whether the $125,000 represented the entirety of the net proceeds from the sale of 68th Street home. We do not know whether the wife could or should have received her credit in some way other than reducing the husband’s separate property contribution credit.
The issue could have been made clearer had the court stated that the $125,000 was or was not all separate funds. If this was the entirety of the net proceeds from the sale of the 68th Street home, then the net proceeds should have been deemed marital to the extent that they reflected payments on the mortgage (or perhaps, just the reduction in mortgage principal).
The wife also claimed a share of the increase in the value the 68th Street property that occurred during the 23 months of the second marriage before that home was sold. The Second Department rejected that claim as the wife failed to meet her burdens to show that the 68th Street property did in fact appreciate in value during that period, and if so, that such appreciation was due in part to her efforts.
The husband was also granted a separate property credit on the 68th Street house for $15,000 in inherited funds used during the marriage to remodel an upstairs bathroom at that home. There was no discussion as to whether the husband was required to show that the improvement enhanced the value of the home in an amount at least equal to that credit.
The husband also owned, as his separate property, a vacant lot in Puerto Rico known as “El Verde.” The wife sought a portion of the appreciation in that lot’s value over the course of the marriage. However, once again, such a claim was rejected as the wife failed to sustain her burden of demonstrating the manner in which her contributions, if any, resulted in the increase in the value of this vacant parcel over the course of the marriage.
However, also once again, the wife was awarded a credit for one half of the marital funds expended in connection with this asset. This time, marital funds were used to pay for taxes and maintenance of the “El Verde” property. The expenditures totaled $22,248.27. There was no discussion of whether such payments enhanced the value of the lot. There was no statement of a general rule that upon divorce, any use during the marriage of marital funds in connection with separate property assets will result in a credit to the non-titled spouse, whether or not such payments enhanced the value of the asset, or whether the asset was somehow conferred a marital benefit. The wife was awarded a credit of one half of the expended amount, or $11,124.14.
Of note, the wife also sought reimbursement for the use of marital funds to pay for real estate taxes on the “El Verde” property after the commencement of the divorce action. However, the Court held that the wife waived any such claim when she explicitly agreed to this payment of real estate taxes in a so-ordered stipulation before the trial. Under that stipulation, the wife acknowledged that payment of these real estate taxes constituted a “marital obligation” for which both parties were equally responsible. (Query: if the wife agreed the taxes on this property were a marital obligation, how was she able to take an inconsistent position as to the use of marital funds to pay pre-commencement taxes?)
Query: If the credit is not tied to the enhancement of asset value or equity (such as the reduction of the mortgage principal), what happens when the marital funds used for mortgage payments (including interest) and taxes on a separate-property realty parcel exceed the value of the asset, itself? May the credit exceed the value of the asset?
Glenn S. Koopersmith, of Garden City, represented the husband. Ann L. Detiere, of Manhattan represented, the wife.