It may be difficult to reconcile two recent decisions of the Appellate Division, Second Department, as they relate to awards of interest on delayed equitable distribution payments due under a divorce stipulation of settlement. The first raises questions as to the impact of failing to expressly include the payment obligations in the judgment of divorce as opposed to merely incorporating the stipulation by reference. The second decision raises questions as to the date from which interest should run.
In O’Donnell v. O’Donnell, the parties had entered into a stipulation of settlement of their divorce action in March, 2014. Among other terms, the stipulation obligated the husband to “pay the Wife a lump sum of $1,000,000 on or before September 30, 2014.”
The judgment of divorce, entered in March, 2015, incorporated, but did not merge the stipulation. At the time the judgment was entered, the husband had not paid the $1,000,000 distributive award.
After the entry of the divorce judgment, and by order to show cause issued June 5, 2015, the ex-wife moved, inter alia, to compel the ex-husband to execute a confession of judgment, or in the alternative, for leave to enter a money judgment against him in the principal sum of $1,000,000 plus interest at the statutory rate of 9% per annum.
In opposition to the motion, the husband produced the confession of judgment he signed in March, 2014, which rendered academic the branch of the motion which was to compel him to execute a confession of judgment. The confession of judgment made no provision for interest.
The husband stated that he paid the $1,000,000 in full on June 19, 2015 (two weeks after the order to show cause was issued). He claimed that he had been unable to pay the $1,000,000 until that time because he had to secure those funds by mortgaging the real properties which remained in his name.
Nassau County Supreme Court Justice Jeffrey A. Goodstein denied the wife’s motion for an award of statutory interest on the $1,000,000, because the stipulation of settlement did not provide for such interest. The wife appealed.
In its September 20, 2017 decision, the Second Department affirmed this aspect of Justice Goodstein’s decision. The Court held that the wife was not entitled to post-divorce judgment interest, as the $1,000,000 distributive award was not explicitly set forth in the judgment of divorce, but, rather, was part of the stipulation of settlement that was incorporated by reference, but not merged, in the judgment of divorce. Though the wife moved to reduce that award to a money judgment, the husband paid the $1,000,000 distributive award while the wife’s motion was pending, thus avoiding post-judgment interest.
Moreover, Domestic Relations Law §244 provides, in pertinent part, that where a spouse in a divorce action “defaults in paying any sum of money as required by the judgment or order directing the payment thereof, or as required by the terms of an agreement or stipulation incorporated by reference in a judgment,” the court, upon application, “shall make an order directing entry of judgment for the amount of arrears or any other payments so directed . . . . Such judgment shall provide for the payment of interest on the amount of any arrears if the default was willful,” defined as a knowing, conscious, and voluntary disregard of the obligation.
Justice Goodstein had made no finding of a willful default, and the amount was not reduced to a judgment. Thus, the denial of prejudgment interest was a provident exercise of discretion.
As to prejudgment interest, there is no automatic entitlement to prejudgment interest in matrimonial litigation. The general rule in matrimonial actions is that the determination of whether to award prejudgment interest is a discretionary determination with the trial court.
Margolis v. Margolis involved a May, 2010 stipulation of settlement that had been incorporated, but not merged into the parties’ January, 2015 judgment of divorce. That stipulation had resolved the equitable distribution issues. Among other things, the stipulation provided that the parties’ assets would be distributed in accordance with an “Asset Distribution Schedule,” which had been annexed as an exhibit to the stipulation.
The stipulation of settlement directed each party, within 60 days of its execution, to take any actions necessary to divide the assets in accordance with the Asset Distribution Schedule, including executing and delivering any instruments necessary to effectuate the distribution.
After an April, 2012, trial on maintenance and child support, Supreme Court Nassau County Justice Hope Schwartz Zimmerman decided that the husband was obligated to distribute certain accounts and investments. However, no interest had been awarded. The wife appealed.
In its September 27, 2017 decision, the Second Department noted, that “A stipulation of settlement which is incorporated but not merged into a judgment of divorce retains the character of an independent contract and survives as a basis for suit.”
The appellate court modified Justice Zimmerman’s decision by changing the particular language describing the accounts and investments to be distributed. Moreover, the Court noted that the parties’ stipulation of settlement had provided that the assets in the Asset Distribution Schedule were to be distributed within 60 days of the execution of the stipulation of settlement. Thus, under the circumstances of this case, the wife was entitled to pre-decision interest on the amount due under the stipulation of settlement at the rate of 4% from the date of commencement of the action to the date of decision.
As to the interest rate under C.P.L.R. §5001, the Second Department, cited its decision in Litman v. Litman, 280 A.D.2d 520, 721 N.Y.S.2d 84 (2001), in which the court exercised its power to award interest at a rate other than statutory judgment rate.
However, it is also noteworthy that the Court directed that interest run from the “date of commencement of the action,” and not the date the division of assets, or payments, were due, i.e., 60 days after the execution of the stipulation of settlement. Moreover, it is not clear why the Second Department awarded interest only through the date of the decision, and not through the entry of judgment, or the date of the actual division of the assets or other payments.
Applying the rationale of Margolis to the facts in O’Donnell, it is not clear why interest would not be awarded from the date the $1,000,000 payment was due. Is there a distinction solely attributable to the fact that in O’Donnell, the divorce judgment had already been entered, while in Margolis, interest was awarded on the appeal from the divorce judgment, itself? That distinction does not seem warranted. [It can be noted that only Appellate Division Justice Leonard B. Austin sat on the four-judge panels hearing these two cases. Three of the four were different.] Moreover, the stipulation in O’Donnell, just as in Margolis, should have retained its character as an independent contract, surviving as a basis for suit (although Margolis did not present a contract action).
Most troubling, perhaps, is the fact that the appellate court would make a distinction between an obligation that is expressly included in the divorce judgment, and one that is only included in the stipulation of settlement that was incorporated by reference into the judgment. If such is the case, care must be taken to include every obligation that exists as of the date of judgment expressly in the judgment, itself.