In its January 8, 2015 decision in Albertalli v Albertalli, the Appellate Division, Third Department, upheld the granting of a separate property credit to a husband for the contribution of his separate funds to the purchase of the parties’ home, even though he deposited those funds in a joint account a month before the home was purchased.

Among the issues decided in this divorce action was the equitable distribution of the marital residence, the main asset of the parties, purchased five months after the marriage. The husband contributed $33,000 of his separate property (funds received by the husband prior to the marriage as a gift from his grandfather) into a joint account created one month prior to the purchase of the residence. The parties then used $24,915 from the joint account as a down payment on the purchase price of $71,000 and mortgaged the balance. At the time of trial, the residence was encumbered by a remaining balance on the mortgage of approximately $45,000 and a home equity loan of approximately $6,500. The evidence at trial established that, in its current condition, the home would be listed for sale at $64,500 and expected to sell in the low $60,000 range.

In distributing the residence, Chemung County Supreme Court Justice Judith Ferrell O’Shea concluded that the funds used for the down payment were the separate property of the husband and granted him a credit for that amount. The court also directed that the home be listed for immediate sale. The wife appealed, challenging the credit and the immediate sale.

Although the funds received by the husband as a gift from his grandfather prior to the marriage were considered separate property (see Domestic Relations Law § 236 [B] [1] [d] [1]), they presumptively became marital property once the husband deposited them into a joint account. In order to rebut the presumption that the funds became marital property, the husband was required to come forward with clear and convincing evidence that the joint account was created for convenience. Justice O’Shea concluded that the funds remained separate property based on the timing of the deposit, the ability to clearly trace the source of the funds used for the down payment and the husband’s testimony that the funds were placed in the joint account only because it was at the same bank from which the parties were obtaining the mortgage. Deferring to the court’s credibility determination, the Fourth Department found no basis to disturb that conclusion. Having determined that the funds were separate, it was within the trial court’s discretion to determine whether to credit the husband for the use of his separate property in acquiring the marital residence.

While “partial use of separate funds to acquire a marital asset does not mandate that a credit for separate funds be given”, the appellate court found no basis to disturb Supreme Court’s exercise of its discretion here.

However, the Fourth Department disagreed with Justice O’Shea’s decision to mandate the immediate sale of the marital residence. There is a preference for allowing the custodial parent to remain in the marital residence until the youngest child becomes 18 unless such parent can obtain comparable housing at a lower cost or is financially incapable of maintaining the marital residence, or either spouse is in immediate need of his or her share of the sale proceeds.

Here, the proof at trial established that the parties’ young children, now 10 and 7, resided with the wife in the marital residence and, although she had the means to pay the mortgage, she would be unable to refinance or purchase another residence. No evidence was adduced that the wife could obtain comparable housing at a lower cost, or that either party was in immediate need to recoup their equitable share of the marital residence.

Under those circumstances, the Third Department found that Justice O’Shea abused her discretion in directing that the marital residence should be listed for sale. Instead, the appellate court directed that the wife be entitled to exclusive possession of the residence until the youngest child reaches the age of 18.

Comment: Keeping these young children in the only home they have ever known is a most laudable goal. Here, the home was estimated to sell at $60,00o, with mortgage and home equity balances of $51,500. Thus, the husband’s credit exceeded the equity in the home. The first question, then, is how do you give a credit which exceeds the value of the asset.

Moreover, preventing the husband from acquiring a new residence because he will neither receive his equity, nor be removed from this mortgage for the decade is a difficult pill to swallow.

Still further, the wife has little financial interest in properly maintaining the premises if all the equity will go to the husband. Certainly, the home’s value may escalate over the next 10 years (to a value in excess of the husband’s credit), while the home is carried in substantial part based on the husband’s support.

One can certainly understand Justice O’Shea’s decision.

Denice A. Hamm, of Hamm & Roe, LLP, of Elmira, represented the wife.  Robert A. Groff Jr., of Horseheads, represented the husband.