Once again, it has been made clear that where either or both spouses have assets or liabilities at the date of marriage, it is foolhardy (or at least imprudent) to enter the marriage without a prenuptial agreement and/or the assembly of proof of the extent, nature and value of those assets or liabilities.
Take the January 8, 2015 decision of the Appellate Division, Third Depatrtment, in Ceravolo v. DeSantis. In that case, the parties were married in July, 1996. The wife commenced the action for divorce in June, 2010. Acting Albany Supreme Court Justice Kimberly O’Connor determined, among other things, that the marital residence, which had been purchased by the husband prior to the marriage, was marital property and awarded the wife, among other things, half of its value. The husband appealed.
The Third Department agreed with the husband that Justice O’Connor erred in classifying the marital residence as marital property. Marital property is defined as “all property acquired by either or both spouses during the marriage” (Domestic Relations Law §236[B][c]), while “property acquired before marriage” is separate property (D.R.L. §236[B][d]).
Title is a critical consideration in identifying the nature of real property acquired before the marriage. The circumstances surrounding the purchase of the residence and the parties’ intent relative thereto are irrelevant to the legal classification of the residence as separate or marital property.
Here, the husband purchased the marital residence in January 1994 — 2½ years prior to the parties’ marriage — paying $130,000 of his own funds and borrowing an additional $100,000 from his father, secured by a note and mortgage. Although the wife contributed $30,000 of her separate funds to the initial purchase of the residence, the husband took title to the property in his name alone.
The evidence at trial reflected that the wife thereafter paid the mortgage for more than two years prior to the marriage, as well as after the parties were married through 2003, when a satisfaction of the father’s mortgage was issued, notwithstanding a principal balance remaining of approximately $52,000.
The Third Department disagreed with Justice O’Connor’s determination that the wife’s contributions transformed the residence from the husband’s separate property into marital property, which was subject to equitable distribution. As a result, the wife got nothing as a share of the value of the home.
Notably, the entire basis for the Equitable Distribution Law derives from the concept that marriage is an economic partnership and, therefore, that marital property should be divided equitably without regard to the title in which that property is held.
The economic partnership created by marriage cannot exist until marriage has occurred. If nonmarital cohabitants wish to form an economic partnership, they may do so; but the partnership can be created only by agreement, not by operation of law.
The Equitable Distribution Law does not, however, purport to address financial transactions between persons prior to their marriage, which “cannot be considered to have been the product of the marital enterprise.” Therefore, while Justice O’Connor’s finding that the wife made certain substantial contributions of money and effort toward the acquisition and maintenance of the marital residence is amply supported by the record, the effect of such contributions by the wife — particularly those she made before the marriage — is not to transform the husband’s premarital, separate property into marital property.
Similarly, equitable distribution does not afford the wife any remedy with respect to the $30,000 that she contributed towards the down payment of the house, or the premarriage mortgage payments that she made.
In this 3-to-1 decision, Appellate Division Justice Michael C. Lynch dissented, in part relying on a 1999 decision of the Third Department in Matwijczuk v. Matwijczuk, 261 A.D.2d 784, 690 N.Y.S.2d 343, for the proposition that real property obtained prior to marriage can be transformed into marital property. In that case, the Third Department held that the use of marital funds, together with the nontitled spouse’s efforts and contributions of separate funds toward the construction of the marital residence (which began before the marriage on land purchased by the titled spouse a few months earlier) “in furtherance of the marital partnership” were sufficient to transform the residence, including the land, into marital property. Here, however, the 3-judge majority opinion written by Justice Leslie E. Stein held that “to the extent that Matwijczuk . . . can be read as holding that separate property contributions made by a nontitled spouse toward the acquisition or improvement of premarital property can serve to transform such property into a marital asset,” it should no longer be followed.
The appellate court noted, however, that separate property contributions by a nontitled spouse could result in an appreciation of the value of the titled spouse’s separate property during the marriage, which appreciation would be subject to equitable distribution. Here, however, the wife failed to prove both the value of the residence at the time the parties were married and the amount of the property’s appreciation during the marriage. Thus, the wife’s equitable share of appreciation could not be ascertained. Indeed, the wife conceded at oral argument that she was not seeking equitable distribution of the property’s value based upon its appreciation.
The appellate court did agree with the wife that she was entitled to recoup her equitable share of marital funds paid toward the mortgage. It is well-settled that in determining the “equitable distribution of marital property, a court has the authority to effectively recoup marital funds applied to the reduction of one party’s separate indebtedness.”
The matter was remitted to Supreme Court to determine the wife’s share of the reduction of the mortgage during the marriage. Moreover, to the extent that Justice O’Connor’s awards to the wife of equitable distribution and maintenance were based upon its erroneous finding that the marital residence constituted marital property and that the wife was entitled to 50% of its value, remittal included reconsideration of such equitable distribution and maintenance awards.
The Third Department noted that a prospective bride or groom is not without remedies. There are other avenues to protect his or her investment, such as a prenuptial or marital agreement, or a transfer of title to reflect joint ownership. Alternatively, after the breakdown of the marriage, the nontitled spouse could bring a claim for the imposition of a constructive trust and/or for unjust enrichment. However, no such claims were presented in this case.