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If a spouse wilfully fails to provide financial information during the discovery phase of a divorce action, one remedy may be an order of preclusion under C.P.L.R. §3126.  Thus, an August, 2010 decision of the Appellate Division, Second Department, in Raville v. Elnomany, affirmed the preclusion of the husband “from offering financial evidence at the hearing on equitable distribution based on his willful failure to comply with discovery.” 76 A.D.3d 520, 906 N.Y.S.2d 586.

But what, precisely, is an order of preclusion from offering evidence?  Is it really what you want?  Is it everything you need?  A brief review of some decisions granting “orders of preclusion” may highlight the open issues even after preclusion is granted.

  • For example, is precluding the husband from offering evidence the same as precluding “testimony?” Casey v. Casey, 39 A.D.3d 579, 835 N.Y.S.2d 277 (2nd Dept. 2007).
  • Is preclusion the same as eliminating the right to cross-examine? Grande v. Grande, 129 A.D.2d 612, 514 N.Y.S.2d 250 (2nd Dept. 1987); cf., Settembrini v. Settembrini, 270 A.D.2d 408, 704 N.Y.S.2d 641 (2nd Dept. 2000).
  • If the husband is allowed to cross-examine, may cross-examination be curtailed if the subject matter involves the very information which the husband failed to produce? Cohen v. Cohen, 228 A.D.2d 961, 644 N.Y.S.2d 831 (3rd Dept. 1996).
  • Does it require that there be an “inference” in favor of the non-offending party? Dolny v. Dolny, 32 A.D.3d 818, 820 N.Y.S.2d 520 (2nd Dept. 2006).
  • Does preclusion from offering evidence necessarily require that financial issues of fact be deemed resolved in favor of the non-offending party? Pearl v. Pearl, 266 A.D.2d 366, 698 N.Y.S.2d 160 (2nd Dept. 1999).
  • Is it the same as permitting the wife “to proceed at trial solely upon her proof of the financial matters.” Is the wife entitled to “a default equitable distribution?” Reed v. Reed, 93 A.D.2d 105, 462 N.Y.S.2d 73 (3rd Dept. 1983).

“Preclusion” can be a very imprecise remedy. Counsel should be careful to request, and the Court should be careful to detail the metes and bounds of the remedy. However, for counsel, a detailed request may be unavailable until there is a clear understanding of the fact issues to be determined and the available proof. This may require delaying the motion; or seeking leave to obtain additional or different relief once more is known.

dance couplel.jpgAs reported in the Washington Post on September 19, 2010, an April, 2010 study in the Journal of Police and Criminal Psychology, debunks the apparent myth that the divorce rate for police officers is higher than the general population. Using data from the 2000 U.S. Census, the study concludes that 16.35% of previously-married Americans reported themselves as divorced or separated.

Dancers and choreographers registered the highest divorce rates (43.1%), followed by bartenders (38.4%), massage therapists (38.2%), casino workers, telephone operators, nurses and home health aides.

Agricultural, sales, and nuclear engineers were among the 10 occupations with the lowest divorce rates. That group also included optometrists (4%), clergy (5.6%) and podiatrists (6.8%).

Only 14.5% of previously-married police officers listed themselves as divorced or separated.

The Post article noted that remarried Americans would have been excluded from the divorced or separated category.

The study authors conceded that the study raised more questions than it answered, beginning with “Why?”

business woman in handcuffs.jpgAmong the opening scenes of Eat, Pray, Love, Elizabeth Gilbert in her memoir has made the decision to leave her husband.  She offers to sell the house and split everything 50/50.  When her husband rejects this, she offers him a “different kind of 50/50 split.  What if he took all the assets and I took all the blame?”

That question, in fact, had been a hallmark of a New York divorce: a product of New York remaining the only state without a “no-fault” divorce law.

In New York, a married couple had been able to get divorced by living apart for at least one year pursuant to a written agreement to separate.  However, without that written agreement, a couple could not get divorced in New York without a finding that one spouse had been guilty of misconduct.  In most cases, that fault was cruel and inhuman treatment, abandonment, or adultery.  Particularly with a long marriage, the burden of proving such misconduct was heavy.

That all changed on August 13, 2010 when New York’s no-fault law was passed.  The accompanying Legislature memo noted that requiring proof of fault prolonged the divorce process, often adding stress, further harming the partners, and impacting the emotional well-being of children.  It is expected that no-fault divorce, itself, will bring a reduction of domestic violence.

However, the Legislative memo ignored one practical effect of requiring proof of fault, often present in contested divorces.  That effect was more material.  Freedom often had a price: the whole house; a longer (or shorter) period of support; custodial demands; etc.

Now, in divorce actions commenced after October 11, 2010, one spouse will be able to end the marriage simply by stating under oath that the marriage has been broken down irretrievably for at least six months.  The Judgment of Divorce will not be granted, though, until all financial and custodial issues are resolved.

Nonetheless, one of the weapons of the negotiation arsenal has been eliminated.

house upside down.jpgIt should have been a dead giveaway.  Court of Appeals Judge Victoria Graffeo warned us that in Fields v Fields (PDF), New York’s highest court was about to apply public policy principles to “unique facts.”  The result: a decision likely to keep Equitable Distribution litigators busy for years to come.

8 years into the Fields’ 35-year marriage, Mr. Fields bought a 10-apartment Manhattan townhouse for $130,000.  For the $30,000 purchase down payment, Mr. Fields used a $15,000 gift from his grandparents, and a $15,000 loan from those grandparents, which Mr. Fields’ mother agreed to repay.  Six days later, Mr. Fields conveyed a half interest in the property to his mother.  The $100,000 balance of the purchase was paid using two mortgages.

There the parties resided, paying rent to the partnership of Mr. Fields and his mother. The Fieldses, however, lived in separate apartments beginning 5 years after purchase.

  • Would the holding have been any different had the Fieldses not lived there?
  • What if the purchase was purely for investment and managed by others?
  • Does purchasing stocks on margin using an inheritance render the property marital?

The Court affirmed that the townhouse was marital property on the date of its purchase.  Because the husband financed a portion of the townhouse, it was not acquired “in exchange for separate property.”  As a result, the husband was only entitled to a dollar-for-dollar credit for his down payment contribution.  Timothy Tippins, in his September 2, 2010 New York Law Journal article, has characterized this decision as “sympathy run amok.”

The Court affirmed the award of 35% of all marital property to Mrs. Fields, noting that it was “not for the courts to dictate what type of lifestyle a ‘normal’ marriage should reflect” when considering the parties lived separately for their final 22 years of marriage.  Why, if only the down payment was separate, and the lifestyle was to be overlooked, was Mrs. Fields entitled to only 35% in this very long marriage in which she made both economic and noneconomic contributions to the marriage and the upbringing of their son?

Contrary to the opinion, the facts in Fields are not unique.  These issues will continue to surface regularly.  The lesson to be learned: no asset should be purchased using separate property in whole or part,` without a postnuptial agreement.

Man stealing data from a laptop iStock_000013972877XSmall.jpgIn her June 25, 2010 Shreiber (PDF) decision, Brooklyn Supreme Court Justice Delores Thomas denied a wife’s second motion for the wholesale inspection of her husband’s (previously-secured) computer hard disk drive. A prior motion had been denied as premature and because the activities of the appraiser court-appointed to evaluate the husband’s solo law practice might have rendered such application moot.

However, and despite allegations of fraudulent activities by the wife, the neutral appraiser apparently accepted at face value the husband’s business records, tax returns and statements. The wife had alleged that the husband’s claimed assets at $1.2 million and liabilities of $6.1 million omitted brokerage accounts held in multiple escrow accounts and by non-profit nominees.

Noting the court’s duty to oversee the parties’ full disclosure, Justice Thomas attempted to balance what may be “crucial” electronic discovery with the undue prejudice and delay caused by open-ended discovery.

The court refused to grant unrestricted access. However, granting the wife leave to renew her request, the court mandated the wife submit a “detailed, step-by-step protocol” to protect privileged and private material including provisions for:

  • the appointment of an attorney-referee with computer expertise;
  • the appointment of a forensic computer expert;
  • a confidentiality agreement;
  • examination of the computer for evidence of drive-wiping;
  • a listing of detailed key word searches to be run on discovered files and fragments (e.g., asking for all spreadsheet files would not be acceptable);
  • a review of identified files by the husband’s counsel and creation of a privilege log;
  • preservation of the clone; and
  • payment of costs by the wife.

Justice Thomas is to be congratulated for advancing the adoption of uniform procedures to protect the interests of both spouses. Now Appellate Division Justice Leonard Austin provided similar insights in Lipco v. ASG Consulting (PDF). However, electronic discovery is now needed too often for this to be left to repeated motion practice, case by case, jurisdiction by jurisdiction.

Preservation of computer data should be a part of the “automatic orders” incident to the commencement of every divorce. Every Preliminary Conference should address this issue and the appointment of referees and/or forensic experts considered if appropriate and especially with allegations of fraudulent or “cash” financial activities. A uniform protocol should be established by a panel of lawyers, accountants, computer experts, and judges, easily tailored to the needs of a particular case.

Finally, one cannot help but note that the August 13, 2010 amendment to D.R.L. §237 would appear to eliminate the restraints against “fishing expeditions” resulting from making, as here, the wife pay for the examination of the husband’s computer. With the monied-spouse compelled to pay-as-you-go for litigation fees, what less-monied spouse could resist going through all those computer files.

Blank Check iStock_000013161843XSmall.jpgWith the addition on August 13, 2010 of D.R.L. §170(7), making New York the 50th state to grant no-fault divorces, Governor Patterson also signed an amendment to D.R.L. §237. That amendment creates a rebuttable presumption that while a divorce action is pending, the “less monied” spouse shall be awarded counsel and expert fees and expenses on a timely basis.

Although the award(s) remain a matter of discretion, as justice requires, the court is charged with “assuring” that the less-monied spouse is adequately represented from the commencement of the action.

Designed to maintain a level playing field throughout divorce litigation, the amendment is shortsighted, if not foolhardy. Eliminating the market-place checks on litigation expenses can only lead to abuses.

When a client must oversee and approve fees and expenses, every decision becomes a business decision. Is contemplated action reasonable in light of all factors? However, the amendment to D.R.L. §237 is an open invitation to exhaust every discovery device and have experts value every asset. Among the questions which remain:

  • To what extent courts will prospectively challenge a divorce lawyer’s statement of what must be done to “adequately” represent the client?
  • Will court-appointed neutral experts be mandated to avoid awardable fees?
  • To what extent will courts challenge hourly rates?
  • To what extent will awards be recoupable or reallocated?
  • To what extent may marital property be used to satisfy these awards?

The resources of Supreme Court Justices are already taxed beyond propriety. There is no monitoring system presently available to prevent anticipated abuses. As a result, perhaps after a period of careful judicial scrutiny, the courts may lapse into doing what is easy: finding that the “presumption” has not been rebutted and signing a blank check.

Before that occurs, the matrimonial bar, the courts, and the legislature must take action to ensure that awards of litigation expenses do not wipe out the parties’ assets and are not used as a weapon to coerce unjust settlements.