Take the February 7, 2014 decision of the Fourth Department in Foti v. Foti. Here, the Court reversed the order of Supreme Court, Monroe County Justice Kenneth R. Fisher which had granted a wife partial summary judgment determining that various real estate entities and management companies were her separate property. She had proven that her interests were received from her father by gift.
Generally, under New York’s Domestic Relations Law §236B, property that is owned by a spouse before the marriage constitutes “separate property,” and is not divided on divorce, except, under some circumstances, to the extent of some portion of appreciation in value of the separate property over the course of the marriage. Inheritances and gifts (from someone other than the other spouse) are also “separate property.” On divorce, the court will divide the parties’ “marital property,” property acquired during the marriage which is not “separate property.”
In Foti, the Fourth Department held that there was an issue of fact whether the wife commingled her interests in the entities, transforming the nature of those interests to marital property. The possible “commingling” arose from deductions taken on the parties’ joint tax return: “Here, the parties filed a joint federal tax return in which defendant reported her interest in the entities as tax losses, and ‘[a] party to litigation may not take a position contrary to a position taken in an income tax return,’” quoting from the 2009 decision of the Court of Appeals in Mahoney-Buntzman v. Buntzman, 12 N.Y.3d 415, 881 N.Y.S.2d 369.
In Mahoney-Bunztman, the Court of Appeals held that a husband’s decision to declare on his joint income tax return that money he received on the disposition of his interest in a real estate development company was ordinary earned income prevented him from later claiming that that money was merely a transformation of his separate property.