A professional practice is an asset which may be valued and equitably distributed in a divorce. Generally, that value is a function of the income generated by the practice after deducting reasonable compensation being paid to the professional. However, once valued, the income attributable to ownership of the practice may not also be the basis on which to award spousal maintenance.

Take the September 10, 2015 decision of the Appellate Division, Third Department, in Mula v. Mula. There, after 42 years of marriage, the husband commenced this action for a divorce. The wife counterclaimed for divorce and, by agreement, the parties were awarded mutual divorces on the grounds of irretrievable breakdown. During the marriage, the husband earned his C.P.A. license in 1981 and became the sole proprietor of an accounting practice in 1997. During the course of the marriage, the wife was primarily involved with the upkeep of the parties’ home and raising their three children.

Among other rulings, Ulster County Supreme Court Justice Anthony McGinty awarded the wife durational maintenance of $1,500 per month.

On appeal, the Third Department reduced this award to $1,000 per month, holding that Justice McGinty had double-counted the value of the husband’s professional practice. The lower court had valued the income generated by the practice as an asset and equitably distributed that asst. However, Justice McGinty also deemed the husband’s income to include the entire income generated by the practice when calculating the maintenance award to the wife.

The accounting practice was valued at $255,000. Apparently, the husband’s C.P.A. license was separately valued at $39,000.The husband contended on appeal that Justice McGinty had erred when calculating maintenance by failing to reduce his available income to reflect the court’s distributive award of his professional practice and license.

At issue is the rule against double counting, which provides that once a court converts a specific stream of income into an asset, that income may no longer be calculated into the maintenance formula and payout.

The husband’s solely-owned accounting firm was a service business for purposes of this rule.


Continue Reading

Calculator formulaOn June 24, 2015, the New York State Senate passed Bill A7645-2015 relating to the duration and amount of temporary and post-divorce spousal maintenance. The bill passed the State Assembly on June 15th. It awaits approval by Governor Cuomo.

The law’s formulas apply to actions commenced on or after the 120th day after they become law (except for the temporary maintenance formulas which apply to actions commenced on or after the 30th day after they become law). The new law may not be used as a basis to change existing orders and agreements.

The law will undoubtedly be the subject of numerous articles and legal seminars. Years of decisions will be forthcoming that particularly focus on matters of discretion, just as they followed the enactment of the Child Support Standards Act in 1989.

Before getting to the new formulas, the law eliminates a major thorn in side of the matrimonial bench and bar: When equitably distributing the assets of the parties, the court is no longer to consider as a marital asset the value of a spouse’s enhanced earning capacity arising from a license, degree, celebrity goodwill, or career enhancement (however, it may be condidered when making other distributive awards).

As to maintenance, the following highlights may be noted, many of which are contained in the Sponsor’s Memo:


Continue Reading

Rocket launch child.jpgIn its November 14, 2012 decision in Shah v. Shah, the Appellate Division, Second Department, held that Suffolk County Supreme Court Justice Mark D. Cohen did not improperly “double count” the income generated by the husband’s business when he awarded the wife four years of maintenance.

That business was started by the husband and a partner during the marriage, and was purportedly transferred by the husband for no consideration to his partner shortly before commencement of the divorce action. Justice Cohen awarded the wife 30% of the value of the husband’s interest in the business and additionally awarded the wife $4,000 per month for four years.

Among the issues presented on the appeal was whether the income generated by the business should have been considered when making that maintenance award.

Put differently, the question is (or should be) if the income generated by assets has already been “divided,” should that income again be “divided” through a maintenance award.

That issue became focused when the Court of Appeals in Grunfeld v. Grunfeld (94 N.Y.2d 696 [2000]) recognized the inequity of double-counting income, at least when awarding maintenance after the asset value of a license or degree has been divided. In 1985, in O’Brien v. O’Brien (66 N.Y.2d 576), the Court of Appeals had determined that New York would be unique and recognize the enhanced earnings attributable to attaining a license or degree as property to be divided upon a divorce. Earnings enhanced during the marriage through some achievement are an intangible asset capable of being divided.


Continue Reading