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Equitable Distribution in New York
The purpose of this article is to give a brief overview of the concept of marital and separate property under Section 236B of the Domestic Relations Law of New York, commonly referred to as the Equitable Distribution Law. This article is not intended to be a definitive treatise on all of the law in New York concerning property distribution upon a dissolution of a marriage. Laws change frequently and it is strongly suggested that before any agreement is entered into between a husband and wife, a qualified matrimonial attorney and a qualified tax professional be consulted. This article is not intended to be legal advice and should not be relied upon as such.
This is perhaps the most significant term used in the new law and probably the issue most often litigated, since the parties often do not agree on either what property constitutes marital property or the value of marital property. Marital property is all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held.
It is marital property that will be equitably distributed upon the dissolution of the marriage. Marital property does not include separate property (as hereinafter defined). Separate property will not be distributed but will remain as the property of the one who holds title.
One case had indicated that property acquired during the marriage was presumed marital, unless proven to be separate (Raviv v. Raviv, 153 AD2d 932 [2nd Dept. 1989]). Basically this means that once it is proved that property was acquired during the marriage, the party claiming that property to be separate property has the burden of proving the property is separate.
By way of illustration, if a spouse buys a house during the marriage using marital funds and title to the house is placed in that spouse's name only, the property will be considered marital property subject to equitable distribution. If the house were purchased with separate funds (funds acquired before the marriage or inherited funds, for example), the house would be considered separate property since it would be an exchange of one form of separate property for another.
Bank accounts, IRAs, stocks and bonds, household furniture, automobiles, and all other property acquired during the marriage with marital funds are considered marital property, subject to equitable distribution.
The Court of Appeals, in Majauskas v. Majauskas, 61 NY2d 481 (1984), has determined that vested pensions acquired during the marriage (during coverture) are marital property. There are cases in the various Appellate Divisions that hold that all pensions, either vested or unvested, matured or not matured, contributory or non-contributory acquired during the marriage, are considered marital property subject to equitable distribution. A pension plan is sometimes referred to as a defined benefit plan.
The court's reasoning in Majauskas and the other cases cited was that a pension is a form of deferred compensation expected to be enjoyed by both parties at some future date and accordingly is an asset acquired during the marriage. If both spouses have accumulated pension rights during the marriage, each spouse will be entitled to share in the pension of the other.
A disability pension is treated as part marital property and part separate property for equitable distribution purposes. That part of the disability pension that represents compensation for personal injury is separate property, and that part which represents deferred compensation is marital property. The marital property part of the pension is that pension that the pensioned spouse would have received from ordinary retirement (Dolan v. Dolan, 78 NY2d 463 ). In determining the value marital portion of the pension, the court subtracts the present value of the separate portion from the total present value of the pension. See Newell v. Newell, 121 Misc. 2d 586 (1983) and West v. West, 101 AD2d 834 (2nd Dept. 1984).
Social security benefits are not pension benefits and are preempted by federal law from being subject to equitable distribution, Principe v. Principe, 229 AD2d 522 (2nd Dept. 1996). Such benefits, however, can be considered on this issue of maintenance.
There is no fixed percentage that the non-titled spouse is to receive as his/her share of the pension. Generally, the non-titled spouse will not receive more than 50% of the pension rights accrued during the marriage and in a marriage of short duration will often receive considerably less.
In Hansen v. Hansen, 137 AD2d 491 (2nd Dept. 1988), the court held that the pension of the wife should be distributed in a manner consistent with the parties' contribution during the five-year marriage, viz.: two-thirds to the wife and one-third to the husband. (The wife earned two-thirds of the parties' combined income).
A division of retirement benefits under an ERISA-qualified employee benefit plan is accomplished by means of a qualified domestic relations order (QDRO). A qualified domestic relations order is a judgment, decree, or order (including approval of a property settlement agreement) that creates or recognizes the existence of an alternate payee's right, or assigns to an alternate payee the right to receive all or a portion of the benefits payable to a participant under a retirement plan.
A profit-sharing plan, which is another form of deferred compensation, that has accrued during the marriage is marital property subject to equitable distribution.
Another form of retirement benefit surfaced in Grund v. Grund, 151 Misc.2d 852 (Sup. Ct. Suffolk County 1991). In Grund, the court held that a Suffolk County police officer's SCATT benefits that he is entitled to receive upon retirement constitute marital property. SCATT benefits consist of payments upon retirement to a police officer for: unused sick time; unused vacation time; personal leave; holiday time; extra days given to veterans; longevity pay; and unpaid compensatory time. Ed. Note: When negotiating a settlement or trying a case, the attorney for the non-employes spouse must inquire about all retirement benefits, not just pension benefits.
A profit-sharing plan, pension or any other asset that accrued in part before the marriage and in part during the marriage will be considered marital property only as to that part accruing during the marriage.
Although separate property of a spouse cannot be equitably distributed by a court, the amount of the separate property of a spouse is a factor that the court must take into consideration when equitably distributing martial property [DRL Section 236(5)(d)(1)] and a factor that the court must take into consideration in determining maintenance [DRL Section 236(6)(a)(1)]. Accordingly, it is important for the parties to prove the value of the separate property involved.
In O'Brien v. O'Brien, 66 NY 2d 576 (1985) (involving a medial license), professional licenses were found to be marital property. A spouse whose husband/wife obtains a professional license during the marriage will be entitled to share in the value of that license. In O'Brien, the court accepted defendant-wife's expert testimony that the present value of the plaintiff's medical license was $472,000.00 and rejected the argument that the equitable share of the defendant-wife in the plaintiff's medical license should be limited only to the amount of actual financial contributions of the defendant plus interest.
The Court of Appeals in O'Brien did not address the issue of licenses other than professional licenses. Since O'Brien, however, courts have been enlarging the concept of "marital property" to include any license or skill that enhances future earning capacity.
Professional practices have been held to be marital property subject to equitable distribution. Cohen v. Cohen, 104 AD2d 841 (2nd Dept. 1984) (accounting); Litman v. Litman, 61 NY2d 918 (1984) (law); Sweeney v. Sweeney, 118 AD2d 774 (2nd Dept. 1986) (medical). In Maloney v. Maloney, 137 AD2d 666 (2nd Dept. 1988) the court awarded the wife 35% of the value of the husband's medical license. The parties were married for 16 years and separated for the last 5 years.
The Court of Appeals in McSparron v. McSparron, 87 NY2d 275 (1995) held that it is necessary to value both the license and the practice. It warned that the courts must be meticulous in guarding against duplication in the form of maintenance awards that are based upon earnings derived from professional licenses. See Rochelle G. v. Harold M.G., 170 Misc. 2d 808 (Sup. Ct. New York 1996), for an interesting analysis of the valuation process of a law license.
In Connor v. Connor, 97 AD2d 88 (2nd Dept. 1983), it was held that professional degrees are not marital property. But see McGowan v. McGowan, 142 AD2d 355 (2nd Dept. 1988). McGowan held that advanced degrees as well as a teacher's certification are marital property subject to equitable distribution since they represent enhanced earning capacity of the spouse. This case was decided after the O'Brien case and is now apparently the law. The court in McGowan held that in this particular case the teacher's certification was not marital property since all that was necessary to obtain the certificate was already done at the time the parties were married.
In Kyle v. Kyle, 156 AD2d 508 (2nd Dept. 1989), the husband had taken steps to obtain his principal's license but was two courses short of what was needed to obtain the license. Since the husband had not obtained the license during the marriage, there was no marital property to distribute. Ed. Note: If the husband had obtained the license after the commencement of the action (and property to the trial), the wife could argue that the license was marital property to the extent that the courses taken during the marriage contributed to the license.
In Golub v. Golub, 139 Misc.2d 440, (Sup. Ct. New York County 1988), the court held that the skills of an actor and model are marital assets since those skills represent enhanced earning capacity. Since Mr. Golub did not offer any proof as to the value of Mrs. Golub's (Marisa Berenson) skills as an actor or a model, the court did not make an equitable distribution of those assets. (The court cannot make an equitable distribution of property unless there is proof as to the value of the marital property.) In Elkus v. Elkus, 169 AD2d 134 (1st Dept. 1991), the Appellate Division held that the enhanced value of plaintiff's career and/or celebrity status is a marital asset subject to equitable distribution. Plaintiff in Elkus was an opera singer (Frederica von Stade) and the defendant was her voice teacher and coach. During the marriage, plaintiff's income increased and she became a well-known celebrity.
Certification as a physician's assistant by the National Commission on Certification of Physician's Assistants is marital property, Morimando v. Morimando, 145 AD2d 609 (2nd Dept. 1988).
An accounting degree and certification as a certified public accountant obtained during the marriage are marital property (Duspiva v. Duspiva, 181 AD2d 810 (2nd Dept. 1992). In this case, however, the nonprofessional spouse was not awarded any part of the value of the degree and certification since the professional spouse was the main support of the family at all times, obtained the degree and certification unaided, and the nonprofessional spouse did not sacrifice her career. Duspiva clearly indicates that not all marital property will be distributed. This case, however, must be limited to the facts in the case.
The difficulty in all of these cases is to evaluate the license, certification or degree. Experts must be employed to evaluate these assets and to testify in court as to the value of the license, certification or degree (an expensive proposition). It is rare that the parties agree as to the value of these assets. When the court determines the amount that the non-licensed spouse is to receive, it can award that spouse a sum of money (a distributive award), usually payable over a period of time, or give that spouse other marital property equal to the value of his/her share of the license (equitable distribution). It must be remember that the mere fact that a spouse obtained a license, certification or degree during the marriage (hence, marital proeprty) does not, by itself, entitle the other spouse to an award of the enhanced earnings. The spouse must show that he/she made a contribution toward the acquisition of that license, certification or degree. See Small v. Small, 227 AD2d 949, (4th Dept. 1996).
A number of cases have held lottery winnings to be marital property. Property acquired after a matrimonial action is commenced will not be considered marital property [DRL Section 236(1)(c)]. If, after a matrimonial action is commenced, marital property is used to acquire other property, the new property retains its identity as marital property. It is merely a substitution of one form of marital property for another. Accordingly, it is important to trace the funds used for the acquisition of assets after the commencement of a matrimonial action to determine whether or not the assets acquired are marital or separate.
A matrimonial action includes an action for a separation. However, since a judicial separation does not result in the dissolution of the marriage, the Court of Appeals held in Anglin v. Anglin, 80 NY2d 553 (1992) that a successful separation action does not terminate the marital economic partnership and therefore does not preclude the accrual of the marital property under DRL 236 (B)(1)(c). While the parties are legally separated, some property could lose value, resulting in a smaller distribution upon divorce.
Parties often informally separate for a period of years prior to a divorce action or the execution of a separation agreement. This type of separation is not a legal separation as contemplated by the Domestic Relations Law and accordingly property acquired during this informal separation continues to be classified as marital property.
Separate property is that property, both real and personal, which is not considered marital property and which will remain the property of the spouse who holds title. DRL Section 236(1)(d) sets forth the various categories of separate property, as follows:
Although the categories appear to be self-explanatory, there are many instances where it is very difficult to determine that nature of the property, either as separate property or as marital property. Sometimes separate property is changed (transmuted) into marital property by an act of one of the parties.
For example, if a spouse has a bank account that was acquired before the marriage and then, after marriage, converts that account into a joint account, the court will consider that property marital property. When a bank account is placed in the joint names of the parties, Section 675 of the Banking Law creates a presumption of a gift of one-half of the funds in the account. The presumption may be overcome when it can be proved that the joint account was created as a matter of convenience, without intention of creating a beneficial interest. Also, the Banking Law Section 678 (effective Jan. 6, 1991) entitled "Accounts For Convenience Only" provides taht a deposit with a bank marked "for the convenience" of the depositor, that the making of such deposit shall not affect title to such deposit and the deposit shall not be considered to have made a gift of one-half of the deposit, or any additions, to the other person, and on the death of the depositor the other person shall have no right of survivors in the account.
In Price v. Price, Supra., the Court of Appeals held that appreciation of separate property constitutes marital property to the extent that the appreciation is due to the contributions, either directly or indirectly, of the non-titled spouse. The contributions, either direct or indirect, must be causally related to the appreciation of the separate asset before the court will declare the appreciate value to be marital property. If the appreciation of the separate property is due solely to market conditions, it will be considered "passive" appreciation and, hence, the appreciation will not be deemed marital property. An example of passive appreciation would be the increase in the value of a piece of land due to inflation or increase in demand for land. If it is determined that the increase is not passive, the next step for the court is to determine the share of the appreciated value of the property that the non-titled spouse is to receive. This case gives recognition to the contributions of a spouse as a homemaker and parent toward the appreciation of the separate property of the other spouse.
In Hartog v. Hartog, 85 NY2d 36 (1995), the Court of Appeals stated that the non-titled spouse need only show that the titled spouse actively participated to some degree in the appreciation to an asset to classify the appreciation of that asset as a marital asset. The appreciation of the asset is then marital, proportionate to the activity.
In order to qualify for a New York uncontested, "no-fault" divorce, both parties must agree to the divorce, division of all marital assets, debts, property, custody of the minor children, support for the minor children and spousal maintenance. In an uncontested divorce, the defendant can be served but if he or she does not answer the complaint in divorce then the plaintiff can seek a default judgment in divorce. The defendant can also waive his or her right to answer the complaint.
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