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Return of Investment on Separate Contributions to Marital Home
© 2004 National Legal Research Group, Inc.
NEW YORK: Zanger v. Zanger, ___ A.D.2d ___, 767 N.Y.S.2d 489 (2003).
The husband owned separate real property, but marital funds were used to pay off the mortgage. The husband was entitled to a return of his separate contributions; the remainder of the home was marital property. Even though the husband could not prove his separate contributions with documentary evidence, the trial court did not err in recognizing them, where neither party was able to suggest any marital source from which the contributions could possibly have come.
During the marriage, the parties lived and worked on two parcels of farm land. The husband owned one parcel entirely and the other partially prior to the marriage. During the marriage, the husband's parents gifted the remainder to him. Upon the husband's retirement from farming, he sold the parcels and used part of the proceeds to purchase the marital residence. Following a hearing, the trial court granted a divorce and distributed the marital property. It credited the original value of the farm property to the husband, less a mortgage paid out of marital funds. The wife appealed.
The appellate court affirmed the order of distribution. It declared that where a party contributes separate property toward the purchase of the marital residence that party is entitled to a return of his or her total contribution. Here, it was undisputed that the husband owned the two parcels comprising the farm as separate property, as they were acquired either before the marriage or, in part, during the marriage as a gift from his parents. Inasmuch as the appraiser valued the farm property at $102,000 at the time of the parties' marriage and a $5,000 mortgage remained outstanding on the property, the court properly determined that the husband retained a $97,000 separate interest in the property. The record showed that the husband paid cash for the residence and took title in his name alone. There was no evidence that he ever placed the proceeds from the sale in a joint account or otherwise commingled such funds with marital funds. While he did not provide a paper trail documenting the source of the money used to purchase the marital residence, nothing in either party's testimony suggested that any other possible source for the money existed. Accordingly, the husband was entitled to the $97,000 credit for the original value of the separate property contributed to the purchase of the marital residence.
Editor's Note: The practice of reimbursing a spouse who has made traceable separate contributions to marital property is widespread in New York. Brett R. Turner, Equitable Distribution of Property app. A (New York section) (2d ed. 1994 & Supp. 2003). Nevertheless, the practice is fundamentally inconsistent with New York's equitable distribution statute. See generally id. Under that statute, passive appreciation in separate property clearly remains separate. N.Y. Dom. Rel. Law 236B(1)(d)(3). When an asset is 100% separate property, the courts clearly recognize that the owner's separate interest includes passive appreciation. E.g., Fox v. Fox, 294 A.D.2d 652, 742 N.Y.S.2d 411 (2002). Where an asset is less than 100% separate property, the same rule should apply: Passive appreciation should be separate property.
To see the lack of wisdom in the New York rule, consider how a part-separate asset would be classified if it decreased in value. For example, assume that a car is purchased with $10,000 in separate property and $5,000 in marital property. The parties are divorced three years later, when the car is worth only $8,000. Applying the New York cases literally, the car is entirely separate property, as the separate estate's contributions exceed the value of the asset. The common-sense result, regardless of whether the value of the asset has risen or dropped, is to treat marital and separate interests as percentages of value and not as absolute amounts. In the above situation, so long as all changes in value were passive, the marital interest is properly defined as 5/15 or 33.3% of the value of the car. This is the clear general rule in jurisdictions other than New York, Turner, supra, 5.09-5.10, and it is a minority rule even within New York. See Sommers v. Sommers, 203 A.D.2d 975, 611 N.Y.S.2d 971 (1994); In re Estate of Agliata, 222 A.D.2d 1025, 636 N.Y.S.2d 255 (1995); Icart v. Icart, 186 A.D.2d 918, 589 N.Y.S.2d 127 (1992); Siegel v. Siegel, 132 A.D.2d 247, 523 N.Y.S.2d 517 (1987). To the extent that the classification of depreciated assets has arisen, the cases generally follow the minority rule, usually without explaining why the rule of classification should depend upon whether the value of the asset went down or up. E.g., Strickler v. Marsh, 247 A.D.2d 288, 668 N.Y.S.2d 621 (1998).
Note also that the highest court of New York has clearly held that it is error to treat all of the appreciation in a separate property business as passive merely because the active portion is small. The court must give the marital estate the benefit of the entire active portion no matter how small that portion may be. Hartog v. Hartog, 85 N.Y.2d 36, 647 N.E.2d 749, 623 N.Y.S.2d 537 (1995). Under exactly the same reasoning, the separate estate is entitled to all of the passive appreciation in the separate contribution no matter how small the passive portion may be. The rationale of the New York reimbursement cases is fundamentally inconsistent with Hartog.
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