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Separate Property Credits and Marital Property

The Equitable Distribution Law (hereinafter referred to as "EDL") empowers the court to divide all property, both real and personal, acquired during the marriage (marital property) by either or both parties in an equitable (fair) manner regardless of the form in which title is held, according to the needs and circumstances of the parties. This division or distribution of marital property only takes place when the marriage is dissolved. The EDL describes separate property as, among other things, property acquired by bequest, devise, or descent (inheritance), gift from a party other than the spouse, personal injury compensation, and property acquired prior to the marriage. That section does not state the effect of transmuting separate property into marital property. However, that section also defines separate property as property acquired in exchange for separate property.

Despite the fact that the term "seed money" is not used in the statute, much case law has evolved using this term and identifying it as separate property.

If a party transfers separate property into joint names, that property become marital property. This is called transmuting separate property into marital property. If there is a claim for that separate property, the party asserting that claim has the burden of proof and must trace and identify the separate property. The value of the separate property at the time of transfer must also be proved.

In DeCabrera v. Cabrera-Rosete, 70 NY2d 879; 524 NYS2d 176 (1987), the Court of Appeals affirmed an order of the Appellate Division, First Department which found that the trial court did not err in denying the defendant-husband any equitable share in the marital cooperative apartment. The entire purchase price, $182,000.00, was paid from money in plaintiff's account opened prior to the marriage. Although the Court of Appeals did not use the term "seed money", its decision made it clear that despite the purchase of the cooperative apartment in joint names, the plaintiff-wife was entitled to recover her separate property.

In Robertson v. Robertson, 186 AD2d 124; 588 NYS2d 43 (2d Dept. 1992), the appellate Division held that the trial court erred in failing to give the wife credit for her separate property contribution. The property was purchased during the marriage and it was undisputed that the wife contributed $45,633.75 in separate property toward the purchase of the apartment.

In Vogel v. Vogel, 156 AD2d 671; 549 NYS2d 438 (2d Dept. 1989), the defendant received bonds from his mother as a gift to him and used the money for the purchase of the marital residence. The Appellate Division held that the trial court erred in failing to consider whether the defendant is entitled to a credit for the gift money contributed. The trial court had ruled, as a matter of law, that any gift made by a third party to one spouse is presumed to constitute a gift to both spouses, so that the question of whether certain marital property might be traceable to a gift was considered irrelevant. The Appellate Division remanded the case for a new trial since the error of the trial court did not permit the trial court to trace the separate property into the marital asset.

The concept of credits was taken further in <>McAlpine v. McAlpine, 143 Misc.2d 30; 539 NYS2d 680 (Sup.Ct., Suffolk Co.1989), wherein the court held that the contributing spouse may also receive credit for the appreciation on the separate property component of the joint marital asset.

In Lauricella v. Lauricella, 143 AD2d 642; 532 NYS2d 907 (2d Dept. 1988), the Appellate Division found that adding his wife's name to a savings bond did not deprive the husband of his ownership of separate property; the court properly credited the husband with his separate contribution.

In Lisetza v. Lisetza, 135 AD2d 20; 523 NYS2d 632 (3rd Dept. 1988), the Appellate Division stated that when a party places property in the name of both spouses, it becomes marital property. The transferor should be given credit for his contribution to the creation of the marital asset.

In DeMarco v. DeMarco, 143 AD2d 328; 532 NYS2d 293 (2d Dept. 1988), the Appellate Division held that the original personal injury awards of $33,231.00 to plaintiff and $232,620.00 to defendant was separate property and each party should be credited with his/her respective investments. The parties in this case had contributed their respective amounts of separate property to investments in the joint names.

In Monks v. Monks, 134 AD2d 334; 520 NYS2d 810 (2d Dept. 1987), the plaintiff-husband transferred properties acquired prior to the marriage to himself and his wife. The lower court awarded the defendant-wife a 45% interest and directed a sale of the property. The Appellate Division modified by deleting the provision awarding the wife 45%. The court went on to state at page 336 (Official) "We find that the trial court should have credited the husband for a contribution of separate property toward the creation of marital assets."

In Nalbandian v. Nalbandian, 135 Afl2d 621; 522 NYS2d 199 (2d Dept. 1987), plaintiff-wife appealed from a judgment of Westchester County that awarded the defendant-husband a credit of $40,000.00 against the division of marital assets. The Appellate Division found that the husband was entitled to a credit against the distribution of marital property to the extent that he contributed his share of an inheritance, i.e. $40,000.00 to acquire marital assets. At page 622 (Official), the court cited Coffey v. Coffey, 119 AD2d 620; 501 NYS2d 74 (2d Dept. 1986)

In Lobotsky v. Lobotsky, 122 AD2d 253; 505 NYS2d 444 (2d Dept. 1986), the husband had sold his home in Mahopac owned prior to the marriage and contributed the proceeds to the purchase of the marital home. The court held that he was entitled to a credit for such contribution as reimbursement of his separate property.

In Coffey v. Coffey (cited in most of the prior cases) the Appellate Division held that the husband should receive a credit for contribution of his separate property toward creation of marital assets. The court cited Duffy v. Duffy, 94 AD2d 711; 462 NYS2d 240 (2d Dept. 1983). In Duffy, the Appellate Division held that Special Term should not have directed the equal division of the net proceeds from the sale of the marital residence after provision was made for reimbursement of defendant's contribution of separate funds toward the purchase price of such property. The Appellate Division modified the lower court judgment by providing that the plaintiff should receive 25% of the net proceeds and defendant should receive 75% after deduction of $32,000.00 as defendant's separate property contribution.

In Sommers v. Sommers, N.Y.L.J., October 2, 1990 at p27, col 1, Nassau Supreme, J. O'Brien, the marital home was purchased with a gift ($96,890.00) from the wife's father to the wife. The court held that since the date of the purchase of the home in 1977, the value of the dollar had depreciated and an inflationary adjustment had to be made to determine the appreciation of plaintiff's separate property. It was the court's determination that the dollar equivalent of the 1977 purchase money of $96,890.00, projected to June 1990 is 211.2% over base dollars, or $203,630.00. Accordingly, the plaintiff was entitled to a credit of that amount.

It is undisputed that the spouse who contributes his/her separate to the creation of marital assets should be credited for that contribution upon the sale of those marital assets involved. It is imperative that the party claiming a separate property credit of assets trace the assets and furnish to the court the value of those assets at the time of transfer.

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