This post applies only to divorces filed before January 25, 2016. For all divorces filed on or before January 25, 2016, the law has changed. Licenses and degrees will no longer be considered part of the marital estate. This law will NOT effect divorces pending before January 25, 2016.
Professional licenses can be one of the more contentious pieces of property in a divorce. A professional license, whether it is a medical license, law license, CPA or architect’s license has been declared to be marital property. The New York Court of Appeals made that determination over 20 years ago in the landmark decision of O’Brien v. O’Brien, 66 N.Y.2d 576; 489 N.E.2d 712; 498 N.Y.S.2d 743 (1985).
The facts in O’Brien were simple: the parties were married for nine years. At first, both were teachers. In September 1973 the parties moved to Guadalajara, Mexico, where plaintiff became a full-time medical student. While he pursued his studies defendant held several teaching and tutorial positions and contributed her earnings to their joint expenses. The parties returned to New York in December 1976 so that plaintiff could complete the last two semesters of medical school and internship training here. After they returned, defendant resumed her former teaching position and she remained in it at the time this action was commenced. Plaintiff was licensed to practice medicine in October 1980. He commenced this action for divorce two months later. At the time of trial, he was a resident in general surgery.
The Court appeals ruled that the license was martial property: â€œA professional license is a valuable property right, reflected in the money, effort and lost opportunity for employment expended in its acquisition, and also in the enhanced earning capacity it affords its holder, which may not be revoked without due process of law (see, Matter of Bender v Board of Regents, 262 App Div 627, 631; People ex rel. Greenberg v Reid, 151 App Div 324, 326). That a professional license has no market value is irrelevant. Obviously, a license may not be alienated as may other property and for that reason the working spouse’s interest in it is limited. The Legislature has recognized that limitation, however, and has provided for an award in lieu of its actual distribution.
Remember, in O’Brien, the husband started the divorce only two months after he received his degree. Since he had no medical practice, all that the court could value was the license. But, what if the husband had been practicing medicine for 20 years and had a thriving practice? Would not the license merge with the practice? In other words, would there be only one piece of property to value: the practice? Or would the court value the license and practice?
That question was answered by the court ten years later in McSparron .v McSparron 87 N.Y.2d 275; 662 N.E.2d 745; 639 N.Y.S.2d 265 (1995). The facts are more detailed as this was a long term marriage.
The parties were married in 1969. At the time of their marriage, both parties had undergraduate college degrees and neither possessed any appreciable assets. Defendant husband attended law school during the first three years of the marriage, gaining admission to the Bar in 1973. He thereafter practiced law and was earning an annual salary of $ 97,000 as a Deputy First Assistant Attorney-General when the parties separated in mid-1989.
Plaintiff wife acquired a master’s degree in psychology during the early years of her marriage. Over the next 12 to 13 years, she worked as a school psychologist, taking time off occasionally to care for the couple’s children or to attend graduate school. In 1984, plaintiff began attending medical school. She graduated in 1988 and, after completing a one-year internship, she received a license to practice medicine in July of 1989. Plaintiff commenced this matrimonial action on September 1, 1989, four months before the completion of her second internship.
The Court specifically rejected the concept that the license merges with the career after a period of time. “Such a narrow approach is inconsistent with the equitable goal of assuring both spouses a fair share of all of the assets that were produced by the marital partnership. Application of the merger doctrine is particularly inimical to the statutory purposes because it generally favors the nonlicensed spouse in a shorter marriage over the nonlicensed spouse who is faced with rebuilding his or her economic life after the breakup of a long-term marriage.” Furthermore, care must be taken to ensure that the monetary value assigned to the license does not overlap with the value assigned to other marital assets that are derived from the license such as the licensed spouse’s professional practice. So, the New York Court of Appeals held that in New York Divorce, a professional practice is to be value separately from the license to practice.
This solution now raised a new problem: maintenance. Let’s say that the husband’s license and practice were collectively valued at $1.7 million. Of that sum, the wife’s share was determined to be $770,000. The wife also has asked for maintenance. Should the award of maintenance take into consideration the equitable distribution award of $770,000 or not?
The court addressed that question in Grunfeld v. Grunfeld 94 N.Y.2d 696; 731 N.E.2d 142; 709 N.Y.S.2d 486 (2000). The court split a few hairs here. In Grunfeld, the husband’s law license and practice were valued separately, then the wife was awarded maintenance. The Court of Appeals reversed the appellation division’s decision that did not fully take into account the equitable distribution award. “Here, however, the Appellate Division flatly based its ruling in part on the fact that “defendant’s future earnings”–which only could be expected to come from his own professional endeavors–were likely “to exceed $ 1 million yearly.” Additionally, the Court apparently recognized that income from other resources could only be expected to support “a portion of the maintenance.” Therefore, on the face of the Appellate Division’s decision, in ordering full distribution of plaintiff’s share of defendant’s license without any adjustment of maintenance, the Court engaged in double counting of income. This is inconsistent with McSparron. Thus, that portion of its order cannot be affirmed.”
The appellation division was reversed because the award took into account increased income from the husband’s law practice. But, the Court of Appeals left open the viability of an award of maintenance derived from sources other then the practice. It is possible that if the husband had incoming producing separate property, then the concern about offsetting would not exist.
In conclusion, divorces involve licenses can be complicated as they involve several issues of equitable distribution and maintenance. The valuation of the property can be complicated and expensive. In New York, the judges will order that a forensic account value the practice and the license. These numbers will drive the decisions on the distribution and the ultimate award of maintenance.