Splitting the House – When The House is Bought Before Marriage

by / 0 Comments / 5105 View / April 4, 2009

The biggest question in divorce, after children, involves the house. Who gets the house and how is it divided? First, as I stated elsewhere on this site, the name on the deed is irrelevant to the question of who gets the house. If the house was acquired during marriage, with marital funds, it is a marital asset. If the house was acquired before marriage, it is a separate asset. But, the lines can blur.

Judicial Hearing Officer (these are retired judges) Stanley Gartenstein recently faced one such situation. He published his decision on March 27, 2009 in the Law Journal, in Li v. Li. Husband acquired the house before the marriage. Clearly, then the house was separate property. However, during the course of the marriage, he executed a new deed conveying a half interest to the wife. The question JHO Gartenstein was tasked in determining was the wife’s interest and value in the house. First, he found that the conveyance converted the separate property into marital property. Next, he found that the husband was entitled to “a dollar for dollar credit for his separate property contributions.” Since the property was $375,000 at the date of conveyance and worth $500, 000 on the date of trial, the husband was provided with $375,000 of credit, leaving $125,000 as marital property.

The next question is want happens when the house is not conveyed to the other spouse. Let’s assume the house was bought for $80,000. Over the course of the marriage, the house increases in value to $160,000. Is the increase separate or marital property?

The big case on this point is Price v. Price 68 NY2d 8 (1986). The Court Of Appeals held that increased value of separate property can be marital property:

The Equitable Distribution Law broadly defines the term marital property, very narrowly defines “separate” property (see, Domestic Relations Law § 236 [B] [1] [d]; Majauskas v Majauskas, 61 NY2d 481, 489) and seeks to achieve the fairest result for both parties upon dissolution of the marriage (see, O’Brien v O’Brien, 66 NY2d 576, 584-585). In the seminal case of O’Brien v O’Brien (id.), this Court held that a medical license acquired during the marriage was marital property under Domestic Relations Law § 236 (B) (1) (c) subject to equitable distribution under section 236 (B) (5). In Price v Price (69 NY2d 8)), we held that where separate property appreciated during the marriage, in part due to the efforts and contributions of the nontitled spouse, the amount of the appreciation was marital property subject to equitable distribution. It follows that where the nontitled spouse has contributed to the appreciation of the titled spouse’s interest in a partnership, even though the spouse was already a partner at the time of the marriage, the appreciation constitutes marital property subject to equitable distribution.”

While this case would seem to say that any increase value would be marital property, the court later took a stricter view. The court said that if the appreciate value is not marital if it was the result of “pure market forces.” Burns v. Burns 84 N.Y.2d 369, 374 (N.Y. 1994).

With respect to the condominium, defendant contends that Supreme Court abused its discretion in not equitably distributing the appreciated value as marital property. We do not agree. The condominium, having been purchased by plaintiff prior to the marriage, was clearly separate property (see Domestic Relations Law § 236 [B] [1] [d] [1]) and, therefore, any increase in value remains separate property “except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse” (Domestic Relations Law § 236 [B] [1] [d] [3]; see Hartog v Hartog, 85 NY2d 36, 45-46, 647 N.E.2d 749, 623 N.Y.S.2d 537 [1995]; Price v Price, 69 NY2d 8, 15, 503 N.E.2d 684, 511 N.Y.S.2d 219 [1986]). Defendant, as the nontitled spouse claiming such interest, bore the burden of establishing that the increased value was due in part to his efforts as opposed to market forces or other unrelated factors (see Golub v Ganz, 22 AD3d 919, 922-923, 802 N.Y.S.2d 526 [2005]; Lawson v Lawson, 288 AD2d 795, 796, 732 N.Y.S.2d 753 [2001]; Burgio v Burgio, 278 AD2d 767, 769, 717 N.Y.S.2d 769 [2000]).

Turning to the proof, defendant testified regarding the general maintenance that the parties performed at the condominium, which included painting, caulking, arranging for carpet installation and replacement of appliances, and also his dealings with the Boston Housing Authority in regard to tenant matters. We have also considered that it is undisputed that no renovations or structural changes to the condominium were made during the course of the marriage. Notably, plaintiff’s testimony established that property values have increased dramatically as a result of revitalization of the neighborhood due in large part to the recent construction of luxury condominiums across the street from the condominium. Under all the circumstances, we cannot say that Supreme Court abused its discretion in finding that the increase in value resulted from market forces.

The Appellate Division, Third Department addressed the issue of renovations, and improvements to the property in Bonanno v. Bonanno, 2008 NY Slip Op 10084, 2 (N.Y. App. Div. 3d Dep’t 2008)

Under the Domestic Relations Law, there are two categories of property: marital property and separate property. Upon divorce, marital property is subject to equitable distribution and separate property is not (Domestic Relations Law § 236[B][1][c],[d]). The statute defines marital property broadly as “all property acquired by either or both spouses during the marriage” (Domestic Relations Law § 236[B][1][c]). The income of both spouses throughout the marriage is considered part of the marital estate and is utilized to calculate an equitable distributive award (Domestic Relations Law § 236[B][5][d][1]). By contrast, separate property, which is not subject to equitable distribution, is explicitly defined as property excepted from the marital estate. It is “property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse” (Domestic Relations Law § 236[B][1][d][1]). Separate property also includes “property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse” (Domestic Relations Law § 236[B][1][d][3]). The concept of separate property is interpreted narrowly (see Hartog v Hartog, 85 NY2d 36, 48, 647 N.E.2d 749, 623 N.Y.S.2d 537 [1995]), and there is a presumption that property is marital until one of the parties proves otherwise (LeRoy v LeRoy, 274 AD2d 362, 712 N.Y.S.2d 33 [2000]).

The court took testimony from a number of witnesses and considered the valuations of the parties’ experts. It then made a detailed itemization of the parties’ property and a detailed distributive award. The court properly considered the factors set forth in Domestic Relations Law § 236(B)(5)(d), including the parties’ respective contributions to the family economic enterprise (see Price, 69 NY2d at 14-15; O’Brien v O’Brien, 66 NY2d 576, 587, 489 N.E.2d 712, 498 N.Y.S.2d 743 [1985]).

The court determined that on the date of marriage, the value of the Claverack main house and land was $ 556,000 and the tenant house was worth $ 357,000. The husband was properly credited these amounts as separate property. The court then determined that on the date of trial the main house and property were worth $ 1,985,000 and the tenant house $ 516,000. These values were based upon the court’s acceptance of the wife’s expert’s appraisals. This was proper given the record evidence that the wife’s expert was far more experienced in making the type of appraisals necessary here. Further, the wife’s expert’s report was full and accurate, while husband’s expert’s report was replete with errors and omissions (see Cash-Scher v Scher, 299 AD2d 193, 193, 748 N.Y.S.2d 868 [2002]; Charland v Charland, 267 AD2d 698, 700-701, 700 N.Y.S.2d 254 [1999]).

The court appropriately held that extensive renovations accounted for the vast increase in value and that all improvements were 100% marital. Evidence in the record reveals that the Claverack property, as renovated, bears little resemblance to the former modest country house possessed by the husband when he entered into the marriage. Virtually all of the structures on the land, and the property itself, have been transformed. In awarding the wife half of the property’s appreciated value, the court considered both the wife’s work implementing the renovations as well as the fact that the improvements were paid for with marital funds (see Price, 69 NY2d at 11 [where separate property appreciates “due in part” to efforts of non-titled spouse as parent and homemaker, amount of appreciation is marital property subject to equitable distribution]). The Court of Appeals in Price held that where the non-monied spouse contributes to the appreciation of the separate property of his or her spouse (through either direct efforts, or by taking care of domestic responsibilities while renovation is in process), he or she is entitled to an equitable share of the value of the appreciation.

The Domestic Relations Law considers spouses as participants in a family economic enterprise. Here, both spouses spent a large amount of time and money refurbishing the country house in Claverack. The wife spent many weekends and vacations with her husband and son in Claverack, and she contributed to the renovation of the property.

However, the court’s award to the wife of 50% of the appreciation of the Claverack property was disproportionate (see Ritz v Ritz, 21 AD3d 267, 799 N.Y.S.2d 501 [2005]). Market forces over the approximately 11 years of marriage accounted for some of the property’s increased value. The wife was not entitled to a credit for any portion of this “passive” appreciation. Thus, a 75%/25% division of the appreciation of Claverack is a more equitable apportionment in the circumstances.

The rule appears that if the appreciation was purely from market forces, then the appreciation is separate property. If the appreciation was the result of some investment, money and/or sweat, then it might be marital.

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