New York Divorce Law Prenuptial Basics, Part I

New York divorce law loves agreements. An agreement means no trial, and the issues are resolved. In fact, so strong does the New York divorce law support agreements, that they are pretty impossible to break.

There are three basic agreements in divorce and family law: (1) the prenuptial ( and it’s close relative the post-nuptial); (2) the separation agreement; and (3) the stipulation settling the divorce.

The prenuptial is a strange creature to be filed under the “hope for the best but plan for the worst” category. Generally, it is used by a person who either is coming into the marriage with assets, or has been burned in a prior divorce, or both.

As readers of these pages know (and by the way, in the space of the month the average visitor comes back 3.7 times) property division is not that straight forward. Sure, the statute (DRL 236 B) states that property acquired before the marriage, such as an inheritance or money from a personal injury settlement are separate property, but creative lawyers have found ways to get the New York courts to chip away at the statute and create a host of exceptions. The two main exceptions are co-mingling and increase in value of the separate property. It is beyond my purpose in this post to explain them. Just take my word for it.

The question is: How do you protect your separate property from becoming marital property? The answer is a well drafted pre or post nuptial agreement. For example, assume you own a house. You want to insure that if there is a divorce the house remains your property. So, you sign a prenuptial which states that the house is separate property. Problem solved? Nope. Remember, where there’s a will there’s a lawyer. Suppose during the marriage, you sold your house and bought a new house. A clever lawyer could (and will) argue that while, yes indeedy, the old house was separate property, this new house is marital. The solution is a clause in the prenuptial which states that all separate property remains separate even if it is sold and new property was bought.

That protects the spouse with the separate property. But, what about the spouse who belatedly realizes that s/he has signed a bad deal? Can the agreement be broken? Remember what I said at the top of the posting? Courts love agreements. Judges use great phrases such as “public policy” and the “smooth administration of justice” and the like. But, what it comes down to, is that New York courts really, really hate to break an agreement absent fraud, duress, and over-reaching. In a future post I’ll address these three grounds to break an agreement. However, in my experience, they are very high standards to meet.

The Appellate Division, First Department, in a recent decision, has demonstrated just how high the standard is. Basically, in 1974 just before marriage the groom presented the wife, in Germany with a prenuptial agreement in German. The court upheld the agreement. I am putting the link here for anyone who wishes to read the full decision. I’m going to quote Judge Saxe’s dissent, because he really sets out why the decision is not fair. Stawski v. Stawski

In December of 1974, an affianced young American woman in the bloom of love, traveling with her German fiancé to his parents’ home in Frankfurt, en route to a skiing vacation in Switzerland, experienced a sudden and unexpected detour to a lawyer’s office in Frankfurt, where she was presented with a prenuptial agreement. Her execution of that document, and its enforceability, form the basis for this appeal.

The Special Referee, who was requested to hear and determine the controversy, held that the agreement is enforceable, and the majority agrees. However, in my view, the confluence of various questionable practices and procedural irregularities surrounding the execution of the agreement makes this the exceptional case in which an antenuptial agreement should be set aside. The evidence establishes that plaintiff’s signature was obtained through a combination of deception and overreaching, causing an unknowing waiver of unexplained rights. Accordingly, I dissent.

Plaintiff wife and defendant husband are children of Holocaust survivors; the parents met in a displaced persons camp outside Frankfurt, Germany after World War II, and ultimately settled there. Plaintiff’s family moved to the United States 3½ years later, and settled in New York City, where plaintiff was born. Defendant’s family remained in Germany. He was educated in England beginning at age 10 and received a law degree from Birmingham University in England. After briefly meeting at a dance in Frankfurt in the 1960s when she was 12 and he was 14, plaintiff and defendant met again in 1971, when she was 19 and an undergraduate at New York University and he was 21 and studying for a Master’s degree in International Law at the same university. They became engaged in the summer of 1974 and married in 1975.

In December 1974, the affianced couple traveled together from New York to Frankfurt, where defendant’s parents lived, in anticipation of a winter ski vacation. Upon their arrival in Germany, defendant told plaintiff that before they left for Switzerland, it was necessary for both of them to attend a meeting with a lawyer. The parties dispute the exact explanation provided to plaintiff as to the need for this meeting; she testified that the reason defendant gave her was the necessity of “signing a piece of paper for bankruptcy.” Plaintiff also testified that she and defendant had no prior discussions regarding the signing of any agreement having to do with their marital or property rights. For his part, defendant testified that he brought up the subject of a premarital agreement with plaintiff in the autumn of 1974 and that she asked him to discuss the matter further with her father, which he testified he did, although both plaintiff and her father disputed this assertion.

The couple went to the office of a law firm in Frankfurt. It is undisputed that the law firm represented defendant’s family in various legal matters. The parties appeared before Dr. Nikolas Hensel, who, aside from being an attorney, was apprentice to a notar. In Germany, a notar is a public official before whom certain types of transactions, including marital agreements, must be executed in order for them to be valid. A notar serves as an independent consultant for the parties to the transaction, and is responsible for exploring and ensuring the parties’ understanding of the transaction and its legal consequences. At the time, Dr. Hensel was not yet officially a notar, but was apprenticed to an older notar, Dr. Rudolph Boergner, for whom he was properly [*5]substituting on the date of execution of the agreement.

After exchanging pleasantries with the parties, Dr. Hensel showed them the agreement, which was written in German. Apparently, neither of the parties had seen either the final document or even a draft of the document before the visit. Dr. Hensel initially read the agreement to the young couple in German. The agreement was not a long one. It stated that the signatories (plaintiff and defendant) planned to get married in 1975 and, as translated into English, that: “We hereby agree that for the time of our marriage we exclude the legal regime of joint ownership of any increase in property. Instead we will adopt the regime of legal separation of property. The notar’s representative informed us on the legal significance of such a decision.” Thirty years later, in a court in New York, it is this language that is relied upon to bar plaintiff from sharing at all in increases in the value of defendant’s separately-owned property during the course of the marriage.

Judge Saxe to goes, in a well reasoned dissent to explain why he would set aside the agreement. The rest of the court was unpersuaded. They cited the oft quoted legal maxims. I’ll provide an except below:

“[T]he decision of the fact-finding court should not be disturbed upon appeal unless it is obvious that the court’s conclusions could not be reached under any fair interpretation of the evidence, especially when the findings of fact rest in large measure on considerations relating to [*2]the credibility of witnesses” (Thoreson v Penthouse Intl., 80 NY2d 490, 495 [1992] [internal quotation marks omitted]). It cannot be said that the Special Referee’s conclusions were not based on a fair interpretation of the evidence, and there is thus no basis for reversal. The agreement is fair, neutral and valid on its face and the issue determined by the Special Referee was therefore solely one of credibility.

Furthermore, the public policy of this State favors ” ‘individuals ordering and deciding their own interests through contractual arrangements’ ” (Van Kipnis v Van Kipnis, 43 AD3d 71, 76-77 [2007], quoting Bloomfield v Bloomfield, 97 NY2d 188, 193 [2001]), and thus, duly executed prenuptial agreements, including agreements executed in a foreign country, are accorded the same presumption of legality as any other contract (see Greschler v Greschler, 51 NY2d 368 [1980]). A party attacking the validity of the agreement has the burden of coming forward with evidence showing fraud, which will not be presumed, and must have as its basis evidence of overreaching—the concealment of facts, misrepresentation or some other form of deception (see Matter of Sunshine, 51 AD2d 326 [1976], affd 40 NY2d 875 [1976]). Plaintiff completely failed to meet that burden.

The numerous circumstances cited by plaintiff as irregularities, including her alleged lack of fluency in the German language, defendant’s superior education, the fact that she was unrepresented by counsel and that the agreement was written by a law firm that had previously done business with defendant’s family, do not establish overreaching on defendant’s part, especially in view of the uncontradicted testimony that the agreement was explained to plaintiff in English. In reaching the opposite conclusion, the dissent adopts a highly skewed version of the facts in the course of portraying plaintiff as a naive individual who was the victim of elaborate “machinations” that were calculated to induce her to sign an agreement she did not understand. However, at the time the agreement was executed, plaintiff had received her B.A. from a prestigious university, New York University (where she took such courses as “International Law,” “Ideas & Action I: Law in Society,” “International Politics” and “U.S. Foreign Policy”) and was pursuing a Master’s degree in political science from that same university.

How far will the courts go to enforce an agreement? In Van Kipnis v. Van Kipnis, the court enforced an agreement, even though the written agreement was contrary to the parties understanding. In 1965 the parties signed a contract in France. “At the time, the wife, a Canadian citizen, was studying at the Sorbonne and the husband, a citizen of the United States, had just finished college. Prior to the marriage ceremony, and at the specific request of the wife, the parties agreed to execute a “Contrat de Mariage” (Contract), which is a form of prenuptial agreement under the French Civil Code. The wife made all the arrangements for the Contract, including securing the presence of a “Notaire,” the French official who presides over the execution of such contracts, and obtaining an American attorney and interpreter to protect the husband’s interests. The expressly stated purpose of the Contract was to opt out of the “community property regime,” which is the custom in France, in favor of a “separation of estates” property regime.”

After 38 years of marriage, the parties started a divorce action. After months of litigation, the husband found the agreement and moved to have it enforced. “At the hearing, the wife testified that the Contract was executed for the sole purpose of opting out of the community property system of France, and instead adopting a complete separation of estates, whereby each party could not be held liable for the other’s debts. She also admitted, however, that the husband executed the Contract at her insistence, that he had no money at the time of the marriage and that she had never moved to set the Contract aside during the marriage.

The husband offered a similar understanding of the Contract in his testimony. Defendant testified: “I didn’t realize it was a prenuptial agreement. I just thought I had a marriage contract, which meant that we decided to protect ourselves from creditors, and we decided to keep our assets in separate names, and I never drew the conclusion that this had relevance in a divorce proceeding.”"

The court found that as the agreement was clear on it’s face, the parties understanding was irrelevant and inadmissible.

Two fundamental principles of contract interpretation are that “agreements are construed in accord with the parties’ intent,” and that “[t]he best evidence of what parties to a written agreement intend is what they say in their writing” (Greenfield v Philles Records, 98 NY2d 562, 569 [2002] [internal quotation marks omitted]). “Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” (id.). “A contract is unambiguous if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the agreement itself, and concerning which there is no reasonable basis for a difference of opinion” (id. [internal quotation marks and brackets omitted]).

Extrinsic evidence of what the parties really intended is generally inadmissible, and will be considered only if the agreement is found to be ambiguous, which is an issue of law for the court (id., citing W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162 [1990]). However, extrinsic evidence may not be utilized to create an ambiguity that would otherwise not exist, since “before looking to evidence of what was in the parties’ minds, a court must give due weight to what was in their contract” (W.W.W. Assoc. at 162). An omission or mistake in a contract, such as a failure to include a specific contingency, does not itself create an ambiguity (see Reiss v Financial Performance Corp., 97 NY2d 195, 199 [2001]).

But, recently, the Second Appellate Department agreed to set aside a post-nuptial on the grounds that the husband engaged in overreaching. In Barchella v Barchella the court stated that “because of the fiduciary relationship that exists between spouses, postnuptial agreements are closely scrutinized by the courts and are more readily set aside on grounds that would be insufficient to nullify an ordinary contract.”

The lesson is that if you want to protect your property get a prenuptial agreement. If you are on the other side of the table, get a lawyer. A well drafted and fair agreement can save a lot of grief and trouble in the future.

Divorce and Equitable Distribution Where There Are Hidden Assets (part 1)

A frequent issue in a divorce action is proving a spouse’s assets. For a w-2 employee, this is generally an easy task. Where the issue becomes tricky is where the spouse owns a cash business, such as landscaping, or the restaurant. In that case, there is a question as to how much the spouse really makes, or how much the business is really worth.

I had a case where the husband had a $14,000 a year pension, and claimed that the pension was his sole income. The wife, my client, claimed that he operated an unlicensed garage, and several joker poker machines. The business was unlicensed and all cash; further, he never reported a dime to the IRS. He thought that he was untouchable. However, the divorce court has the power to strip away the lies and determine the real state of affairs. Here, I showed that he spent over $60,000 a year. The judge then found that the husband’s income was $60,000 a year and made the appropriate orders based upon that finding.

This power to look beyond a person’s story and determine the truth of the situation was vividly demonstrated in a recent decision by Justice Arthur Diamond, who is a divorce court judge in Nassau County, in the case of C.H. v. R.H, reported in the Law Journal, November 20, 2007, on page 29.

The husband was a minister of a church in Brooklyn. The church, under New York law, was a religious corporation. As such, it did not belong to the husband, and under New York law, was not part of the martial estate. Additionally, courts are prohibited from judicial involvement with internal church governance.

But, the wife argued, the church is a marital assets because it is actually the husband’s piggy bank. Specifically, she claimed that the husband “provided $50,000 of their marital money to church as start-up capital; the defendant controls all the finances of the church, and makes all financial decisions, defendant refuses to make any financial disclosures to the church’s board of directors and the church administrator, hides his finances from the church elders, determines his own income, refers to the church as ‘my church’ and dismisses anyone who challenges his operation and finance of the church.”

Justice Diamond addressed the New York law governing churches, and the reluctance of the courts to interfere with them. He then discussed the power of a court sitting in divorce to piece the veil of a corporation to determine the true owner as opposed to the title owner. He noted that in the case of Goldberg v. Goldberg, 172 A.D2. 2d 316, which involved a for-profit corporation, the appellate division granted “a distributive award to the plaintiff as her share of the marital property after finding that the defendant had deliberately dissipated and secreted marital funds and assets through conveyance of various trusts and alter ego corporations which served as defendant’s personal pocket book.”

Based upon the statute and case law, Justice Diamond found that there were sufficient questions of fact as to whether the church was indeed a separate and independent religious corporation or merely the alter-ego (i.e. pocket book) of the husband.

This decision shows the power of the divorce court to identify the true ownership of property. After all, at first blush, who would think that a church could be considered marital property? But, if the wife can prove her case, that the husband filtered martial money into the church, and used it to generate income for his personal benefit, then the court can find the church to be a marital asset, subject to equitable distribution. The lesson of this decision is that the court will not be bound by appearances but will determine the true state of affairs based upon the facts.

For example, if the business is in the husband’s father’s name, but the father lives in Florida, has no contact to the business, the husband provided all the capital, runs the business on a daily basis and enjoys the profits from the business, the court could well decide that the husband is the true owner, and the property is subject to division.

Ex Parte Foreign Nation Divorces

Although not as common as they used to be, ex parte foreign divorces are still an issue. By ex parte, we mean the court only had jurisdiction over one party. Back before New York eased, to some degree, its divorce laws, people found it easier to go to Nevada or Mexico to get a divorce. Typically, one party would go and it get. Since the court only had jurisdiction over the person before it, the divorce was “ex parte” (one party.) The New York courts were very concerned about this type of divorces, since with only one party showing up, there was a good chance that an injustice could be wrought on the absent spouse.

An ex parte foreign divorce where there was no service or appearance by the other party is generally void. In Matter of Levi, NYLJ Volume 215 Number 52 (Nassau County Surrogate 1996), the court recognized the long settled principle that ex parte foreign divorces are void. Surrogate Radigan found that the decedent and his first wife were not domiciled in the Dominican Republic at the time of the divorce. “Under the circumstances, the Dominican divorce is void where it is at best an ex parte foreign divorce decree.”

The foreign court must obtain jurisdiction over the proponent of the divorce as well as the absent spouse. In cases where a divorce has been obtained without any personal contact with the jurisdiction by either party or by physical submission to the jurisdiction by one, with no personal service of process within the foreign jurisdiction upon, and no appearance or submission by, the other, decision has been against the validity of the foreign decree. Rosenstiel v. Rosenstiel, 16 N.Y.2d 64, 209 N.E.2d 709 (1965). In Maltese, the court found that the sole purpose of the wife’s trip to Mexico was to get the divorce.

it is clear that defendant’s appearance in Mexico was for the sole purpose of participating in the divorce proceeding, not for the purpose of residing there; she remained at all times a resident and domiciliary of New York State. As was said in the Rosenbaum case, supra, ‘Thus under comity as contrasted with full faith and credit our courts have power to deny even prima facie validity to the judgments of foreign countries for policy reasons, despite whatever allegations of jurisdiction may appear on the face of such foreign judgments. * * * The recognition of a foreign county judgment is far less certain, the judgment itself is far more assailable and vulnerable, than sister state judgments and is subject to a test of policy.’Accordingly, plaintiff is entitled to a judgment declaring the Mexican divorce decree null and void,

Similarly, Surrogate Preminger found that a Mexican divorce was void where the decedent was not a domiciliary of Mexico , Matter of Barton, NYLJ Volume 222, Number 13 (N.Y. Surrogate Court 1999).

When a divorce decree is void, either party may attack it. Further, the party who obtained the divorce is not prevented from attacking it’s validity. See Marum v. Marum, 8 A.D.2d 975, 190 N.Y.S.2d 812 (2^nd Dept 1959).

The Domestic Relations Law, section 236B(2) specifically grants the court jurisdiction to determine issues of property distribution upon a foreign divorce.

Matrimonial actions. Except as provided in subdivision five of this part, the provisions of this part shall be applicable to actions for an annulment or dissolution of a marriage, for a divorce, for a separation, for a declaration of the nullity of a void marriage, for a declaration of the validity or nullity of a foreign judgment of divorce, for a declaration of the validity or nullity of a marriage, and to proceedings to obtain maintenance or a distribution of marital property following a foreign judgment of divorce, commenced on and after the effective date of this part. Any application which seeks a modification of a judgment, order or decree made in an action commenced prior to the effective date of this part shall be heard and determined in accordance with the provisions of part A of this section.

Emphasis added.

While a divorce granted by a foreign sister is accorded full faith and credit, “[i]t is equally well settled, however, that a valid ex parte foreign divorce terminates only the marital status of the parties. Such a divorce is ‘divisible’ in that it has no effect upon the property held by the parties outside the jurisdiction of the state issuing the judgment.” Peterson v. Goldberg, 180 A.D.2d 260, 585 N.Y.S.2d 439 (2^nd Dept 1992). See Vanderbilt v. Vanderbilt, 354 U.S. 416, 77 S.Ct. 1360 (1957) (Ex parte judgments from a foreign sister state resolving issues of support and property are not granted full faith and credit). “An ex parte foreign divorced decree is entitled to recognition to the extent of determining the marital status, though not to the extent of affecting personal rights stemming from the marital relationship such as property and custodial issues…” Matter of Childers, NYLJ Volume 222 Number 112 (New York County Surrogate’s Court, 1999).

The court in Mattwell v. Mattwell, 194 A.D.2d 715, 600 N.Y.S.2d 90 (2^nd Dept 1993) explained that the purpose of DRL § 236(B)(2) & (5) was to address the divisible nature of foreign divorces. Accordingly, to provide for the distribution of property not affected by a foreign judgment of divorce, Domestic Relations Law § 236B(2) and (5) provide that a divorced spouse who possesses an interest in marital property within this state may commence an action for equitable distribution of property… The court has the power to convert an action into one for equitable distribution following the entry of a foreign divorce. Peterson v. Goldberg, 180 A.D.2d 260, 585 N.Y.S.2d 439 (2^nd Dept 1992).

Therefore, in the case of valid ex parte foreign divorces the court has the power and authority under DRL 236B(2) and (5) to proceed to address and determine the issues of equitable distribution, custody, support and visitation.

Sometimes its not that easy to determine if a divorce is ex part. For example, assume that the couple is from the Dominican Republic. Both are legally in the United States, and residents of New York. Both are also still citizens of the Dominican Republic. Assume that one of the spouses goes back to the DR and obtains a legal and valid divorce and the other spouse remained in New York. Was it ex part or not? There would be an argument either way. At present I’m not aware of any case addressing this issue.

Therefore, let prudence be your guide and avoid any appearance of an ex-parte divorce. If you are looking for a divorce and you live in New York, consult a New York divorce lawyer. If you are looking for a quick solution, you might find that you have severely prejudiced your rights.

Foreign State Divorces and Equitable Distribution

Foreign divorces can be very tricky, and ultimately very dangerous for the unwary. The problem is that under the New York divorce law, all issues between man and wife must be settled in the divorce. Any issue not resolved or raised is waived.

For example, let’s assume that the divorce papers are silent as to the marital home. Nothing is mentioned about how the house will be disposed of, and there is no provision for who will take the house. After the divorce, the parties fight and now one of the wants to force a sale and get his interest. Under New York law, when co-owners of a piece of property can’t get along, there is legal proceeding called a “partition”. If the ex-spouse tries to bring a partition action here, he will be told that he had his chance in the divorce, and now the New York courts are closed to him.

This is a fairly harsh rule, but it is New York divorce law. Any issue of equitable distribution not raised is waived forever. It can never be revisited.

This rule has a serious impact on foreign divorces. By foreign divorces, I mean a divorce from either a sister state or foreign country.

The issue of a New Jersey divorce was recently examined by Judicial Hearing Officer Stanley Gartenstein in the case of Ottomanelli v. Ottomanelli, decided on September 17, 2007.

The husband, who had established residence in New Jersey, commenced a no-fault divorce there. The court found jurisdiction over both the husband and the wife, although the wife was still a New York resident, living on Long Island.

The court’s divorce decree made no reference either to equitable distribution or maintenance.

The husband, having secured the divorce in his home state, returned to Long Island and commenced an action for equitable distribution. His action was dismissed.

JHO Gartenstein found that the New Jersey divorce was final and could not be amended.

He found that once the court has acquired jurisdiction over both parties, it had the power to decide all issues regarding the marriage and divorce and therefore he was without authority that amend that decision and made a property distribution.

In support of his decision, JHO Gartenstein cited the New York Court of Appeals case of O‘Connell v. Corcoran, 1 NY3rd 179, which involved a Vermont divorce. In that case, the wife appeared before the Vermont court and stated that no application would be made for an equitable distribution award as all the assets were in New York. The Vermont court issued a final judgment of divorce without contest and made no other awards. The wife then started an action in New York for equitable distribution. The Court of Appeals would not allow such an action. It found that the issues were before the Vermont court and the failure of the court to render an award, for whatever reason, ended the matter.

Following the holding of O’Connell, JHO Gartenstein dismissed the husband’s action for equitable distribution, as it should have been raised in New Jersey. The failure to raise the issue waived it.

This rule also applies to divorces from other countries. In DeGanay v. DeGanay 261 AD2d 175, a bilateral divorce in France was also viewed as final.

This rule only applies to “bilateral” divorces, that is divorces where the court has jurisdiction over both parties. When the court does not have jurisdiction over both parties, it is an ex parte divorce. In an ex parte divorce, the issue of equitable distribution remains alive. Ex parte divorces are a large and somewhat complicated area, and I’ll address it in another posting. Just remember for this posting, that if the court has jurisdiction over both parties, its a real good idea to address all issues of the divorce. If you “leave something for later” you’ll find that you’ve waived your rights.

Delay tactics and Equitable Distribution

One question I get asked quite frequently is: if my spouse plays games in the divorce, can the court punish he/her by giving me the house?

To put that question is legalese: can the court alter the equitable distribution award if it finds that the spouse has been non-compliant or engages in frivolous conduct?

Recently, the Appellate Division for the First Department has answered in the case of Warner v. Houghton.

Under the New York Domestic Relations law, when making an award of equitable distribution the court must take in account the statutory factors found in section 236 B. The courts must consider these statutory factors when announcing the award. The factors are:

c. Marital property shall be distributed equitably between the parties, considering the circumstances of the case and of the respective parties.
d. In determining an equitable disposition of property under paragraph c, the court shall consider:
(1) the income and property of each party at the time of marriage, and at the time of the commencement of the action;
(2) the duration of the marriage and the age and health of both parties;
(3) the need of a custodial parent to occupy or own the marital residence and to use or own its household effects;
(4) the loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution;
(5) any award of maintenance under subdivision six of this part;
(6) any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party;
(7) the liquid or non-liquid character of all marital property;
(8) the probable future financial circumstances of each party;
(9) the impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party;
(10) the tax consequences to each party;
(11) the wasteful dissipation of assets by either spouse;
(12) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration;
(13) any other factor which the court shall expressly find to be just and proper.

Turning to the Warner case, husband clearly was playing games. The husband fired his attorneys at least twice and failed and refused to attend a number of court conferences. Perhaps the straw that broke the camel’s back was his refusal to attend the inquest. Since the wife was unopposed at the inquest, the judge granted her everything she asked for.

The Appellate Division noted that “[w]hile the defendant’s conduct bordered on the contemptuous, the equitable distribution award must still be justified on the record, and should be supported by the specific finds [in the New York Domestic Relations Law].” The court cited an 1986 decision, Capasso v. Capasso, 119 AD2d 268, which held “that an insufficient explanation for the court’s distribution of property requires reversal of the judgment and remand for further consideration.”

The lesson of this case is that mere bad conduct may not be enough to allow the divorce court to alter the balance in an award of equitable distribution.

Professional Licenses, Property and Maintenance In a Divorce

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: “A 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.

New York State Pension Rights for Same Sex Couples

A man I personally admire, New York State Comptroller, Thomas DiNapoli,recently recognized, for pension purposes, a Canadian same-sex marriage. He decided that the marriage was valid even though New York State’s highest court, the Court of Appeals, recently held that same-sex marriages are not permissible under the New York state constitution. Mr. DiNapoli recognized the same-sex union between two state workers who got married in Canada.

Mr.DiNapoli’s decision was taken to court, and Justice Thomas J. McNamara in the case of Godrey v. Hevesi, 5896-06, agreed with him. Judge McNamara noted that New York has long recognized the legality of marriages performed in other states and countries, even if such marriages could not be performed in New York.

While proponents of same-sex marriages may view this decision as a victory, it raises as many questions as it settles. Since the Court of Appeals decided Hernandez v. Robles 7 NY3d 338 (2006), the rule in New York has been that same-sex marriages are not permissible.

Judge McNamara’s decision does not necessarily provide a loophole. The problem lay in difference between laws passed by a sister state and laws passed by a foreign county.

The starting point is the United States Constitution’s Full Faith and Credit Clause. This constitutional provision states that one state must give full faith and credit to a judicial ruling of another state. (There are some exceptions, but it is beyond this scope of this posting to get into them.) Similarly, there is a rule known as “comity”. Under comity, a state judge can enforce a foreign county decision if the requirements of due process are met. Unlike the Full Faith and Credit Clause, a court is not required to recognize a foreign nation’s actions.

Now, that brings us back to Judge McNamara’s decision. Two other judges have refused to recognize same-sex unions performed in Canada. In the cases of Funderburk v. New York State and Martinez v. Monroe Community College,two other trial judges decided contrary to Judge McNamara. The Appellate Divisions have not spoken on this issue. But, ultimately, this issue will have to be decided by the New York Court of Appeals. Frankly, I don’t think anyone knows which way the court will decide on this issue.

Divorce and Equitiable Distribution of Professional Degrees and Licenses

Doctors, lawyers, dentists and other professionals face unique challenges under New York Divorce law. Under the New York equitable distribution law, all property acquired during marriage is subject to division. The courts have interpreted that to mean that degrees, licenses and practices are subject to division.

In 1985 the Court of Appeals in New York, in the landmark case of O’Brien v. O’Brien, 66 N.Y.2d 576, held that the husband’s “medical license constitutes ‘marital property’ within the meaning of [ New York ] Domestic Relations Law.”

As the Court explained the facts:

Plaintiff and defendant married on April 3, 1971. At the time both were employed as teachers at the same private school. Defendant had a bachelor’s degree and a temporary teaching certificate but required 18 months of postgraduate classes at an approximate cost of $ 3,000, excluding living expenses, to obtain permanent certification in New York. She claimed, and the trial court found, that she had relinquished the opportunity to obtain permanent certification while plaintiff pursued his education. At the time of the marriage, plaintiff had completed only three and one-half years of college but shortly afterward he returned to school at night to earn his bachelor’s degree and to complete sufficient premedical courses to enter medical school. 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.

During the marriage both parties contributed to paying the living and educational expenses and they received additional help from both of their families. They disagreed on the amounts of their respective contributions but it is undisputed that in addition to performing household work and managing the family finances defendant was gainfully employed throughout the marriage, that she contributed all of her earnings to their living and educational expenses and that her financial contributions exceeded those of plaintiff. The trial court found that she had contributed 76% of the parties’ income exclusive of a $ 10,000 student loan obtained by defendant. Finding that plaintiff’s medical degree and license are marital property, the court received evidence of its value and ordered a distributive award to defendant.

Defendant presented expert testimony that the present value of plaintiff’s medical license was $ 472,000. Her expert testified that he arrived at this figure by comparing the average income of a college graduate and that of a general surgeon between 1985, when plaintiff’s residency would end, and 2012, when he would reach age 65. After considering Federal income taxes, an inflation rate of 10% and a real interest rate of 3% he capitalized the difference in average earnings and reduced the amount to present value. He also gave his opinion that the present value of defendant’s contribution to plaintiff’s medical education was $ 103,390. Plaintiff offered no expert testimony on the subject.

The Plaintiff argued that the license was “not property at all but represents a personal attainment in acquiring knowledge.” The New York Court of Appeals, did not accept this argument. The Court held that the New York equitable distribution law radically changed the concept of property. “[T]he New York Legislature deliberately went beyond traditional property concepts when it formulated the Equitable Distribution Law Instead, our statute recognizes that spouses have an equitable claim to things of value arising out of the marital relationship and classifies them as subject to distribution by focusing on the marital status of the parties at the time of acquisition. Those things acquired during marriage and subject to distribution have been classified as ‘marital property’ although, as one commentator has observed, they hardly fall within the traditional property concepts because there is no common-law property interest remotely resembling marital property.”

The practical effect of the O’Brien decision is that any degree or license earned during the marriage is subject to distribution. Therefore, an appraiser will have to be employed to determine the value of the degree or license, and then the court will determine how much money will flow from the spouse who earned the degree or license. For a professional, the value of the degree could be quite high.

Equitiable Distribution in a Divorce Where There is Abandonment by spouse

Justice Darrell Gavrin, of Queens County, New York, in the divorce of  Pritchett v. Pritchett, found that where a husband abandoned his wife for a significant period of time, he forfeited some of his property rights to her.

The parties were married in 1971 and there were three children of the marriage. The last was born in 1992. The husband left the martial home in 1996, without providing any contact informationÂ

The wife sought exclusive possession of the marital home. It was purchased n 1984, and was located in Rosedale, Queens. Although purchased for $85,000, they refinanced it in 1994 for $107,000.00. The wife claimed that $30,000 of the refinanced sum was taken by the husband without her permission or authority to pay his personal debts.

At the time he abandoned the marital home, he took an additional $20,000 in marital assets. And although employed with the New York City transit authority, he ceased making any child support payments or contributing to the mortgage. The wife was forced to solely support and provide for her household.

Ten years later he reappeared at the marital home. The wife testified that she received a telephone call from one of the children saying “Ma, there is someone at the door, I think it is our father.” The wife rushed home and found that the husband had dropped off a list of some addresses.

The court awarded the house to the wife. The noted that the husband had not contributed any money toward child support in ten years. “[T]he husband’s lack of contribution of any monies for maintenance or child support from March 1996 to the present time, is factor which warrants consideration by this court in determining equitable distribution of the marital residence.”

Additionally, the court considered the other expenses the wife incurred to care for the child and pay the mortgage. After considering these factors, the court found the husband’s share of the expenses that the wife shouldered exceeded any interest he would have from the house. As a result, Justice Garvin, awarded the house to the wife.