Since I posted the article below, the law has changed. For all divorces filed on or after January 25, 2016, professional licenses will not be considered marital property. For all divorces filed before January 25, 2016 they will be. Here is an article on the new, and current statute:
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.â€
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 huband 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 non licensed spouse in a shorter marriage over the non licensed spouse who is faced with rebuilding his or her economic life after the breakup of a long-term marriage.”
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. A spouse may be entitled to a share of the increased value of the house. However, that spouse must show that his/her contributions resulted in that increased value.
Judicial Hearing Officer (these are retired judges) Stanley Gartenstein 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 appreciated 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.
Here’s a quick one: There is no legal obligation to pay college tuition.
This simple statement often upsets one set of parents and makes another set happy. However, under the Child Support Standards Act, there is no requirement that a parent pay college tuition.
The only way to secure tuition is to place the obligation into the divorce agreement. Many times we use what is called the “SUNY CAP.” The SUNY cap is an obligation to pay tuition up to the level of a specified SUNY school. Being based on Long Island, I base it on SUNY Stony Brook, which is about$5,000 a year. Some agreements use the clause “the parents will contribute to college education.” This clause can lead to further disputes down the road. For example, what if the child is accepted to NYU, which is about $37,000 a year? Must Dad shell out $18,500 per year? Good drafting can save future trouble. If you cannot agree on a SUNY Cap, it is perhaps wise to have some other limiting factor.
The Judge does have the discretion to order tuition, but the parent seeking tuition will have to prove it. The party paying child support can get a dollar for dollar credit on money paid towards room and board.
In the absence of an agreement, even if the court does award tuition, it will end when the child turns 21, not when s/he finishes school. An agreement to pay past 21 is only enforceable by a court if the agreement is in the proper format. A handshake, an email or even a notarized letter is not enforceable.
Child Support and Split Custody: The nature of the problem
Child Support and Split Custody raises several issues. When each parent has custody of one of the children, the child support calculations may have to involve an offset. It’s a situation that might seem straightforward at first glance, with some assuming that it means neither parent would have to pay child support to the other. However, the reality is a bit more nuanced than that. The way it’s handled is by calculating the child support obligations for each parent and then comparing the figures to see if they balance out. Remember, child support can be complex and the state has an overriding interest.
Child Support and Split Custody: Some examples
Let me share a couple of examples of Child Support and Split Custody to illustrate how this works in practice.
Take, for instance, a scenario where there are two children. Let’s say Mom and Dad each take custody of one child, and both parents have an annual income of $50,000. In this case, instead of the child support obligation being 25%, it’s adjusted to 17% for each parent towards each child (here’s an article on the child support calculations). So, Dad’s financial obligation to Mom would be $8,500 for the child in her custody, and vice versa. Since the amounts are equal, no money actually changes hands. This child support and split custody scenario is very simple and, unfortunately, the least common.
Now, let’s consider a different situation. Again, we have two children with each parent taking one, but this time Dad earns $75,000 a year, while Mom earns $50,000. Dad’s child support payment to Mom would be $12,750, and Mom’s to Dad would be $8,500. This leaves a difference of $4,250, which, logically, Dad would pay to Mom. However, it’s worth noting that Dad’s attorney might argue for a credit given Dad’s custody of one child. While there is some support for this argument, I’ve observed courts that choose not to grant such credit.
Child Support and Split Custody: Can Support be Waived?
It’s quite common for agreements in split custody situations to stipulate that no child support payments are to be exchanged. Yet, it’s important to understand that courts will only approve these agreements if the financial obligations are balanced. I once handled a case where the father was awarded custody of two children and the mother custody of one. The mother, earning more than the father, led us to negotiate “add-ons” or additional out-of-pocket expenses she was covering, which justified a no-payment arrangement.
Child Support Waiver and Modification
A particularly intriguing Family Court decision highlighted this issue. The case involved couple who had split custody and waived support from each other. The father following an economic downturn, saw his income drop from $95,000 to $32,000. He sought child support from the mother, who was earning $164,000, for the child now in his custody. Despite the significant income disparity, the judge denied the father’s request. The rationale was that the mother had already provided substantial support by purchasing a car for the child, covering gas, auto insurance, the child’s cell phone bills, and medical coverage. Therefore, the court determined the father was not entitled to additional child support.
These examples serve to underscore that child support calculations, particularly in scenarios where custody is split, are complex and highly dependent on the specifics of each case. The courts take a comprehensive view of the parents’ financial contributions towards their children’s well-being, beyond just the basic income comparisons.
If you find yourself navigating this complex terrain, remember, that it’s crucial to consult with a legal professional who can help you understand your rights and obligations. At Port and Sava, we’re dedicated to guiding you through these challenges, ensuring that you and your children’s best interests are protected. Remember, we’re here to help you move forward with the rest of your life.
Call (516) 352-2999 for a free 15 minute telephone consultation.
The gay and lesbian community have seen a number of ups and downs in the past few years on the issue of gay marriage. Gay marriage has become a hot topic, not just in politics but with the courts. I have updated this post several times and it seems it becomes dated before I hit the “publish” button.
Now that LGBTQ couples can get married in New York, all the laws which applies to marriage and divorce under New York apply them (DOMA is a hot topic. Since the Supreme Court declared DOMA unconstitutional, the landscape is still changing).
Here’s a thought: In New York law, a child born during the marriage is considered of the marriage. If two women get married, and one has a child by artificial insemination, does that mean that the other woman is the legal parent? The answer is yes.
The point of this trend is that gay couples should understand the laws of divorce before they walk into marriage. Most traditional couples in New York already understand the concept of equitable distribution and maintenance. Gay couples should be aware that if they get married these rules will also apply. This includes getting prenuptial agreements where appropriate.
Third, visitation rights of a partner. Under New York law, a non-biological parent, absent adoption, has no rights in a child. But, we are increasingly seeing gay couples where one of the partners has a child. However, both partners act as parents. What happens to the non-parent’s rights to visitation upon break up? If the child was not born during the marriage, the Court of Appeals has a shock for you. The non-biological parent will be liable for child support but have no rights to visitation. Keep your eye on this one, I predict this will change in the future.
Fourth, gay adoptions. This is even more complex, and I will save for another day.
The teaching lesson here, is that if you intend to get married, research the law first. Perhaps consult with a matrimonial attorney. To be really safe, execute an agreement to protect your rights from the current shifts in law. If you think and plan first, you are in a better position to protect yourself.
There was a decision reported in the New York Law Journal, August 8, 2008 that shows how computers, used unwisely, can damage your position in a divorce. Justice Evans, in New York county, ruled that information found by the wife on the husband’s computer could be used in the trial.
The laptop computer, found in the trunk of the family car, contained “hundreds and hundreds of pages of really salacious conversations” between the husband and his girlfriend.
The court found that since the laptop did not have any passwords and the files were not encrypted, it was similar to an open file cabinet. Therefore, the husband had no claim to privacy in his computer files.
The lesson is clear for both parties in a divorce. First, don’t hide information on a computer. Second, if you really want to leave damning information on your computer, such as emails, instant messages, your internet browsing history or financial information, use a password to access the computer, and encrypt your files.
Hip hop star 50 Cent recently was the victim of a judicial drive-by shooting. 50 Cent has been engaged in a high profile family court action in Suffolk County, New York with his former live-in girlfriend and mother of his child.
He began a proceeding to evict her from their Dix Hills home. She then started an action in New York Supreme Court to stop the eviction. Her claim, removing all the legalese, was that they had a common law marriage.
Her attorney is a clever fellow and never actually used the word “common law marriage” and neither did the judge, but the reality of what the judge did is clear. And if I were a betting man, I would be betting that the appellate court is going to reverse her.
Starting from the beginning, New York has abolished common-law marriage. If you are not legally married, you cannot receive the protections afforded to a spouse. If a husband buys a house, the wife is automatically a co-owner regardless of whose name is on the deed. However, if a boyfriend buys a house, unless the girlfriend’s name is on the deed, she has no right to the property.
Turning to 50 Cent’s case, he bought the house in Dix Hills. The girlfriend’s name is not on the deed and she did not contribute money toward the purchase. She should have been out of luck.
But her lawyer devised a clever legal argument and swayed the court with a story of her dutiful sacrifices for 50 Cent. So, the judge accepted the attorney’s novel theories and ordered that the girlfriend can remain in the house.
The girlfriend, Shaniqua Tompkins, argued that she had a contract with 50 Cent, wherein he agreed to take care of her and to share equally in his successes. In return, Tompkins agreed to keep his home and perform other home-making services for him.
The court noted that, under New York law, an oral contract that cannot be completed in a year is void. For example, an oral contract to employ someone for six months is valid. On the other hand, an oral contract to employ a particular person as long as he is alive cannot be completed in a year and is void.
After noting this law, the court then ignores it.
The court next notes the law that ”cohabitation without marriage does not give to the property and financial rights which normally attend marital relations…”
The court then noted that an agreement that is not for ”marital” type services is enforceable. However, the rule envisioned a boyfriend having a girlfriend work in his business. Turning the rule on its head, the court found that Tompkins’ housekeeping was not a ‘marital’ function but unconnected to the romantic relationship. Therefore, the judge found a contract between 50 Cent and Tompkins.
What the court did was implicitly find a common-law marriage. A promise to provide support in exchange for keeping house cannot be viewed by any stretch of the imagination as anything but a ‘marital relationship.’
Next, the court went on to establish a constructive trust. A constructive trust is used when someone in a legal position of trust, known as a fiduciary, causes a person to improperly transfer property. For example, X owns a piece of
property. Y, his attorney, convinces X to transfer the property to him at no cost, but on a promise that the transfer will benefit X. Once Y gets the title, he turns X out of the property. Here the court admitted that Tompkins never owned the property and never paid any money toward it. Instead, the court found that she had transferred her effort in housekeeping and therefore the court found that a constructive trust could exist for the Dix Hills house.
Again, this type of reasoning violates the law against common-law marriages. If a paramour can claim an ownership interest in a house by living it in, the common law marriage can be recognized.
Whether 50 Cent will appeal it or not is up to him. I believe that this decision, by seeking a back door to resurrect common law marriages, should be reversed.
I’ve never been a big fan of the Suvivor’s Benefit Plan (SBP). As you may know, military retired pay ends on the dead of the retiree. Unlike a 401K or IRA, there is no bank account with money in it. Once the retiree dies, the payments from DFAS cease. The spouse or former spouse, gets nothing on the retiree’s death, unless there is SBP.
The SBP is a program created by Congress to provide an annuity for the surviving spouse (and/or children). The program also provides automatic coverage for any servicemember who dies in the line of duty. It is available to all members of the military to include the Coast Guard, the National Health Service and the National Oceanic and Atmospheric Administration. And yes, it covers us second class citizens in the Reserves.
Under the Former Spouses Protection Act, the coverage is automatic. In other words, the spouse has to actively refuse coverage. This provision was placed in the law to protect a spouse who after twenty years of marriage gets dumped by the servicemember upon retirement. A servicemember can opt out. But, the spouse must sign a waiver. This election must be made prior to the first day the member become eligible to receive the retired pay.
A reservist must make an election within 90 days of receiving the 20 year letter: (1) decline to make an election until age 60; (2) elect coverage to begin on the servicemember’s death or upon the date the servicemember would have been eligible to receive the retired pay, whichever is later; or (3) elect coverage to commence upon the servicemember’s death, regardless of the member’s age when death occurs. However, if the election is not made, then the servicemember is automatically enrolled in (3). A reserve servicemember who elects to forgo the SBP in the 90 day period can change his/her mind when he/she is eligible to receive retired pay.
A former spouse can receive SBP. A judge in a divorce can award SBP. The election to the former spouse must be made within one year of the judgment of divorce. Only one spouse or ex-spouse can receive SBP. This is no splitting or allocating. If ex-spouse is getting the SBP, the new spouse is locked out.
SBP used to have a “social security” offset. A spouse would receive 55% of the retiree’s pay until the spouse turned 62. Then the SBP payments would be reduced to 35% of the retired pay. In 2007, the rule changed, as of April 1, 2008 all spouses will received 55% regardless of their age. The social security offset is now gone. From April 1, 2007 to March 31, 2008, spouses over the age of 62 got 50% of the pay. On April 1, 2008, that went up to 55%.
This new law goes a long way to fixing some of the problems inherent with the program.
As I have pointed out else where, under New York divorce law, pensions earned during marriage are subject to equitable distribution. However, since there are a variety of different pensions available from the multitude of employers, the rules are not always consistent.
For example, military disability pay is not subject to equitable distribution.
The Post Office pensions also presents unique challenges and issues. Since the pension comes from the federal government is it needlessly complicated, as least for the divorce lawyer.
One important issue was addressed by Nassau County Divorce Judge, Anthony Falanga. Justice Falanga was one of the brighter and more pragmatic judges deciding divorce cases in New York. He spent over 30 years as a divorce lawyer himself, and understands the issues and concerns of the litigants. I was very sorry when he retired.
In the case of Grimmer v. Grimmer , published in the New York Law Journal on March 21, 2008, on page 31, Justice Falanga addressed the issue of whether all or just part of a Post Office pension is subject to equitable distribution under New York divorce law. He found that as an employee of the Post Office, the husband, was not eligible to contribute to or receive social security. Instead, a part of his Post Office pension would be a replacement for social security. Social Security is not subject to equitable distribution.
Citing the case of Wallach v. Wallach 37 AD3d 707, Justice Falanga observed that under the Federal Civil Service Retirement System (FERS) a court was directed to “deduct from the value of the retirement benefit the portion thereof that substitutes for social security.”
Based upon the Wallach decision, Justice Falanga found that the entire Post Office pension is not subject to equitable distribution. The portion of the pension that substitutes for social security must be removed. Assume the husband is getting $1500 a month in the pension. He worked 30 years, and was married for the entire 30 years. The court ordered that the pension be divided in half. Further assume that the social security substitution is 30 percent. So, only $1000 of the $1500 is a pension, while the remaining is counted as social security. The wife would get $500 a month (one-half of $1000) not $750 a month (one-half of $1500).
An important caveat for the holder of the pension is to make sure that your lawyer knows and understands this fact. Typically, in divorce actions, we divorce lawyers hire a pension appraisal service to provide the value of the pension. Make sure that the pension appraisal takes into account the social security replacement.
Under Former President Trump, the tax law was changed regarding post-divorce maintenance. Prior to the law change, post-divorce maintenance was tax deductible by the paying spouse. Sadly, the Trump tax law removed that deduction, so post-divorce maintenance (alimony) is no longer tax deductible. This change renders the below post obsolete unless the deduction is restored.
-OLD LAW-
Before I start, let me state that I am not an accountant or tax attorney. Do not make any decisions regarding taxes based upon this posting. Discuss any tax plans with your accountant.
In a recent decision by the U.S. Tax court, Proctor v. IRS, 129 TC No. 12 the division of military retired pay was treated as alimony not a property distribution. This may also have implications for the New York Police or Fire Department VSF.
Under New York law, any benefit to be paid in the future, but earned during the marriage is subject to equitable distribution. Military retired pay is a perfect example. The right to the pay was earned by 20 years of service. The retiree gets paid after she/he retires and as long as he/she lives. Unlike a 401K, there is no account with money to be drawn upon. New York treats this as property, and is subject to property division.
But, apparently, the tax law treats military retired pay differently. In the Proctor decision, the court stated that under Internal Revenue Code section 71(b) payments to an ex-spouse of her share of military retired pay can be considered alimony, and therefore tax deductible to the retiree. The court stated that “in order to qualify as alimony, payments must meet the requirements of section 71(b)(1) (A) through (D)”.
(b) Alimony or separate maintenance payments defined. For purposes of this section– (1) In general. The term “alimony or separate maintenance payment” means any payment in cash if– (A) such payment is received by (or on behalf of) a spouse under a divorce or separation instrument, (B) the divorce or separation instrument does not designate such payment as a payment which is not includible in gross income under this section and not allowable as a deduction under section 215 [26 USCS § 215], (C) in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, and (D) there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse.
The court found that payment order met the requirements of the statute. This is true even if the divorce decree refers to the payments as part of the division of martial property. The court stated the divorce court’s classifications do not matter. “Labels attached to payments mandated by a decree of divorce or marriage settlement are not controlling.” The court went on to say that “while the designation need not mimic the statutory (B) will generally be met if there is no ‘clear, explicit and express direction” in the divorce decree stating that the payment is not to be treated as alimony.” Since the decree in question does not contain such language the requirements of section 71(b)(1)(B) were met.
The key point is that the divorce decree must either be silent as to the designation of the payments, or state that the payments will be treated as alimony. If you already have a decree, please don’t use this decision as license to take the deductions, talk to your accountant and follow his/her advice.
