Equitable Distribution Isn’t Necessarily Equitable Distribution

Many people believe that when you get divorced, especially after a long term marriage, your assets are split equally.  This is not true.  New York is an equitable distribution state, meaning that equity, or fairness, will decide how assets are to be split.  Who determines what’s fair or equitable? Well if the parties cannot amicably settle their dispute and come up with an accommodation between them, the Court will make that determination.   If you leave it to the Court, you may or may not get what you deem is appropriate at the parties in Cornish v. Cornish recently discovered.

The parties in the Cornish matter were married in 1991 with three children.  The wife was the monied spouse in this case and the husband was awarded, amongst other things, 30% of his wife’s pension, vice 50%.  He was also awarded 50% of the parties credit card debt.   The husband appeals seeking to modify the trial Court’s ruling increasing his share of the wife’s pension to 50%.  The first thing the husband needed to realize is that the Courts are accorded substantial deference in determining what distribution of the marital property is equitable.  Note the equitable standard which is based upon considerations of fairness and the respective situations of the parties.

The trial Court looked at the marriage.  Here, the husband was a stay at home father.  However, as the wife testified, the once the children reached school age, the wife implored the husband to find employment, which he declined despite the financial difficulties the family faced.  In addition to his refusal to earn a living and contribute financially to the family, it was ascertained that husband was an alcoholic and his alcoholism was contributing to his ability to find employment.  Additionally, the husband had inherited money.  Instead of using this money to assist the family, the Court found that he wasted his inheritance and in a few short months, it was gone.  Finally, the Court did not find the husband’s testimony regarding his job search credible.  Thus the Court, taking all of this into consideration, believed it was only fair that 30% of the pension go to the husband vice 50%.

In the same vein, the Court determined that the family’s finances were compromised by their use of credit cards to pay for family expenses.  However, the Court also found that the credit card was not only used for daily expenses, but that the husband used the cards for unnecessary expenses unduly burdening the already precarious family financial picture.  As a result, the Court awarded half of the debt to the husband.

Your behavior during the marriage is important when it comes to equitable distribution.  Keep in mind that marital property is divided between the parties and that not only will the Court divide property/assets, it will also divide liabilities. If you have a spouse, like in this case, who is wasting marital assets coupled with refusing to contribute to the marriage, the Court will take that into consideration when determining how to fashion an equitable distribution award.

Separate Property and Maintenance on Long Island

On June 13, 2013, the appellate court decided the case of Owens v. Owens.  At issue in this case was the maintenance awarded to the wife.  The parties were married in 1985 and had two children.  Before the parties were married, the husband owned, through an inheritance, an apartment building in New York City.  He sold this property during the marriage netting six million dollars.  He promptly placed that money in separate account however the parties were living off the proceeds.  Further, the husband owned the marital residence which the parties shared throughout the marriage.  The couple divorced and the wife argued that the husband had wasted his inheritance and the separate property he owned.  As a result, the wife wanted the Court to take into consideration this wasteful dissipation of assets when awarding maintenance.

When dealing with property in a marriage, the first step the Court will take is to classify all property.  Domestic Relations Law defines separate property as that acquired before the marriage or by bequest, devise or descent or gift from a party other than a spouse. Separate property also includes the increase in value of the separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse.

The crux of the wife’s argument wasn’t that she was directly entitled to the separate property, she argued that the Court should consider the husband’s willful dissipation of his assets when determining what if any maintenance she is entitled.  The Court agreed.  The Court held that evidence of egregious economic fault in mismanaging, dissipating and wasting separate assets can and should be considered under the statutory catchall “just and proper” factor for equitable distribution and maintenance.  In addition the Court will take into consideration separate property as part of a spouse’s income, property, present and future earning capacity and ability of each party to become self-supporting.  Thus, the Court, in determining a maintenance award—with an eye to her ability to be self-supporting—must take into account her pre-divorce standard of living, which in this case, was provided mainly by the separate property income of the husband.

Separate property on its face may be a simple determination, however as this case illustrates, classification of property is only the first step.  How that property was used and the effect on the marriage can and will be used as a factor when the Court is contemplating a maintenance award.

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Sale of the Marital Estate in New York

One of many issues which must be dealt with when getting divorced is what to do with the marital estate.  For purposes of this article, we are going to assume the martial estate was purchased during the marriage from marital funds.  Future posts will deal with a marital estate that was either originally separate property or separate property was used to purchase the estate.

The marital estate is marital property and must be disposed of in accordance with the Domestic Relations Law.  The first option is to simply sell the home. Once the sale is complete, any profits or losses are to be shared equally between the parties.  If you have been following these posts you know by now that nothing is that simple.  The other option is to have one party buy the other party’s interest.  You simple decide on a fair price and the party wishing to remain in the home must buy the other party’s interest in the home.  Yet another option is to trade your interest in exchange for other marital property or responsibilities.

For instance, we recently had a case where our client, wife, was to retain physical custody of the children.  The husband did not want to pay child support and we were heading straight to a trial.  We began discussing the marital estate.   There was significant equity in the house.  We agreed to have the husband waive his interest in the house in exchange for his child support obligation.  We simply calculated what his child support obligation would be and compared it to his equity in the house.  As both numbers were close, this was a creative way to have the wife keep the marital residence, the children stay in the home they were used to and dispose of the marital estate.

The most challenging aspect of the marital residence is when one party does not want to sell the asset yet wants to be divorced.  Fear not, the house will be sold however if you cannot get the parties to agree, then you must look to the Court for assistance.  In our example, the marital estate is own by the parties as tenants by the entirety.  Therefore, the Court will lack the authority, absent the consent of the parties, to order a sale of the marital estate while the parties are married.   If your spouse stands their ground, the Court can order a sale after you are divorced.  The Court can and will order how the net proceeds or liabilities are to be split.

Then there is the hybrid case, where both parties want to sell the house but there are young kids involved.  Another possibility that is often used is to allow the spouse who retains physical custody of the children to remain in the house.  That spouse will be responsible for all the bills related to the marital estate and will agree to indemnify the spouse who is moving out in the event any liabilities relating to the house arise.  Normally in the separation agreement, there is language which provides that the spouse who remains in the house shall pay all bills relating to the estate and that in the event the mortgage is not paid for a certain amount of months, the house will be automatically put up for sale.

Disposing of the marital estate can be complicated and is not as easy as simply selling off the estate.  If you are contemplating divorce and you believe the marital estate may be an issue, contact us immediately to begin preparing your matter.

Inheritance Rights in a Divorce on Long Island

A common question raised by clients of long term marriages—generally longer than ten years—is what happens with my inheritance which I received during the marriage?  The answer is: it depends what you did with said inheritance.  When the Court looks to make a distributive award of the assets of the marriage, the first thing it does is it defines marital property.  Marital Property, pursuant to DRL§236, is defined as all property acquired by either or both spouses during the marriage and before the commencement of an action for divorce or the signing of a separation agreement.  So, the initial question becomes, when did you receive this inheritance?  If you received your inheritance during the marriage, the presumption is that it is marital property.  Thankfully, there are four exceptions to this general rule.

Relevant to this issue, if property is received by bequest, devise or descent it is considered separate property.   So it seems as if your inheritance is protected as separate property.  Yet, nothing is that simple.  Once you received your inheritance, the question now becomes what did you do with it?  Did you open up a separate bank account and deposit said inheritance in that account which is strictly in your name?  If you did, then the Courts will probably consider this separate property.   If you’re like most people, you placed your inheritance in a joint account, and there lies the problem.

Once you placed your inheritance into a separate account, you have comingled funds, and thus the money is now marital property.  (The subject of another blog is the comingling for convenience—all is not lost if you comingle—however the presumption will be that the comingled account is now marital property).   A far more complicated and common issue is what happens when you take your inheritance and purchase a house?  Is that house now marital property?  Probably.  Lets say that you received a three hundred thousand dollar inheritance and you placed it all as a down payment for the martial estate.  Did you lose the inheritance?  In this scenario, you will get a separate property credit of $300,000.00.  If you sell your house and there is a profit of $600,000.00, you can then petition the court to designate the first $300,000.00 as separate property, the money being an inheritance and originally separate property.  The balance of the estate will then be split by the parties.  Of course, what if the house is sold and you break even?  What if you sell your house and there is only a $50,000.00 profit?  Arguably, that money should be designated as separate property.  Either way, your spouse will not be responsible for paying back the down payment.

Inheritance issues are not black and white and can be tricky.  If you are contemplating a divorce and you have concerns about your inheritance, contact us for a free consultation.

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