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.

How Much Maintenance Will A Court Award?

To begin, maintenance may be defined as payments made from one spouse to another at fixed intervals in accordance with an agreement between the parties or as a result of an award by the Court. In determining whether maintenance is appropriate and the amount and length of such maintenance, the Court will rely on factors set forth in the Domestic Relations Law § 236, Part B. When considering the twelve factors set forth in §236, the Court will analyze all the available information having regard for the standard of living of the parties established during the marriage, whether recipient lacks sufficient property and income to provide for his or her reasonable needs and whether the obligor has sufficient property or income to provide for the reasonable needs of the other spouse.

The factors the Court must consider are: (1) the income and property of the respective parties including martial property distributed as part of equitable distribution; (2) the duration of the marriage and the age and health of both parties; (3) the present and future earning capacity of both parties; (4) the ability of the party seeking maintenance to become self-supporting and, if applicable, the period of time and training necessary thereof; (5) reduced or lifetime earning capacity of the party seeking maintenance as a result of having foregone or delayed education, training, employment, or career opportunities during the marriage; (6) the presence of children of the marriage in the respective homes of the parties; (7) the tax consequences to each party; (8) contributions and services of the party seeking maintenance as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party; (9) the wasteful dissipation of marital property by either spouse; (10) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration; (11) the loss of health insurance benefits upon dissolution of the marriage; and (12) any other factor which the court shall expressly find to by just and proper.

Essentially, maintenance is awarded to a party to allow them time to get on their feet. You are not entitled to, nor are you obligated to pay, maintenance to keep the awarding party in a life style on par with the pre divorce standard of living. However, maintenance will be awarded to a party to allow them to “get on their feet.” So for example, if one spouse is a doctor making $300,000.00 a year and the other spouse was not working at all, it is clear that the Court should award maintenance. What if, in contemplation of the divorce, the unemployed spouse gets a job? What if that job pays $70,000.00 a year? Maintenance will in all likelihood still be awarded. First, in this example, the new job just began. The Court will recognize the fact that the nonworking spouse, who just obtained employment, is probably not in the position to rent another place to live. The Court will consider the fact that instead of working and saving money, the spouse was financially dependent on the doctor. Therefore, things like paying for the first month, last month and security deposit will be challenging at best. How about a car to get to this new place of employment? Second, the Court will consider, not only the pre divorce standard of living, but will also consider the disparity of incomes between the two parties in fashioning an award. Because the spouse has obtained employment, the duration of the award may not be as long, nor as much, however with a $230,000.00 gap between the two parties, a maintenance award in all likelihood be awarded.

LEARNING POINT: Maintenance is a complicated matter. The “reasonable needs” of a party is hard to define. The disparity in incomes and other factors will be considered by the Courts in fashioning a just award. The one to be most aware of is the twelfth factor, “any other factor which the court shall expressly find to by just and proper.” This is the catch all which allows Courts the discretion to make a decision based on anything they want! Contact us immediately to allow us to give you the best legal advice possible.

How Much Maintenance Will A Court Award?

Valuation of Businesses

A typical scenario which some clients have concerns about is their “share” of a business which they helped their spouse build during the marriage. A client will come in and tell us that they provided tangible and non-tangible support to their spouse while they built a business and now that they are getting divorced, they are interested in how much of the business they are entitled.

The first step is to determine the value of the business. Generally, the business is valued as of the date of the commencement of the action, though there are some courts which will use the date of trial. One would think that the Court of Appeals would have rendered a decision as to which date should be used when valuating the business. One would be wrong. Regardless of the date used, valuation is a complicated matter normally requiring independent experts. While there are many different approaches to valuating a business, most trial courts favor the comprehensive approach recommended by the Internal Revenue Service. This approach uses eight factors to determine the value of the business. The factors are: (1) the nature of the business and the history of the enterprise from its inception; (2) the economic outlook in general and the condition and outlook of the specific industry in particular; (3) the book value of the stock and the financial condition of the business; (4) the earning capacity of the company; (5) the dividend-paying capacity; (6) whether or not the business has good-will or other intangible value; (7) sales of the stock and the size of the block of stock to be valued; and (8) the market price of the stocks of corporation engaged in the same or similar line of business having their stocks actively traded in a free an open market.

The valuation is the easy part! Once the valuation is complete, the Court must fashion an equitable way in which to distribute the business. In fashioning an award, the Court will try to avoid a liquidation of the business or making the estranged spouse a partner of the business. Typically, if there are sufficient non-marital assets, the Courts will offset the business interests and other marital assets. For example, if the Court determines that a spouse is entitled to $50,000.00 as that spouse’s fair share of the business, and there is $50,000.00 of marital property, there is a natural offset (it is never that simple!).

LEARNING POINT: Valuating a business with respect to equitable distribution is a complicated process which even the Court of Appeals hasn’t fully addressed. Experts will be needed and various factors will be analyzed, to include the business owners statement of net worth. If the spouse in question is only a partner of a business, the valuation becomes even trickery. Contact us for a free consultation to discuss this and other equitable distribution questions.

valuation of business

Pensions Are Marital Property Subject To Equitable Distribution

The Court of Appeals has held that vested or matured rights in a pension plan, whether the plan is contributory or not, is to be considered marital property subject to equitable distribution. The basic rational for this decision is that the money that went into the pension, during the marriage, is money that would have been given to the marriage but for the diversion to the pension plan. In distributing the pension benefits, the Court may order the employee spouse to grant the nonemployee spouse survivorship benefits. Should the Court direct this course of action, the non-employee would receive the increased benefits upon the death of the employee.

How do Courts treat non-vested pension plans? The Court of Appeals held that non-vested plans do not preclude equitable distribution. The rationale is that your right to the plan is continually accruing during the years. There are two approaches to the valuation and distribution of a non-vested plan. The first is to calculate the present cash value of the pension, with a discount since the plan has not vested. The discount will take into account factors such as the pension not actually vesting due to termination of employment or other issues which will terminate the pension. The second approach is to allocate a portion of each future payment to the non-employed spouse. The Court of Appeals suggested that the second approach is best only in the event that the present value cannot be determined.

Another concern that must be addressed is how much of the plan is subject to equitable distribution. There are cases were the marriage will terminate as a result of the divorce yet, the plan will continue to grow in value. What you can generally expect is that the Court will consider at the total amount of months from the date of the marriage to the date of the commencement of the action against the total amount of number of months of employment. Therefore, where a spouse continues to work after the commencement date, which is typical, the benefits earned after the commencement date will not be subject to marital distribution.

How is the administrator of a plan to know to make payouts to your spouse and in what amount? You will need to obtain a Qualified Domestic Relations Order, better known as a “QDRO.” The QDRO must specify the name and last known mailing address of the participant and of each alternate payee covered by the order; the amount or percentage of the participant’s benefits to be paid by the plan to each alternate payee or the manner in which the mount of percentage is to be determined; the number of payments or period to which the order applies; and each plan that the order applies to.

LEARNING POINT: Evaluating a pension plan is a complicated process which one should not attempt alone. There are many different approaches in evaluating the plan and if necessary protecting your assets. If you are getting divorced and either you or spouse has a pension plan, contact us immediately to begin preparing your case.

pensions and divorce

Filing For Divorce: On The Grounds of Adultery

With the passage of “no fault divorce”, New Yorkers rarely need to rely on other grounds for divorce. Invariably, I have clients who want to file for divorce based on adultery. Adultery is defined as the voluntary commission of an act of sexual intercourse or oral sexual conduct with someone other than your spouse. Thus an act of sex with someone other than your spouse qualifies as grounds for divorce. Technically, Adultery is a crime. See Penal Law §255.7 where in a person is guilty of adultery if he/she engages in sexual intercourse with another person while married. Adultery is a Class B misdemeanor. This crime is rarely, if every prosecuted.

If you want to file for divorce using adultery as the basis, consider how you intend on proving your case. As most affairs are usually conducted in secret, your case may need to be made on circumstantial evidence, i.e. proof of opportunity, inclination and intent. Not an easy road to travel. What constitutes good proof? Eye witness testimony from a private investigator or another person who can be a witness to the sexual conduct between the cheating spouse. A spouse’s confession can also be used as evidence however there are some caveats to this. First, this confession must be corroborated. If the confession was made to you, that may not be enough. Your credibility will be tested during cross examination. Thus, I advise that you obtain other forms of evidence along with your spouse’s statements. In addition, you cannot force a spouse to testify. Remember, the burden to prove adultery is on the moving party. You will need to prove your case with clear and convincing evidence.

There are defenses to adultery that you should be aware. They are: (1) the offense was committed by the procurement or connivance of the other spouse; (2) You forgave the cheating spouse, which can be established by the voluntary cohabitation of the parties with the knowledge of the fact (though in today’s economic times, an argument can be made that despite knowing about the adultery, the economics would not allow one party to move out of the marital estate. I have a few clients who remain living together pending the outcome of the divorce as they simply cannot afford to move out of the house. A word of caution, if you engage in sexual intercourse while living together after the discovery of adultery, then the court might take that as proof that you have forgiven your spouse); (3) the offense happened more than five years ago, in other words, you have five years from the discovery of the adultery to bring an action and (4) where the cheating party is entitled to a divorce as a result of your adultery. In other words, you cheated on your spouse and had they filed for divorce upon discovery they would have been entitled to divorce on the grounds of adultery, then neither of you might be entitled to a divorce based on adultery.

Finally, adultery, generally, has no bearing in equitable distribution of the marriage. It is also not a factor in the determination of maintenance. Thus, I end where I began, there really isn’t an advantage in filing for divorce based on the grounds of adultery. You derive no strategic advantage in your case plus, proving adultery may be more difficult than you may have originally thought.

LEARNING POINT: If you insist on filing for divorce based on adultery, be sure you have the proper evidence lined up. Consult us immediately to begin preparing your case. Keep in mind, even if we are able to prove the adultery, it will have little to no bearing on equitable distribution and/or a maintenance award.

How Does Divorce Affect A Business Partnership?

During your marriage, your spouse opened up a professional practice and over the years it has grown. You are now getting divorced and your question is, are you entitled to any part of this business? In New York, it is clear that professional practices (law firm, medical, dental etc.) established during the marriage and prior to the commencement of a matrimonial action or execution of a separation agreement is marital property and subject to equitable distribution. Additionally, even if the practice in question was established before the marriage, the appreciation of value of the practice, where there have been contributions by the non-professional spouse, is marital property subject to equitable distribution. What will not happen, however, is that you are awarded interest in the practice. For example, if your spouse built a law practice and you are not an attorney, the Court will not say that you are now a partner of the practice. What the Court will do is to value the practice and award an offsetting interest in the other property to the non-professional spouse or, if those funds insufficient, order a distributive award to the non-professional spouse.

How will the Court value the practice? The court will analyze the value of the tangible physical assets. In addition, it will look to the good will of the practice including earnings and liabilities. The Court will use the following factors: 1.) the nature and history of the business; 2.) its particular economic outlook and that of its industry generally; 3.) the book value of the stock and the financial condition of the business; 4.) the company’s earning capacity; 5.) its dividend paying capacity; 6.) its goodwill and other intangible assets; 7.) other sales of the corporation’s stock; and 8.) the market price of stock of comparable corporations.

There are many methods of valuing good will and a particular practice. The most common is the capitalization of earnings approach, which is a weighted average of annual earnings received by the professional spouse in excess of reasonable compensation, reduced by the value of the return on tangible assets, and applied to a capitalization rate. The Court will be mindful of abnormally high and low years of earnings. The valuation will also take into account marketability, or lack thereof, of the professional business in question.

LEARNING POINT: There are many methods of valuating a practice which you and your spouse have built while you married. The practice will be part of the equitable distribution of the marital estate. It is important to start the valuation process as soon as possible, so hire an attorney to protect your interests as soon as possible.

My Spouse Wiped Out The Account, What Will Happen To My Money?

joint bank account divorce spouseI recently had a client come into my office wanting to get a divorce. Here was my client’s concern. The spouse in question, who apparently knew that a divorce was imminent, wiped out their joint marital account to the tune of $500,000.00. After this discovery coupled with the fact that my client was not informed where the money went, I was asked what will happen?!

Clearly this is a significant issue with respect to equitable distribution. On its face it is hard for a court to equitably distribute an asset that no longer exists when the action is filed. Automatic orders are meaningless as the money is already gone. Rest assured, the Court cannot and will not simply ignore this missing money. The issue for the Court to decide is whether there was any fraudulent intent on behalf of the spouse that took the money. Normally, the Court will not put itself in the position of second guessing every spending decision of the spouse accused of wiping out an account. There are a multitude of reasons a spouse may have when it comes to spending money from a joint account. Granted, in our example, a spouse will be hard pressed to explain how spending $500,000.00 happens in the routine course of daily bills. Where a spouse cannot provide an adequate explanation for what happened to the marital funds which disappeared on the eve of filing a divorce action, the Court will bestow an award based on the missing asset. Or in other words, my client needs not worry. The Court will equitable distribute the $500,000.00. This may come as credit to other assets, or an outright money award.

Rarely are cases so cut and dry. Here is a more typical example. Wife is a partner in a law firm. On the eve of filing the divorce she is fired from the firm. Husband now seeks to have her partnership evaluated as part of the equitable distribution award. The Court will need to look into the facts and circumstances of the wife’s termination at the firm. If the husband cannot show that the cfamily onduct, the firing, was aimed at depriving him of what would normally be distributed in the due course of the divorce action, the practice will not be valued and distributed.

LEARING POINT: If you realize a divorce is imminent, dissipation of marital assets will not be in your best interest. If your spouse does squander assets you will need to show that it was in an effort to cheat you out of what you’re entitled. Hire an attorney and let them advise you as to how best navigate these issues.

divorce joint bank account money