Payments on Pre-Marital Debt and Right of Recoupment – Update

I have previously written about the case of Mahoney-Buntzman v. Mahoney, 51 A.D.3d 732 (2nd Dept. 2008), which stood for the proposition that that marital property used to pay one spouse’s obligations incurred either prior to the marriage, or benefitting only one spouse, could be recouped.  In Mahoney-Buntzman, the Appellate Division held that the husband’s maintenance obligation to his first wife and the boat loan constituted debts incurred by him prior to the parties’ marriage and were solely his responsibility. Accordingly, the court granted to the wife a credit for one half of the payments made.

Last week, the Court of Appeals issued its decision in Mahoney-Buntzman v. Mahoney, __ N.Y.2d __, 2009 N.Y. Slip. Op. 03629 (2009), and reversed the Appellate Division holding that that marital property used to pay maintenance and child support to the husband’s wife from a previous marriage should not be recouped to the marital estate.  The opinion used very broad language which is likely to eliminate any kind of recoupment of marital money expended for separate property purposes.  Specifically, the Court of Appeals held that:

[D]uring the life of any marriage, many payments are made, whether of debts old or new, or simply current expenses. If courts were to consider financial activities that occur and end during the course of a marriage, the result would be parties to a marriage seeking review of every debit and credit incurred. As a general rule, where the payments are made before either party is anticipating the end of the marriage, and there is no fraud or concealment, courts should not look back and try to compensate for the fact that the net effect of the payments may, in some cases, have resulted in the reduction of marital assets. Nor should courts attempt to adjust for the fact that payments out of separate property may have benefitted both parties, or even the non-titled spouse exclusively. The parties’ choice of how to spend funds during the course of the marriage should ordinarily be respected. Courts should not second-guess the economic decisions made during the course of a marriage, but rather should equitably distribute the assets and obligations remaining once the relationship is at an end.

Expenditures made during the life of the marriage towards maintenance to a former spouse, as well as payments made pursuant to a child support order, are obligations that do not enure solely to the benefit of one spouse. Payments made to a former spouse and/or children of an earlier marriage, even if made pursuant to court order, are not the type of liabilities entitled to recoupment.

This is not to say that every expenditure of marital funds during the course of the marriage may not be considered in an equitable distribution calculation. Domestic Relations Law § 236(B)(5)(d)(13) expressly and broadly authorizes the trial court to take into account “any other factor which the court shall expressly find to be just and proper” in determining an equitable distribution of marital property. There may be circumstances where equity requires a credit to one spouse for marital property used to pay off the separate debt of one spouse or add to the value of one spouse’s separate property (see e.g. Micha v Micha, 213 AD2d 956, 957-958 [3d Dept 1995]; Carney v Carney, 202 AD2d 907[3d Dept 1994]). Further, to the extent that expenditures are truly excessive, the ability of one party to claim that the other has accomplished a “wasteful dissipation of assets” (DRL 236 [B][5][d][11]) by his or her expenditures provides protection. The payment of maintenance to a former spouse, however, does not fall under either of these categories.

Thus, it is unlikely that any recoupment will be allowed by the courts in the future.  This decision makes it even more important that each marital estate is carefully scrutinized by an experienced divorce lawyer to establish the respective rights and obligations of the parties.

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