Archive for August, 2009

Making Deals in Divorce and Subsequent Change in Circumstances

Sunday, August 23rd, 2009

I am asked occasionally whether a separation agreement, which was perhaps incorporated in the subsequent judgment of divorce, entered into years ago can be vacated because of subsequent changes in the parties’ circumstances.  My usual response is no, since in order to have the agreement vacated, the party must show grounds sufficient to vitiate a contract.  The burden of proof in those situations is very high and may also be subject to time limitations.  Similarly, with respect to modification of a child support obligation included in a stipulation or a separation agreement, the party must show an unreasonable and unanticipated change in circumstances since the time of the stipulation to justify a modification, and that the alleged changes in that party’s financial position was not of his/her own making. A recent decision by a trial court, Debreau v. Debreau, 2009 N.Y. Slip. Op. 51750 (Sup. Ct. Nassau Co.), demonstrated a good illustration of the above principles, holding that if the parties make a deal as a part of their divorce settlement, provided that the settlement was arrived at fairly, the settlement will stand despite the fact that the circumstances have changed.

In Debreau, the wife accepted title to the family home as prepayment for 15 years of child support.  After the house sold for only two-thirds of the value estimated at the time of the divorce, she sued for child support arrears.  The court held that “[t]he law is clear that both [the Domestic Relations Law] and the public policy in favor of finality require the enforcement of property distribution agreements pursuant to their terms, absent fraud, regardless of post-agreement changes in the values of the assets.”  The court stated that “[t]he law views the equitable distribution of marital assets as a snapshot, not a movie… If an agreement distributing marital assets is not subject to vacatur, on the date of its execution, on grounds sufficient to vitiate a contract, it may not be modified or set aside on the ground that future events have rendered the division of assets inequitable.”

When the parties divorced in 2007, they agreed by stipulation to allow the husband’s share of the marital home serve as a prepayment of the child support he would owe for the couple’s four children over the next 15 years. Mr. Deabreu’s child-support obligation was set at $2,972 per month, or a total of about $535,000. The parties agreed that the husband’s share of the $1.85 million Melville house, after paying off its $400,000 mortgage and other expenses, was comparable to that obligation. They therefore stipulated that his obligation would be met by transferring over title. In June 2008, the house sold for only $1.2 million, netting the wife $734,000 rather than the $1.45 million she had anticipated. Ms. Deabreu subsequently filed a motion seeking child support arrears of $484,492, the amount she contends her husband owes to her from 2006 through 2021.

The trial court rejected Ms. Deabreu’s motion, ruling that any shortfall in the sale of the house should be taken from the wife’s share of the marital assets, not from the husband’s prepayment of child support. “While the prepaid child support sum…was specified and fixed pursuant to the parties’ stipulation of settlement, the value of the marital assets distributed to each party was determined only as of the date of the stipulation,” Justice Falanga held. The sum that the wife was to receive for her marital share “was not guaranteed by the husband, but rather, was subject to various factors such as market fluctuations and the manner in which the premises was maintained.” The decision also mentioned that Ms. Deabreu was not without other methods of seeking redress. According to the decision, “[t]he receipt by the wife, upon the sale of the [house], of approximately $650,000.00 less than she expected when entering into a stipulation of settlement…may constitute an unanticipated and unreasonable change in her financial circumstances, and may have left her, as she has alleged in her within application, unable to provide for the financial needs of the parties’ four children, entitling her to seek an upward modification of child support.”

In my opinion, it is not likely that Ms. Debreau would be able to establish an unanticipated and unreasonable change in circumstances in the above situation.  I am also left wondering why the house was not sold earlier.  I also would like to know if Ms. Debreau entered into this stipulation after discussing the risk of decline in real estate values with her divorce lawyer. Personally, I don’t think that I would recommend this type of an arrangement to a client.  The risk of decline in the value of any asset subject to market forces is too great. As a divorce attorney, I would also be concerned about giving advice to the client to retain a fixed asset as a prepayment of future child support or maintenance obligation.

Equitable Distribution, Maintenance and Health Insurance – Upcoming Changes in the Domestic Relations Law

Sunday, August 16th, 2009

I am asked frequently what happens to health insurance as a result of divorce.  My usual response is that once the judgment of divorce is entered, if you were receiving health insurance benefits through your spouse, you will lose your right to receiving this coverage in the future, unless you elect to receive COBRA coverage.

In fact, the disclosure of the above facts has been formalized in Domestic Relations Law §177 which provides that prior to accepting and entering as a judgement any stipulated agreement between the parties in an action for divorce, the judge shall ensure that there is a  provision  in  such agreement  relating to the health care coverage of each individual. Such statement shall either (a) provide for the future coverage of the individual; or (b) state that the individual is aware that he or she will no longer be covered by his or her spouse’s health  insurance plan and that the individual will be responsible for his or her own health insurance coverage. Every agreement accepted by the court  must  contain a specific statement, signed by each party, to ensure that the provisions of this subdivision are adhered to.

At the same time, since in most situations the health insurance is tied to one or both spouses’ employment, the Domestic Relations Law did not provide any formal way to include the loss of health insurance coverage into either maintenance or equitable distribution calculations.  This is about to change.  Effective September 21, 2009, an additional subsection of Domestic Relations Law §236 will be going into effect and will require the trial court to consider the loss of health insurance coverage as a factor in fashioning equitable distribution and maintenance awards.  Specifically, the new statute will provide as follows:

AN ACT to amend the domestic relations law, in relation  to  maintenance

and equitable distribution of marital property

THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-

BLY, DO ENACT AS FOLLOWS:

1    Section 1.  Subparagraphs 5, 6, 7, 8, 9, 10, 11, 12 and  13  of  para-

2  graph  d  of  subdivision  5  of  part  B of section 236 of the domestic

3  relations law, subparagraph 13 as renumbered by chapter 884 of the  laws

4  of 1986, are renumbered subparagraphs 6, 7, 8, 9, 10, 11, 12, 13 and 14,

5  and a new subparagraph 5 is added to read as follows:

6    (5)  THE  LOSS  OF  HEALTH  INSURANCE BENEFITS UPON DISSOLUTION OF THE

7  MARRIAGE;

8    S 2. Subparagraph 10 of paragraph a of subdivision  6  of  part  B  of

9  section  236 of the domestic relations law, as amended by chapter 884 of

10  the laws of 1986, is amended to read as follows:

11    (10) any transfer or encumbrance made in contemplation of a matrimoni-

12  al action without fair consideration; [and]

13    S 3. Subparagraph 11 of paragraph a of subdivision  6  of  part  B  of

14  section  236 of the domestic relations law is renumbered subparagraph 12

15  and a new subparagraph 11 is added to read as follows:

16    (11) THE LOSS OF HEALTH INSURANCE BENEFITS  UPON  DISSOLUTION  OF  THE

17  MARRIAGE; AND

18    S  4.  This  act  shall take effect on the sixtieth day after it shall

19  have become a law and shall apply to any action or proceeding  commenced

20  on or after such effective date.

EXPLANATION–Matter in ITALICS (underscored) is new; matter in brackets

[ ] is old law to be omitted.

The bill memo provided the following justification for the bill:

The Equitable Distribution and Maintenance factors have not been updated much since their introduction close to 30 years ago.  While loss of health insurance was not one of the factors added at the time, in light of the health care crisis and rising costs of access to health insurance, loss of health insurance is a critical factor that should be considered by courts in making determinations relating to equitable  distribution and maintenance. The impact of a divorce can be challenging for families and the added loss of health insurance can be financially devastating. The proposal in this bill, to add loss of health insurance as a factor to be considered for equitable distribution and maintenance determinations, is essential to address the realities of our current times. This legislation is intended to promote the health, safety and financial stability of the parties post divorce.

I believe that the above will be a helpful addition to the Domestic Relations Law since, as a divorce lawyer, I have dealt frequently with situations where the parties who wanted to be divorced could not do so, solely due to the fact that the loss of health insurance coverage would be devastating to one of the parties. In those situations, I have counseled clients to enter into separation agreements and the parties would live pursuant to such agreements without getting divorced for very significant periods of time.  This allowed for retention of employer provided health care coverage.  While I am happy to see the changes to the Domestic Relations Law §236, at the same time, this provision may be a paper tiger primarily due to the cost of obtaining health insurance coverage on the open market.

As a result of the new provisions, divorce attorneys will have to carefully review the issues related to their clients’ health insurance coverage, the availability of replacement coverage and its costs, and the likely impact of those issues on maintenance and equitable distribution.

I should note one more thing related to the issues discussed above.  Effective on October 11, 2009, Domestic Relations Law § 177 has been repealed, and replaced by Domestic Relations Law §255. The new statute, while mostly similar, adds additional procedural requirements that need to be complied with, sometimes as early as the time of service. Domestic Relations Law §255, subdivision 1 provides that prior to signing a judgment of divorce or separation, or a judgment annulling a marriage or declaring the nullity of a void marriage, the court must ensure that both parties have been notified, at such time and by such means as the court determines, that once the judgment is signed, a party thereto may or may not be eligible to be covered under the other party’s health insurance plan, depending on the terms of the plan. In the case of a defaulting defendant, service upon the defendant, simultaneous with the service of the summons, of a notice indicating that once the judgment is signed, a party thereto may or may not be eligible to be covered under the other party’s health insurance plan, depending on the terms of the plan, shall be deemed sufficient notice to a defaulting defendant.

Domestic Relations Law §255, subdivision 2 provides that if the parties have entered into a stipulation of settlement or agreement, on or after its effective date, resolving all of the issues between the parties, the stipulation of settlement or agreement must contain a provision relating to the health care coverage of each party. The provision must either: (a) provide for the future coverage of each party, or (b) state that each party is aware that he or she will no longer be covered by the other party’s health insurance plan and that each party shall be responsible for his or her own health insurance coverage, and may be entitled to purchase health insurance on his or her own through a COBRA option, if available. The requirements subdivision 2 may not be waived by either party or counsel. In the event that it is not complied with, the court must require compliance and may grant a thirty day continuance to afford the parties an opportunity to procure their own health insurance coverage.

Divorce and Dissolution of Out-Of-State Civil Unions

Sunday, August 2nd, 2009

I have previously written about New York’s recognition of foreign marriages, including same-sex marriages and divorce. While same-sex marriage and divorce are becoming more common, some states have incorporated civil unions into their statutes as an alternative to same-sex marriage.  One of New York’s neighbors, Vermont, has permitted such civil unions for some time.  Until recently, it was unclear what position New York courts would take if the parties who entered into a civil union sought divorce, or dissolution of that union in New York.

In B.S. v. F.B., 2009 N.Y. Slip Op. 29315 (Sup. Ct. Westchester Co. 2009), the court had to decide whether it could grant a divorce to a couple who entered into a civil union in Vermont.

In B.S., the parties have resided together for a number of years. In October 2003 the parties entered into a “Civil Union” in the state of Vermont. In 2009, plaintiff by Summons with Notice and Verified Complaint commenced an action in Westchester County Supreme Court seeking dissolution of “the marriage between the parties” on DRL § 170 (1) grounds of cruel and inhuman treatment.

The Vermont statute, effective July 1, 2000, provides that parties to a civil union be entitled to “the benefits and protections” and “be subject to the rights and responsibilities” of “spouses” (Vermont Stat Ann, Title 15, § 1201 [2]). Civil union affords “all the same benefits, protections and responsibilities under law, whether they derive from statute, administrative or court rule, policy, common law or any other source of civil law, as are granted to spouses in a marriage” (Vermont Stat Ann, Title 15 § 1204 [a]). A party to a civil union is included in the definition of the term spouse, family, immediate family, dependent, next of kin and “other terms that denote the spousal relationship, as those terms are used throughout the law.” (Vermont Stat Ann, Title 15, § 1204 [b].) Parties to a civil union are responsible for support “to the same degree and in the same manner as prescribed under the law for married persons” (Vermont Stat Ann, Title 15, § 1204 [c]). Annulment, separation, divorce, child custody and support, property division and maintenance apply to parties to a civil union (Vermont Stat Ann, Title 15, § 1204 [d]).

Defendant argued that New York courts lacked jurisdiction to grant a divorce in a situation where the parties entered into a civil union, as opposed to a marriage. After discussing how neighboring states treated civil unions and whether or not those states were able to grant divorce to the couples who entered into civil unions, the court examined New York’s law dealing with these issues.

The Supreme Court stated that New York has not attempted to create any method by which same sex partners can “legalize” their relationships. In the absence of such a rule, regulation or statute, this Court has no precedent or authority to use as a standard to address plaintiff’s application herein. New York’s judicial position with respect to permitting same sex marriage is currently articulated in Hernandez v. Robles, 7 N.Y.3d 338 (2006). In Hernandez, the New York Court of Appeals declined to extend the right to marry to the same sex couples.

New York courts have recognized same sex unions celebrated in a sister state or foreign country by application of the principal of full faith and credit. By extending full faith and credit to same sex marriages from other jurisdictions, New York has recognized the same sex spouse’s right to health and other insurance benefits; in estate proceedings to qualify as a surviving spouse in the probate of an intestate estate; and in divorce actions. See Martinez v. County of Monroe, 50 A.D.3d 189 (4th Dept. 2008). But the essential predicate for Martinez and subsequent judicial determinations was the existence of a valid marriage.

As a matter of comity, New York courts will generally recognize out -of-state marriages, including common law marriages, unless barred by positive law (statute) or natural law (incest, polygamy), or where the marriage was otherwise offensive to public policy. While falling short of placing a civil union on the same level as a valid marriage, New York has evidenced by executive and local orders a clear commitment to respect, uphold and protect parties to same sex relationships and their families. The Vermont Legislature’s decision to create a civil union was an recognition of the right of same sex couples to have some legal protections and some of the rights and responsibilities of opposite sex married people.

At the same time, civil unions were never treated by New York court as equal to marriage. Therefore, the court felt constrained by judicial precedent and legislative inaction and  held that it could not treat the civil union as a marriage and, therefore, could not grant a divorce. Yet, after finding that it could not grant a divorce under New York law, the court attempted to come up with a road map for the parties and stated that if the plaintiff plead a complaint to dissolve a Vermont civil union, New York Supreme Court would have jurisdiction to hear and decide the case.

While New York Supreme Court has the general jurisdiction to hear and decide all equitable civil actions, it is unclear to me whether it could dissolve a civil union in the absence of some action by New York’s Legislature. For a divorce lawyer, the above represents an excellent example of uncertainty created by the lack of uniformity in the states’ treatment of same-sex relationships. It also brings up a host of interesting legal issues that attorneys must recognize in handling similar situations.