Archive for the ‘drafting’ Category

Validity of Prenuptial Agreements in New York

Sunday, March 24th, 2013

I have previously written about prenuptial agreements and issues associated with them. Generally, in New York, a prenuptial agreement may be overturned only if the party challenging the agreement sustains the burden of proof, demonstrating that the agreement was the product of fraud, duress, or it was improperly executed.

In order to prove coercion or duress, a party must establish that he or she was somehow pressured into signing the agreement.  The threat that there will be no marriage unless the agreement is signed is not duress according to numerous court decisions.  If both of the parties were independently represented by counsel, and the agreement was the product of arm’s length negotiations, it may be nearly impossible to prove that the prenuptial agreement was procured by duress.

However, a recent appellate decision, Cioffi-Petrakis v. Petrakis, 2013 N.Y. Slip. Op. 01057 (2nd Dept. 2013), broke with the long-established line of cases and upheld a Long Island judge’s decision to void an prenuptial agreement that the wife of a millionaire says she was forced into signing by false promises made by her husband-to-be, 4 days before the wedding. The wife claimed that she believed her husband to be when he told her orally that his lawyers had made him get a prenuptial agreement signed to protect his business and promised to destroy the document once they had children and put her name on the deed to the house. She also claimed that her future husband gave her an ultimatum four days before the wedding for which her father had already paid $40,000, telling her to sign the document or it wouldn’t occur.

While the appellate decision is extremely brief, the trial decision is fairly detailed and provided the facts stated above. The key factor according to the trial judge was what he called a fraudulently induced contract and detrimental reliance on the part of the wife. Fraudulent inducement was the oral promise made by the husband to be and, according to the trial court, the bride relied upon that promise. However, most agreements in New York provide that the parties are only relying on the written representations contained in the agreement, and they are not relying on promises or representations not contained in the prenuptial agreement.

This decision is unprecedented. It is likely to create a great deal of litigation in cases where a party feels that his or her prenuptial agreement is unconscionable. I also suspect that it may get appealed to the Court of Appeals.

 

Prenuptial Agreements and Waiver of Retirement Rights

Sunday, May 16th, 2010

One issue that consistently comes up dealing with prenuptial agreements is whether or not rights to future retirement benefits can be waived prior to the marriage despite the fact that any such future rights will not come into existence until after the marriage.  Prior case law wasn’t particularly clear in dealing with this issue since by necessity any such prenuptial agreement implicated Employee Retirement Income Security Act (“ERISA”).  The prior case law held that under ERISA, only a spouse can waive spousal rights to employee plan benefits, that a fiancee is not a spouse, and that such rights, therefore, cannot be effectively waived in a prenuptial agreement.

In Strong v. Dubin, 2010 N.Y. Slip. Op. 04121 (1st Dept. 2010), the Appellate Division, First Department, overturned the prior case law, including its own decisions, and held that a waiver of retirement rights included in a prenuptial agreement is valid and does not violate ERISA.

The court’s reasoning in reaching this conclusion was as follows. Initially, the parties’ prenuptial agreement, read as a whole and giving effect to all provisions, expressed an intent to opt out of the statutory scheme governing equitable distribution, which encompassed plaintiff’s retirement funds.  The prenuptial agreement provided that “[t]he parties desire, in advance of their marriage, to settle their financial, property, and all other rights, privileges, obligations and matters with respect to each other arising out of the marital relationship and otherwise, as more particularly hereinafter provided”.  Article I of the prenuptial agreement provided: ”it is the intention [of the parties] . . . that the property owned by each of them shall remain completely and wholly vested in each such person in whose ownership it presently exists.”

Article I of the Agreement expressly referenced Domestic Relations Law § 236(B)(3), which provides that a prenuptial agreement may include, among other things a “provision for the ownership, division or distribution of separate and marital property,” and reflects an intent to opt out of equitable distribution “with respect to the division of all marital and separate property either now in existence or which is hereafter acquired” (emphasis added), which encompasses the retirement funds at issue.   According to the Appellate Division, if this clause is disregarded, that would render the reference to property that is “hereafter acquired” meaningless, leaving that provision without force or effect.  According to the prenuptial agreement, the only assets specifically designated to be “marital property” are the prospective joint banking, savings or investment accounts or assets purchased from the proceeds of those joint accounts set forth in Article I, paragraph 5. The retirement assets in question were not held in joint names or funded with money from an account in the joint names of the parties and are not marital property within the meaning of the agreement.  The agreement also included a waiver which provided that

Except as otherwise expressly provided herein, each party hereby releases . . . the other, of and from all causes of action, claims, rights, or demands, whatsoever, in law or in equity (including, but not limited to claims for equitable distribution, distributive award or claims against the separate property of the other spouse) which either of the parties hereto ever had, or now has, against the other, except (a) nothing herein contained shall be deemed to prevent either party from enforcing the terms of this Agreement or from asserting such claims as are reserved by this Agreement to each party against the estate of the other; provided, however, that the claims so asserted arise out of a breach of this Agreement; and (b) nothing herein contained shall impair or waive or release any and all cause [sic] of action for divorce, annulment or separation, or any defenses which either may have to any divorce, annulment or separation action which may hereafter be brought by the other.

According to the Appellate Division, the contention that this waiver clause encompasses only property which either of the parties held at the time the prenuptial agreement was executed, to the exclusion of after acquired property, was unsupportable.  While the waiver clause stated that it is a release of all causes of action, claims, rights or demands whatsoever in law and in equity “which either of the parties hereto ever had, or now has against the other.” However, the illustrative claims listed include, but are not “limited to claims for equitable distribution, distributive award or claims against the separate property of the other spouse.” At the time the prenuptial agreement was signed, neither party had any of these delineated claims, all of which would accrue in the future, once the parties were married. Similarly the exceptions for breach of the antenuptial agreement and divorce demonstrate that the waiver clause was intended to apply to future causes of actions that would accrue after the marriage. In light of this language, to limit the claims to property that either party had at the time of the marriage would render the waiver clause meaningless in that property owned by either party at the time the prenuptial agreement was entered into would already be separate property as to which there is no right to equitable distribution or a distributive award.

The court further stated that for purposes of equitable distribution, a waiver of any interest in a pension as marital property by an otherwise valid prenuptial agreement is not prohibited by ERISA.  In New York, vested or matured rights in a pension plan are considered marital property subject to distribution in a divorce action to the extent that the benefits result from employment by the participant after the marriage and before the commencement of the divorce action.  There is nothing in the matrimonial law of New York prohibiting a spouse from waiving his or her interest in such marital property by agreement made before or during the marriage in accordance with Domestic Relations Law § 236(B)(3).

This is an important decision since it resolved some to the uncertainty associated with waivers of future retirement rights included in prenuptial agreements.  In the future, divorce lawyers can be more comfortable in including such waivers for their clients.  In appropriate situations, value of such waiver can amount to a substantial amount of money and may become subject of litigation in divorce.

Determining Validity of Separation Agreements

Saturday, January 23rd, 2010

I have previously written about separation agreements and their validity, here, here and here.  Periodically, I see separation agreements that are extremely one-sided or I am asked to draft a separation agreement that is very one-sided.  In those situations a divorce lawyer is usually asked if the agreement can be set aside.  My usual response is that the court’s determination whether to set aside the agreement depends on a variety of factors.

The legal standard for setting aside separation agreements states that a separation agreement in a divorce proceeding may be vacated if it is manifestly unfair to one party because of the other’s overreaching or where its terms are unconscionable, or there exists fraud, collusion, mistake, or accident.  Separation agreements may be set aside as unconscionable if their terms evidence a bargain so inequitable that no reasonable and competent person would have consented to it.  Moreover, evidence that one attorney ostensibly represented both parties to a settlement agreement raises an inference of overreaching on the part of the party who is the prime beneficiary of the assistance of the attorney. Such an inference is, rebuttable, if it appears that the separation agreement is fair and equitable or that both parties freely agreed to it with a thorough understanding of its terms.

In a recent case of Pippis v. Pippis, 2010 N.Y. Slip. Op. 00492 (2nd Dept. 2010), the Appellate Division, Second Department vacated the separation agreement holding that plaintiff was guilty of overreaching with respect to the parties’ separation agreement.  The court found that the defendant was not represented by counsel at any point during the relevant time period.  According to the plaintiff, his attorney drafted the stipulation of settlement, and only one attorney was present at the signing.  Under these circumstances, and where the terms of the stipulation “evidence a bargain so inequitable” in favor of the plaintiff “that no reasonable and competent person” would have consented to the defendant’s end of the bargain, an inference of overreaching on the part of the husband was raised.  Since the plaintiff failed to rebut the inference, the Appellate Division held that the trial court properly determined that the stipulation was the product of his overreaching, and granted the defendant’s motion to set it aside.  The Appellate Division also held that the trial court properly rejected the plaintiff’s ratification argument, since the defendant “received virtually no benefits from the agreement and thus cannot be said to have ratified it”.

While occasionally I am asked to prepare a separation agreement in a situation where the opposing party is unrepresented, I advise my client that it is in his/her best interests that the other party is represented and that the agreement is not entirely one-sided.  As a divorce lawyer, I have to advise my client that any agreement that is extremely one-sided may be vacated by the court in any pending or subsequent divorce action.  If the agreement is reviewed by counsel and conveys some benefits to the other party, the likelihood of it being overturned by the court is greatly diminished.

Vacating Settlement Agreements on Grounds of Mutual Mistake

Sunday, December 27th, 2009

In is not unusual for a party to attempt to vacate a settlement agreement.  In order to do so, a party must meet a significant burden of proof that the agreement came as a result of a material, mutual mistake, fraud, or other relevant facts.  A interesting illustration of the above principles came in a recent decision, Simkin v. Blank, Sup. Co. New York County (December 22, 2009).

In 2006, Mr. Simkin, a partner at Paul, Weiss, Rifkind, Wharton & Garrison and his wife negotiated a settlement agreement in their divorce action.  One of the marital assets was an account the parties opened during their marriage with Bernard L. Madoff Investment Securities LLC which was worth $5.4 million.  As part of a 2006 equitable distribution agreement, Mr. Simkin  paid Ms. Blank $2.7 million, which represented what he thought was his ex-wife’s fair share of their Madoff investments.

After Mr. Madoff’s arrest, Mr. Simkin attempted to reform the agreement, claiming it was based on a “material, mutual mistake” and resulted in a “windfall” for Ms. Blank. He argued that the agreement did not accomplish the parties’ goal of ensuring that each would keep approximately half of the marital assets.  Ms. Blank responded that as long as Mr. Simkin could have redeemed the account for the value that the parties agreed to on the cut-off date, he received what he bargained for. Noting that Mr. Simkin had liquidated part of his investment to fund his ex-wife’s equitable entitlement, the court pointed out that in 2006 and “the several years after that plaintiff maintained this investment,” the account “could have been redeemed for cash, presumably significantly in excess of its 2004 value.”  While Mr. Simkin claimed the Madoff account held no assets, he did not allege it had no value, the judge wrote.  “An investor’s ability to redeem an account for value, was the assumption on which the parties relied in dividing their property and in doing so they made no mistake,” the court found.

Justice Evans agreed with Ms. Blank holding that while Mr. Simkin’s decision to retain the Madoff account may have been “improvident,” that did not give the court an equitable basis to set the agreement aside. In dismissing Mr. Simkin’s complaint, Justice Evans wrote, “There is no evidence that defendant was unjustly enriched. In 2006, at the time of their agreement, each of the parties received the benefit of his and her bargain.”

The lesson of the above case is that clients and their divorce attorneys should be careful in fashioning settlement agreements.  Even when significant mistakes are made at the time the agreements are entered into, it is very difficult to set them aside, even in such extreme circumstances as described above.

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.

Transmutation and Converting Separate Property to Marital Property

Monday, March 16th, 2009

One of the basic theories in equitable distribution and divorce litigation is that of transmutation. Transmutation theory holds that by their actions, the parties are able to modify the status of the property they own from separate property to marital property. In a recent decision, Fehring v. Fehring, 58 A.D.3d 1061 (3rd Dept. 2009), the Appellate Division, Third Department, has provided a perfect illustration of how transmutation may occur.

Parties were married in 1990. In August of 2005, the husband received $50,000 insurance payment. The money was related to his personal injuries and, therefore, would be initially classified as his separate property. Plaintiff deposited check in brokerage account held and used jointly by the parties. In January 2006, husband used $50,000 from account to purchase real property. The court held that transferring separate property assets into a joint account raises rebutable presumption that funds are marital property subject to equitable distribution. Rosenkranse v. Rosenkranse, 290 A.D.2d 685, 686 (3rd Dept. 2002). Presumption may be rebutted by evidence that such deposits were made as matter of convenience with no intention of creating beneficial interest. See, Chamberlain v. Chamberlain, 24 AD3d 589, 593 (2nd Dept. 2005). In Fehring, account was used by both parties for items such as credit card bills. The Appellate Division held that the husband failed to rebut presumption of marital property given commingling of funds. It held that the lower court providently exercised discretion in distributing equally the value of interest in real property purchased with funds held in joint account.

If you are contemplating divorce, be careful to avoid taking any action that converts your separate property to marital property. Once transmutation takes place, it is highly unlikely that you would be able to change the property’s status back to separate property, even with a lawyer’s assistance.

Basics of Bankruptcy Discharge and Domestic Support Obligations

Wednesday, March 4th, 2009

On occasion, a divorce may result in one or both of the parties filing for bankruptcy, often without an adequate understanding of the limited relief available in the bankruptcy court. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) directly addressed issues related to the dischargeability of marital debt and support obligations, as well as to the effect of the automatic stay on collection and enforcement proceedings out of divorce and family law litigation.

Under bankruptcy law, a “domestic support obligation” is any debt incurred before or after a bankruptcy filing that is owed to or recoverable by a spouse, former spouse, child or governmental unit; in the nature of alimony, maintenance or support; and established pursuant to the terms of a divorce decree, separation agreement, property settlement agreement, court order or administrative determination.

In Chapter 7 bankruptcy, essentially all marital and domestic relations obligations are not dischargeable, regardless of whether they are support in nature, property divisions or “hold harmless” agreements, provided they were incurred by the debtor in the course of a matrimonial proceeding or a divorce action which resulted in a separation agreement, divorce decree, court order or administrative determination.

A debtor’s obligation to pay marital debts directly to a third party ( ie., pay the mortgage on former marital residence) and to hold the former spouse harmless on said debts is also deemed to be non-dischargeable if the obligation has the effect of providing support to the former spouse. A debtor’s duty to pay the following expenses are usually deemed to be in the nature of support and not dischargeable: educational expenses of a minor child; medical insurance coverage for a minor child; and life insurance, with the minor children as beneficiaries.

Attorney’s fees owed by debtor to his own lawyer are clearly dischargeable in bankruptcy, but as a general rule, attorney’s fees owed by debtor to a former spouse’s attorney are not dischargeable, if the underlying legal proceeding resulted in the entry of an order or judgment directing payment of maintenance or spousal support to the former spouse.

The division of a debtor’s pension benefits during the divorce action is usually accomplished by entering a Qualified Domestic Relations Order (“QDRO”). Since division of a pension is considered to be a transfer by debtor of a present interest in his pension, and as such, it is not a debt that can be discharged in bankruptcy.

In Chapter 13 bankruptcy, past due domestic support obligations owed by a debtor are not dischargeable, unless they are paid in full over the life of the Chapter 13 plan. However, if a debt created by a separation agreement or judgment of divorce is not in the nature of support, it sometimes can be discharged in Chapter 13 without being paid in full.

For a Chapter 13 Plan to be confirmed by the Bankruptcy Court, it must: pay in full to the former spouse all domestic support obligations owed by debtor at the time of the bankruptcy filing, and the debtor must be current on all domestic support obligations incurred after the bankruptcy filing.

A Chapter 13 Plan, even if confirmed by the bankruptcy court, is subject to dismissal if the debtor fails to pay any post-petition or post-confirmation domestic support obligations, and a Chapter 13 discharge will not be entered by the bankruptcy court unless and until a debtor certifies that all domestic support obligations have been paid and that the debtor is current on such obligations.

The automatic stay created by a bankruptcy filing bars the commencement or continuation of most legal proceedings, but it has no effect on a proceeding to establish paternity; to establish or modify a child support order, determine child custody or visitation issues, or dissolve a marriage, except to the extent that such proceeding may seek to determine a division of marital property in which the bankruptcy estate also has an interest. In those situations, the divorce can be granted without first obtaining relief from the automatic stay, but the marital property cannot be divided without obtaining such relief.

The automatic stay also does not prevent the post-petition collection of domestic support obligations such as alimony or child support from any property belonging to the debtor, providing that the bankruptcy estate does not also have an interest in the same property; from automatic wage deduction orders created by a statute or judicial or administrative order; from the interception of debtor’s federal or state income tax refunds, or
from the withholding, suspension or restriction of a debtor’s driver’s license or professional or occupational license. Therefore, Bankruptcy Court does not offer much protection for someone seeking to avoid the domestic support obligations.

The above rules will apply to the proceedings in New York State courts. In Ross v. Sperow, 57 A.D.3d 1255 (3rd Dept. 2008), the Appellate Division had to address a situation where one of the parties was seeking to enforce a counsel fee award after the other party filed for bankruptcy. In Ross, multiple violation petitions had been filed by the parties over the course of several years. In August 2006, Family Court upheld mother’s motion for counsel fees and directed father to pay $5,000 of the mother’s counsel fees. Father filed for a Chapter 7 bankruptcy thereafter, and listed the award of counsel fees as an unsecured debt. Father’s bankruptcy was discharged in January 2007. Mother brought a violation petition which alleged that father failed to pay the counsel fees. Father moved to dismiss petition on ground that he discharged counsel fee award in bankruptcy. The Appellate Division stated that state and federal courts have concurrent jurisdiction over issue of dischargabilityof a particular debt and held that domestic support obligations in the nature of support are exempt from discharge in bankruptcy. While father contended that counsel fees incurred were for custody and visitation proceeding, the record reveals that mother’s initial petition commencing the proceeding raised issues of financial need and hardship. According to the Appellate Division, term “in the nature of support” is broadly interpreted in the context of discharge of debt obligations in bankruptcy and held that the award of counsel fees was in part in the nature of support, and as such, exempt from discharge in bankruptcy.

Paying for College – A Requirement Under the Child Support Standards Act?

Monday, February 16th, 2009

Prior to the enactment of the Child Support Standards Act, contained in Family Court Act §413 and Domestic Relations Law §240, the courts had held that the provision of a college education to one’s minor children was not a necessary expense for which a parent could be obligated in the absence of a voluntary agreement or special circumstances. Haessly v. Haessly, 203 A.D.2d 700 (3d Dept. 1994). However, recent case law recognized that special circumstances, which involve the educational background of the parents, the child’s academic ability, and the parents’ financial ability to provide the necessary funds, continue to be relevant factors in applying the standard set forth by the Legislature in the Child Support Standards Act for determining whether an award for college expenses is appropriate.

It is clear that the Court has the power to order a parent to pay his child’s educational costs even though the parties’ settlement agreement is silent on that issue. Manocchio v. Manocchio, 16 A.D.3d 1126 (4th Dept. 2005); McDonald v. McDonald, 262 A.D.2d 1028 (4th Dept. 1999). As aptly noted in Mrowka v. Mrowka, 260 A.D.2d 613, 613 (2d Dept. 1999), “Although the parties’ stipulation of settlement was silent as to the costs of college, this does not necessarily mean that an agreement was reached pursuant to which college costs would not constitute a component of the parties’ obligation to pay child support.”

According to the Appellate Division, Fourth Department, Fruchter v. Fruchter, 288 A.D.2d 942, 943 (4th Dept. 2001), the Child Support Standards Act authorizes an award of educational expenses where warranted by the best interests of the children and as justice requires, upon a showing of “special circumstances”. Relevant factors include the educational background of the parents, the child’s scholastic ability, and the parents’ ability to provide the necessary funds. Id.

In Manocchio v. Manocchio, 16 A.D.3d 1126 (4th Dept. 2005), the Appellate Division, the Fourth Department, rejected the father’s contention that Family Court improperly denied his objection to an order requiring him to pay half of his daughter’s educational expenses. The Fourth Department held that the support magistrate properly determined that the petitioner-mother was unable to meet the child’s educational needs on the income and support that she was receiving, and that the respondent-father had the ability to pay support. Id.

Therefore, even if the parties have a separation agreement that is silent on the issue of paying for college, they may be directed to pay for their child’s college education by the court.

Non-Marital Property Is Not Subject to Distribution

Monday, February 9th, 2009

I have previously written about relevant classification of property for equitable distribution purposes. Normally, the property is classified as either separate or marital, regardless of how the title is held. However, once in a while I have seen situations where property rights are claimed in a property which is titled in neither the husband’s or wife’s name.

In Mattioli v Mattioli,48 A.D.3d 1143 (4th Dept. 2008) the Appellate Division held that Supreme Court properly refused to treat the former marital residence, which was titled in the names of plaintiff’s parents or in one of their names, as marital property subject to equitable distribution, despite the fact that plaintiff paid her father $42,899 during the marriage as a down payment towards its purchase. The Appellate Division held that the trial court erred, however, in basing its decision solely on the fact that title to the property was held by one or both of plaintiff’s parents, rather than by plaintiff and/or defendant. That fact was not necessarily dispositive because Domestic Relations Law 236(B)(1)(c) defines marital property as “all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held.” Thus, the dispositive issue was whether plaintiff and/or defendant held “any valuable property rights” in the former marital residence, inasmuch as property is “not marital property [where] neither the wife nor the husband [holds] any valuable property rights” in it. While the parties in this case alluded to an agreement between plaintiff, defendant, and plaintiff’s parents for the purchase of the former marital residence, no written agreement for the purchase and sale thereof was presented to the court. In the absence of a written contract, there was no evidence before the court that either plaintiff or defendant held the requisite “valuable property rights” in the former marital residence to render it marital property.

The Appellate Division held that the trial court erred in applying the doctrine of judicial estoppel in precluding defendant from presenting evidence of funds received by plaintiff from the sale of the former marital residence. Defendant attempted to establish that the $8,000 to $9,000 received by plaintiff from the sale of the former marital residence was marital property in the form of appreciation in the value of the property resulting from improvements he made to it during the marriage. The Supreme Court erred in relying on its decision when it applied the doctrine of judicial estoppel to the former marital residence. The record established that during the marriage defendant twice filed for bankruptcy under chapter 7 of the Bankruptcy Code and received discharges, and that he claimed in both bankruptcies that he was single and did not list the former marital residence as an asset in his bankruptcy schedules. The court thus determined that judicial estoppel prevented defendant from claiming any interest in funds received upon the sale of the former marital residence. Because marital property rights are determined upon the granting of a divorce, and defendant was not required to list possible future rights to marital property in the bankruptcy schedules. The Appellate Division modified the judgment by remitting the matter to Supreme Court to reopen the proof at trial to permit defendant to submit evidence that the funds received by plaintiff from the sale of the former marital residence were marital property.

The lesson of Mattioli is a simple one. If you are entering into any kind of agreement that may involve property to which you may have to establish a right to, make sure that the agreement is in writing.

Opt-Out Agreements and the Scope of the Child Support Standards Act

Monday, December 29th, 2008

If parties choose to deviate from the provisions of the Child Support Standards Act with respect to the child support paid, such deviation will be upheld by the court provided the parties complied with such formalities as including calculations of the presumptive child support amount and the reasons for deviating from the CSSA. However, the parties frequently choose not only to deviate from the child support amount calculations, and add-ons such as child care and health care costs, but also to make recalculations of child support an annual or semi-annual event, or to include other items not included within the scope of the CSSA.

In Fasano v. Fasano, 43 A.D.3d 988 (2nd Dept. 2007), the parties included an annual cost-of-living-adjustment (“COLA”), with respect to the child support paid by the non-custodial parent. The Second Department found that the parties to the agreement did not opt out of the CSSA standards with respect to basic child support, but that the COLA provision included in the agreement represented potential future deviations from the CSSA basic child support obligation. The agreement did not state the reasons for including the COLA provisions. The Appellate Division held that the COLA provision represented an opt-out from the CSSA and was directly related to the child support. Since the reasons for including the COLA provision were not included in the agreement, the opt-out was invalid. The court vacated the COLA provision, while the basic child support provision of the agreement was not vacated.

However, not all provisions dealing with financial support of the children are considered to be within the scope of the CSSA. In Cimons v. Cimons, 53 A.D.3d 125 (2nd Dept. 2008), the Second Department held that the obligation to provide for the future college expenses of the children was not part of the parties’ basic child support obligation and therefore was not subject to the CSSA requirement that any deviation from statutorily-mandated child support obligations must be recited and explained in a stipulation of settlement. While the parties’ agreement regarding basic child support violated the CSSA by failing to recite and explain the reasons for the deviation, the provision concerning future college expenses was enforceable. The court held that unlike the basic obligation to provide child support, payment for a child’s college education is not mandatory. Absent a voluntary agreement, a parent might be required to provide support for his or her child’s attendance at college, but the determination of that obligation is dependent upon the exercise of the court’s discretion in accordance with Domestic Relations Law §240(1- b)(c)(7). The court further noted that the determination as to which additional aspects, if any, of the parties’ stipulation must be vacated along with the basic child support provision depends on the circumstances of the particular case and the nature of the obligations addressed in the other provisions of a stipulation. Some provisions may be so directly connected or intertwined with the basic child support obligation that they necessarily must be recalculated along with the basic support obligation. It found that unlike child care expenses and unreimbursed health care expenses, education expenses were not directly connected to the basic child support calculation and did not require the appropriate opt-out language.

The above cases represent the dangers involved any time the parties attempt to either opt-out from the CSSA or attempt to include items outside of the scope of the CSSA in their agreement. Any such agreement must be carefully drafted to make sure that it is not subsequently challenged and invalidated.