Archive for the ‘pre-nuptial agreement’ Category

Transmutation of Separate Property into Marital Property

Sunday, March 23rd, 2014

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. Most of the time transmutation occurs when the parties commingle separate property with marital property or place what otherwise be separate property into both parties’ names.  This was demonstrated in Fehring v. Fehring, 58 A.D.3d 1061 (3rd Dept. 2009), where the money received on account of personal injuries by the husband, would be initially classified as his separate property. However, the husband 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 and 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.

Another example of how separate property may become a marital asset was addressed in a recent decision from the Appellate Division, Fourth Department. In Foti v. Foti, 2014 N.Y. Slip Op 00835 (4th Dept. 2014), defendant received several pieces of real property as gift from her father. Subsequently, tax losses associated with those properties were taken on the parties’ joint income tax returns. The court held that there was a question of fact whether defendant commingled her interests in the entities with marital property and whether a joint federal tax return in which defendant reported her interest in the entities as tax losses, precluded her from taking “a position contrary to a position taken in an income tax return”.

Unfortunately, the Foti decision does not give us enough facts to find out exactly what the tax returns stated. Nonetheless, this shows that even a seemingly innocuous act of filing a tax return may change the status of the property. In my view, decisions like this one, could have been prevented if the parties had signed either a prenuptial or a postnuptial agreement. 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.

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.

Pendente Lite Motions And Available Relief

Sunday, July 5th, 2009

A divorce case could easily last for a year or, occasionally, much longer. Therefore, it is common for the parties to seek various forms of relief from the court while the action is pending.  This type of relief is commonly referred to as pendente lite and is usually obtained by making a motion, brought by an order to show cause.  Such motion is usually supported by affidavits, exhibits, and statements of net worth. A pendente lite motion may seek such things as temporary custody of children, temporary schedule of visitation with the minor children, temporary child support, temporary maintenance, exclusive possession of the marital residence, temporary order of protection, interim award of attorneys fees, interim award of expert fees, and an order restraining marital assets.  Since pendente lite motions are made on expedited basis, not all facts may be known at the time the motion is brought.  Once the relief sought in the pendente lite is granted, the court’s decision is unlikely to be reversed on appeal since numerous cases have held that the proper remedy for objections to a pendente lite order is a plenary trial.  As the court stated in Penavic v. Penavic, 60 A.D.3d 1026 (2nd Dept. 2009), “[t]he best remedy for any perceived inequities in the pendente lite award is a speedy trial, at which the disputed issues concerning the parties’ financial capacity and circumstances can be fully explored.” After the final decision is made, the trial court has the power to adjust the pendente lite relief.

The most significant form of pendente lite relief in many cases is temporary maintenance.  As the court stated in Mueller v. Mueller, 61 A.D.3d 652 (2nd Dept. 2009), “pendente lite awards should be an accommodation between the reasonable needs of the moving spouse and the financial ability of the other spouse . . . with due regard for the  preservation standard of living”. It is the burden of the party seeking pendente lite relief to demonstrate the need for the award sought. The standard of living previously enjoyed by the parties is a relevant consideration in assessing the reasonable needs of a temporary maintenance applicant.

One critical issue that can be addressed by a pendente lite motion is preservation of marital assets. Pursuant to Domestic Relations Law § 234, a court has broad discretion in matrimonial actions to issue injunctive relief in the interest of justice to preserve marital assets pending equitable distribution. Place v. Seamon, 59 A.D.3d 913 (3rd Dept. 2009). Such request for restraints on property transfers can be granted upon the movant demonstrating that the spouse to be enjoined “is attempting or threatening to dispose of marital assets so as to adversely affect the movant’s ultimate rights in equitable distribution”.

Pendente lite financial relief is usually retroactive to the date of filing of the motion.

For many, getting exclusive occupancy of the marital residence during the pendency of a divorce action can be as important as the ultimate divorce itself. Yet the emotional need to be free of the company of one’s spouse is never enough. The courts do not lightly infringe upon the right of a spouse to remain in his or her home even where, for example, that spouse continues an adulterous relationship, or the marital residence was owned by the other spouse prior to the marriage.

Where both parties remain in the home when the application for temporary exclusive occupancy is brought before the court, the party seeking occupancy must show that the other party is a threat to the safety of person(s) or property. The party seeking such relief must present detailed allegations supported by third party affidavits, police reports and/or hospital records may be needed to convince the court that the application is not an effort to force the other party out of the house. Even then, if the other party contradicts the allegations of the application with his or her own sworn affidavit, the court may order that a hearing be held to resolve the conflicting versions of the facts. Occasionally, the evidence of the threat to safety is sufficiently persuasive that a court will dispense with the requirement of a hearing, and grant an order of exclusive occupancy based only upon a review of the papers submitted. As I have written before, such relief can also be obtained from the Family Court on expedited basis and, occasionally, on ex parte basis,  if the safety of a party is at issue.

A pendente lite motion which requests either child support, maintenance or attorneys fees, must include a statement of net worth as an exhibit, even if the statement of net worth has been filed separately.

One form of relief that is typically not available as a part of a pendente lite application, is the order directing the sale of the marital residence. Such relief can only be obtained after trial.

If a party decides to violate the pendente lite order, the proper application is contempt. Shammah v. Shammah, 22 Misc.3d 822 (Sup. Ct. Nassau Co. 2008).

Usually, a pendente lite motion sets up the parties’ positions with respect to critical issues in their divorce case.  If a lawyer is successful in obtaining the relief sought, his/her client’s position going forward will better and the client’s negotiating posture may improve significantly.  Most  divorce attorneys recognize this and are careful in making pendente lite motions.

Temporary Maintenance and Prenuptial Agreements

Thursday, August 28th, 2008

While a pre-nuptial agreement might restrict or waive a spouse’s right to maintenance and equitable distribution, it may not bar temporary relief, including temporary maintenance, interim counsel fees, and a temporary injunction against the disposing of marital property. Solomon v. Solomon, 224 A.D.2d 331 (1st Dept. 1996). In cases where the parties’ pre-nuptial agreement specifically provides that no maintenance will be awarded pendent lite, however, courts have held that no temporary maintenance should be awarded. See, e.g., Arzin v. Covello, 175 Misc.2d 453 (Sup. Ct., New York County 1998).

In Forsberg v. Forsberg, 219 A.D.2d 615 (2d Dept. 1995), the Second Department upheld the validity of the parties’ pre-nuptial agreement. Nevertheless, the appellate court found that Supreme Court did not improvidently exercise its discretion in awarding the wife $200.00 per week in temporary maintenance. The Second Department noted that, “Generally, the remedy for any seeming inequity in the award of temporary maintenance is a speedy trial at which the rights of the parties may be fully determined.” Id. at 617.

Thus, any pre-nuptial agreements must be carefully drafted to specifically prohibit any claims for temporary maintenance.