Appreciation of Separate Property and Equitable Distribution

One issue that periodically comes up in my divorce practice here in Rochester has to do with appreciation of separate property during the marriage.  I have previously written about this issue in the past.  A recent case decided by the Appellate Division, Third Department, Albanese v. Albanese, 2010 N.Y. Slip. Op. 00036 (3rd Dept. 2009), has illustrated a related aspect of this issue.  In Albanese, the critical issue before the court was whether or not the wife’s lawyer was able to establish how much the husband’s law practice has appreciated during the marriage.  In this type of situation, the divorce attorney has to be concerned about two different valuations.  The first one is the valuation of the business at the time of the marriage, and the second one is the valuation of the business at the time of commencement of the divorce action.

However, during the trial, the wife’s divorce attorney appears to have not established what the value of the law practice was at the time of the marriage.  The Appellate Division stated,

Here, the only evidence in the record regarding the value of defendant’s law practice related to the purported value at the time the divorce action was commenced. Plaintiff, who was represented by seasoned counsel and retained an experienced expert, presented no proof of a baseline value at the time of the marriage or of an appreciation in the value of the practice during the marriage. While plaintiff’s role as homemaker and mother to the parties’ children established that she was entitled to a share of any appreciation, there was no evidence offered from which appreciation could be found. Under such circumstances, an award for the value of the law practice was inappropriate.  (Citations omitted).

In such situations, the non-titled spouse bears the burden of proof, and any appreciation in value of such separate property may be subject to distribution if there is a nexus between the titled spouse’s efforts and the increase in value and those efforts were aided or facilitated by the nontitled spouse.  However, without the starting point value, the non-titled spouse simply could not prove her case. As a result, the wife has received no portion of the law practice that has likely appreciated since the parties’ marriage in 1987.

The above illustrates that sometimes even the most obvious issues occasionally escape the attention of counsel.  Therefore, the Appellate Division’s reference to the plaintiff’s attorney as “seasoned counsel” and her expert as “experienced expert” indicates its likely surprise that this issue was overlooked during the trial.