Child Support and High Income Non-Custodial Parent

I have previously written about various child support issues, here, here, here and here.  While the number of issues is substantial, one situation that comes up periodically, is the one where the non-residential parent earns a substantial income, placing the combined parental income well in excess of the basis economic support under the Child Support Standards Act.  While the income limit for basic economic support under the CSSA is about to increase substantially, what happens in situations where the nonresidential parent earns several hundred thousands dollars or more per year?

In a recent decision,  Jackson v. Tompkins, 2009 N.Y. Slip. Op. 06550 (2nd Dept. 2009), the Appellate Division, Second Department, held that in high income cases, appropriate determination under F.C.A. §413(1)(f) for an award of child support on parental income in excess of $80,000 should be based upon child’s actual needs and amount required for child to live an appropriate lifestyle, rather than upon wealth. See, Brim v. Combs, 25 A.D.3d 691, 693 (2nd Dept. 2006).  The Appellate Division affirmed the Family Court’s order which directed that the father pay $6,700 in monthly child support.

The above decision is consistent with the prior cases, such as Cassano,  and its progeny.  The Appellate Division cited Brim v. Combs in reaching its holding.  That case makes for an interesting reading since the respondent in Brim v. Combs was Sean “Puffy” Combs.  In Brim, the mother’s net worth statement and her extensive testimony at the hearing established that her expenses related to the child were $19,148.74 per month, exclusive of the child’s educational, health, medical, dental, school transportation, school supplies/books, security, and summer camp expenses, which in any case are paid by the father. The court further noted that this amount was deemed admitted as fact by the father due to his failure to comply with the compulsory financial disclosure requirements of Family Court Act § 424-a. Accordingly, the Appellate Division held that the Family Court erred in awarding $35,000 in monthly child support to the mother. Instead, the mother should have been awarded monthly child support in the sum of $19,148.74 to satisfy the child’s actual needs and to afford him an appropriate lifestyle (see Family Ct Act § 413).

Thus, if you earn a substantial income and you are obligated to pay child support, your family law attorney would do well to know what are the child’s needs and what are the actual expenses  associated with child, and be prepared to challenge any unsubstantiated claims at a hearing.

Enforcement of Child Support Arrears and Chapter 13 Bankruptcy

Support Magistrate determined that respondent willfully failed to pay $7,814.90 in child support arrears, and referred matter to Family Court for confirmation. Respondent’s commencement of Chapter 13 bankruptcy stays all actions and proceedings to collect pre-petition claims against debtor and his property. See, 11 USC § 362[a][1]. Although Family Court is precluded from exercising its enforcement powers pursuant to FCA § 454 to recover arrears while Chapter 13 bankruptcy plan is in effect, Family Court finds that it is not prohibited to confirm finding of willful violation already made by Support Magistrate and hold enforcement in abeyance pending completion of the Chapter 13 bankruptcy plan.
In the Matter of a Support Proceeding Marcia T., Petitioner,
v.
Raymond W., Respondent.
F-01769-08/08A
Family Court, Albany County
Decided on September 1, 2009
CITE TITLE AS: Matter of Marcia T. v Raymond W.
Marcia T., Matter of, v Raymond W., 2009 NY Slip Op 51883(U). Parent and Child-Support-Bankruptcy Proceedings Not Bar to Recovery of Arrears under Prior Determination of Support Magistrate. (Fam Ct, Albany County, Sept. 1, 2009, Maney, J.)
APPEARANCES OF COUNSEL
Bixby, Crable & Stiglmeier, PLLC (Carol Stiglmeier of counsel) for Marcia T.
Jeffrey S. Berkun, Esq. for Raymond W.
OPINION OF THE COURT
Gerard E. Maney, J.
By order dated January 14, 2009, the Support Magistrate determined that respondent Raymond W. willfully failed to obey an order of the Court pursuant to Family Court Act § 156 by failing to pay $7,814.90 in child support arrears. The matter was referred to this Judge for confirmation in accordance with Family Court Act § 439 (a).
Counsel for respondent maintains that because respondent filed for Chapter 13 Bankruptcy relief in November 2008, the confirmation hearing must be stayed. Counsel argues that the bankruptcy code contains an automatic stay provision that provides that the filing of a bankruptcy petition operates as a stay of actions or proceeding to recover a claim against the debtor that arose prior to the commencement of the case. Although certain exceptions to the automatic stay provisions exist, counsel argues that none apply in the instant family court proceeding.
The court agrees with counsel that the commencement of a case under Chapter 13 of the United States Bankruptcy Code stays all actions and proceedings to collect pre-petition claims *2 against the debtor and his property (11 USC §362 [a] [1]) or to obtain possession and control of property of the estate (11 USC §362 [a] [3]). The property of the estate, which is broadly defined, specifically includes “earnings” (11 USC §541 [a] [6]; §1306 [a];). Because payments to creditors must come from the debtor’s post-petition earnings, those earning are property of the Chapter 13 estate (11 USC §1306 [a] [2]). Thus, “[t]he claimant seeking to collect arrearages in support obligations is not free to pursue the Chapter 13 debtor’s post-petition earnings” (Margaret Howard, A Bankruptcy Primer for the Family Lawyer, Family Law Quarterly, Volume 31, Number 3, Fall 1997, at 380).
Although the court finds that it is precluded from exercising its enforcement powers pursuant to Family Court Act §454 to recover arrears while the Chapter 13 bankruptcy plan is in effect, it does not find that it is prohibited by the bankruptcy laws from confirming the finding of a willful violation already made by the Support Magistrate and holding its authority to enforce such finding in abeyance pending completion of the Chapter 13 bankruptcy plan.
It is this court’s understanding that petitioner has filed a claim in the bankruptcy proceeding for the support arrears and that such arrears will be payable under the bankruptcy plan. If the payment of arrears is not satisfied when the Chapter 13 bankruptcy plan is closed, petitioner may move to restore the matter to the family court calendar to have the court exercise its enforcement powers to compel the payment of arrears.
Accordingly, after examination and inquiry into the facts and circumstances of the case and after hearing the proofs and testimony offered in relation thereto and based on evidence that a lawful order of support was in effect and respondent had the ability to pay but willfully failed to do so, it is
ADJUDGED that Raymond W. failed to obey the order of this court for the support of his children , A. W. and S. W., and that such failure was willful;
ORDERED that the determination of the Support Magistrate pursuant to Family Court Act § 156 made herein that Raymond W. willfully failed to obey an order of the court is hereby confirmed; and it is further
ORDERED that if the payment of arrears as set forth in the Support Magistrate’s January 14, 2009 order is not satisfied when respondent’s Chapter 13 bankruptcy plan is closed, petitioner may move to restore the matter to the family court calendar to have the court exercise its enforcement powers pursuant to Family Court Act §454.

I have previously written about several different situations involving interaction between New York’s Family Law and bankruptcy.  The basics of divorce and bankruptcy were addressed in this post,  the issues related to the bankruptcy court’s handling of domestic support obligations were addressed in this post, and the issues related to attorneys fees and bankruptcy were addressed in this post.  Because of the complexity of the issues involved, New York courts continue to decide cases were the family law and bankruptcy law interact.  A recent case of Marcia T. v. Raymond W., 24 Misc.3d 1245(A) (Fam. Ct. Monroe Co. 2009), addressed whether Chapter 13 bankruptcy stay prevented recovery of child support arrears and a finding of willful failure to pay.

Respondent father filed for Chapter 13 Bankruptcy relief in November 2008.  Petitioner mother brought a willful violation petition based upon the father’s failure to pay several thousand dollars in child support arrears.  Support Magistrate determined that respondent willfully failed to pay $7,814.90 in child support arrears, and referred matter to Family Court for confirmation in accordance with Family Court Act § 439(a).  Respondent’s lawyer argued that because of Chapter 13 filing, the confirmation hearing must be stayed since automatic stay prevents recovery of any claims that arose prior to the commencement of the bankruptcy case.

The Family Court held that respondent’s commencement of Chapter 13 bankruptcy and resulting automatic stay stops all actions and proceedings to collect pre-petition claims against debtor and his property.   Because payments to creditors must come from the debtor’s post-petition earnings, those earning are property of the Chapter 13 estate, pursuant to 11 U.S.C. §1306 (a)(2).  Thus, the claimant seeking to collect arrearages in support obligations is not free to pursue the Chapter 13 debtor’s post-petition earnings.  It further held that although Family Court is precluded from exercising its enforcement powers pursuant to FCA §454 to recover arrears while Chapter 13 bankruptcy plan is in effect, Family Court found that it is not prohibited to confirm finding of willful violation already made by Support Magistrate and hold enforcement in abeyance pending completion of the Chapter 13 bankruptcy plan.

The court further noted that petitioner has filed a claim in the bankruptcy proceeding for the support arrears and that such arrears will be payable under the bankruptcy plan. If the payment of arrears is not satisfied when the Chapter 13 bankruptcy plan is closed, petitioner may move to restore the matter to the family court calendar to have the court exercise its enforcement powers to compel the payment of arrears.

The above is an excellent illustration of how a Chapter 13 bankruptcy can be utilized to prevent serious problems that a finding of willful violation may present.  Further, since the typical Chapter 13 plan lasts for 5 years, this allows the party paying child support to extend payment of child support arrears over 5 years.  A family law lawyer needs to be familiar with bankruptcy law issues since it is not uncommon for these areas of law to interplay.

Divorce, Equitable Distribution and Wasteful Dissipation

“Wasteful dissipation”
(i.e., DRL 236 (B)(5)(d)(11), hereinafter referred to as “Factor
11”) is a term of art that has never been defined with any real
precision, however. It can apparently consist of gambling and
poor business judgment, as well as other forms of economic
misconduct. Given the absence of appellate leadership in
establishing a reliable equation to which we practitioners can
refer, what may or may not constitute marital waste remains as
much a mystery as how that waste will ultimately affect equitable
distribution.
Until an ambitious Appellate Court commits itself to developing
a more reliable methodology for sniffing out marital waste, the
lower courts can be assured that the litigious will continue to
make a stink. Conclusion: Attorneys seeking to avoid being a
waste of marital funds themselves tend to mine any negative
impact on the marital estate that can be traced to the dubious
conduct of the other spouse. Hopeful that an adjustment to a
client’s equitable entitlement might be sparked by blaming the
other spouse for a decline in the overall value of the marital
estate, an unpredictable Factor 11 claim all too frequently becomes
an opportunity to leverage an outcome on a whim or whiff.Wife’s Inability to Testify with Specificity as to How She Spent the Proceeds of Loan Suggested She Dissipated Marital Assets in Contemplation of Divorce.
In Abrams v Abrams, — N.Y.S.2d —-, 2008 WL 5376644 (N.Y.A.D. 2 Dept.) the Appellate Division pointed out that “The overriding purpose of a maintenance award is to give the spouse economic independence, and it should be awarded for a duration that would provide the recipient with enough time to become self-supporting”. It held that the trial court properly awarded the former wife maintenance, but it improvidently exercised its discretion in extending the duration of the maintenance award beyond five years, and concluded that an award of $2,500 per month for five years was appropriate. It also found that the former husband correctly contended that he was entitled to a portion of the proceeds of a home equity loan that the wife obtained with respect to certain investment residential property, especially in light of the wife’s inability to testify with specificity as to how she spent the proceeds of that loan. This suggested that the wife dissipated these marital assets in contemplation of divorce. The judgment was modified to award the husband a credit which represented his share of the proceeds of that loan, after accounting for the taxes paid by the wife on both the marital residence and the investment residential property. It noted that a parent has no legal obligation to provide for or contribute to the support of a child over the age of 21 Therefore, the court erred

One issue that tends to come up in divorce case is wasteful dissipation.  While I mentioned it in the past, this post will address it in greater detail.

Wasteful dissipation is one of the statutory factors that must be considered by a trial court upon rendering a determination of the equitable distribution of marital assets as set forth in Domestic Relations Law §236(B)(5)(d):

(1) the income and property of each party at the time of marriage, and at the time of the commencement of the action; (2) the duration of the marriage and the age and health of both parties; (3) the need of a custodial parent to occupy or own the marital residence and to use or own its household effects; (4) the loss of inheritance and pension rights upon dissolution of the marriage as of the date of issolutio;(5) any award of maintenance under subdivision six of this part; (6) any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party; (7) the liquid or non-liquid character of all marital property; (8) the probable future financial circumstances of each party; (9) the impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party; (10) the tax consequences to each party; (11) the wasteful dissipation of assets by either spouse; (12) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration; (13) any other factor which the court shall expressly find to be just and proper.

“Wasteful dissipation” is a term commonly used to describe a spouse’s unnecessary or unjustified use of marital money to justify a disproportionate equitable distribution. What makes wasteful dissipation problematic from a lawyer’s point of view is that its definition is vague and imprecise.  It can consist of gambling and poor business judgment, as well as other forms of financial or economic misconduct.  While the appellate courts have not given a precise definition of what actions by a spouse fall within the scope of wasteful dissipation, the trial courts and divorce attorneys deal with this issue frequently.  This also provides a significant opportunity for prolonging divorce litigation.  At times, a party will look for situations where any negative impact on the marital estate can be traced to the imperfect conduct of the other spouse.  Divorce lawyers may seek to improve their clients’ equitable distribution award may blame the other spouse for a decline in the overall value of the marital estate.

With respect to a business, wasteful dissipation may occur if a party fails to recoup a value from an unsuccessful business or “it necessarily is a wasteful dissipation of assets to fail to recoup the value of a profitable business, such as plaintiff’s masonry business. ” Scala v. Scala, 59 A.D.3d 1042 (4th Dept. 2009).  Failure to take care or repair a marital property also may amount to a wasteful dissipation.

In a recent decision, Abrams v. Abrams, 57 A.D.3d 809 (2nd Dept. 2008), the Appellate Division held that the wife’s inability to testify with specificity as to how she spent the proceeds of loan suggested she dissipated marital assets in contemplation of divorce. The Appellate Division pointed out that “the former husband correctly contended that he was entitled to a portion of the proceeds of a home equity loan that the wife obtained with respect to certain investment residential property, especially in light of the wife’s inability to testify with specificity as to how she spent the proceeds of that loan. This suggested that the wife dissipated these marital assets in contemplation of divorce. The judgment was modified to award the husband a credit which represented his share of the proceeds of that loan, after accounting for the taxes paid by the wife on both the marital residence and the investment residential property.”

A party’s use of marital assets to pay for “basic living expenses” does not constitute wasteful dissipation.  Damas v. Damas, 51 A.D.3d 709 (2nd Dept. 2008).

If a party makes financial decisions and acts in such way that the marital estate is diminished, that party should be ready to provide a legitimate explanation for his or her actions. The client is well advised to make a full disclosure of all such activities to the divorce lawyer and to provide a detailed explanation for the course of action taken.

Division of Pension, Personal Injury Compensation and Separate Property

The court effectively delegates to a pension plan administrator the obligation to apportion a disability pension plan between the separate property component of compensation for injury and the marital property portion related to deferred compensation for past services.
2. The court holds that the economic loss component (compensation for lost wages) of an award from the 9-11 Victim Compensation Fund is separate property just as is the non-economic loss component for pain and suffering.

A recent decision of the Appellate Division, Second Department, Howe v. Howe, 2009 N.Y. Slip Op. 06804 (2nd Dept. 2009), addressed some of the issues dealing with equitable distribution of personal injury compensation.  Mr. Howe was a New York City firefighter who was injured as a result of the events of 9/11 and subsequently retired on a disability pension.  As a result of his injuries, he also received September 11th Victim Compensation Award.

The trial court found the entire pension to be a part of the marital estate and awarded the wife “her Majauskas” share. On appeal, the husband argued that the lack of expert testimony or evidence in the record by which the nondisability portion of the pension can be distinguished from the disability portion is not fatal to his separate property claim, since that distinction can be made by the pension administrator in the same manner as it makes the familiar calculation of the marital pension share under Majauskas.

The manner in which disability pensions are treated for equitable distribution purposes is well established. “[P]ension benefits or vested rights to those benefits, except to the extent that they are earned or acquired before marriage or after [the] commencement of a matrimonial action, constitute marital property”. Dolan v. Dolan, 78 NY2d 463, 466 (1991). However, “[t]o the extent that a disability pension constitutes compensation for personal injuries, that compensation is separate property’ which is not subject to equitable distribution”. Mylett v. Mylett, 163 A.D.2d 463, 464-465  (3rd Dept. 1990). According to the Second Department, the division, into two separate post-marital accounts, of what was the nondisability pension of one spouse during the marriage, is accomplished by the plan administrator, without the intervention of the court, pursuant to a qualified domestic relations order, consistent with Majauskas, which the administrator either prepares or, more frequently, approves. For that order to satisfy the relevant requirement of the Internal Revenue Code, it need only specify “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined” (26 U.S.C. § 414[p][2][B] [emphasis supplied]).

In addition to his disability pension, the plaintiff received an award from the September 11th Victim Compensation Fund as a result of injuries he suffered. The administrator of that fund specifically designated a portion of that award, in the amount of $127,571, as compensation for economic loss. The Supreme Court held that the economic component of the award constitutes “compensation for personal injuries” within the meaning of Domestic Relations Law § 236(B)(1)(d)(2) and, on that basis, treated the award as the separate property of the plaintiff.

According to the Second Department, the phrase “compensation for personal injuries,” however, is not without ambiguity. It can be read equally clearly as encompassing the entire award in a personal injury action or as limiting the marital share of that award to the portion constituting compensation for the actual injuries, i.e., the pain and suffering component. While a definition of the term separate property as “any recovery in a personal injury action” would be clear, that is not the phrase the Legislature used and viewing the phrase “compensation for personal injuries” as including the economic component of a personal injury award and, therefore, the separate property of the injured spouse is, according to the court, was clearly inconsistent with the logic of the Equitable Distribution Law. While the logic of the Equitable Distribution Law thus suggests the conclusion that the economic portion of a personal injury award should be marital property, however, according to the Second Department, the legislative history compels the contrary result.

This particular finding that the compensation for economic loss is separate property of the party is very significant.  It is also likely to create a new set of issues that lawyers in the Fourth, Third, and First Appellate Divisions will have to address since the existing precedent in those departments runs contrary to this decision.  Because of the apparent conflict between the departments, this issue is also likely to be appealed to the Court of Appeals.

Joint Bank Accounts and Creation of Marital Property

One issue that often comes up in divorce cases has to do with transformation of separate property into marital property.  This situation was dealt with by the Appellate Division, Fourth Department, in Bailey v. Bailey, 48 AD3d 1123 (4th Dept. 2008).  In Bailey, the Appellate Division held that although the court properly determined that plaintiff was entitled to retain the amount of $43,000 she had removed from the parties’ joint HSBC checking accounts containing $66,000, the court erred in allocating the entire amount as separate property.  “The creation of a joint account vests in each tenant a present unconditional property interest in an undivided one half of the money deposited, regardless of who puts the funds on deposit.  The creation of a joint account vests in each tenant a present unconditional property interest in an undivided one half of the money deposited, regardless of who puts the funds on deposit” (Parry v. Parry, 93 A.D.2d 989, 990; see Nasca v. Nasca, 302 A.D.2d 906).  Therefore, each party was entitled to a distributive award of $33,000 from that account.

The issue of transmutation, as the process of changing the status of property from separate to marital is commonly referred to, may appear in many cases and under many different circumstances.  It is not uncommon for such separate property as gifts, inheritances, and personal injury award to lose their status as separate property.  Therefore, if a party has even a suspicion that there may be a divorce in foreseeable future, that party would do well to discuss these issues with a divorce lawyer and to keep that property in an account titled solely in that party’s name.  The alternative is if that property is placed in a joint account for reasons other that convenience, as defined by the courts, that party will likely be making a gift of one half of the property if divorce is commenced.  Any such issues should be discussed with an experienced family law lawyer.  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.

Upcoming Changes to New York’s Child Support Statute

New York’s child support statute has been long criticized for its its $80,000.00 cap on the basic economic child support.  The critics have argued that since the statute was enacted approximately 20 years ago, the basic economic child support cap figure was too low.  New York Legislature apparently heard those concerns.  Laws of 2009, Chapter 343  enacted the “child support modernization act” which amended  the provisions of the Child Support Standards Act to raise the cap on combined parental income to $130,000.00, effective January 31, 2010, and to provide for the adjustment of the $130,000.00 cap every two years to reflect changes in the Consumer Price Index.  The child support percentages of payments that non-custodial parents are obligated to make toward child support were not modified by the amendments.  Domestic Relations Law §240 (1-b) (2) and Family Court Act §413 (1) (c) (2) were each amended to provide that the court shall multiply the combined parental income up to the amount set forth in Social Services Law §111-i, (2) (b).  Social Services Law §111-i (2)(b) provides that the combined parental income amount to be reported in the child support standards chart and utilized in calculating orders of child support in accordance with Domestic Relations Law §240 (1-b) (2) and Family Court Act §413 (1) (c) (2) shall be one hundred thirty thousand dollars; and that beginning January 31, 2012 and every two years thereafter, the combined parental income amount shall increase by the product of the average annual percentage changes in the consumer price index for all urban consumers (CPI-U) as published by the United States Department of Labor, Bureau of Labor Statistics, for the two year period rounded to the nearest one thousand dollars.  These amendments take effect on January 31, 2010.

While I view the changes as necessary to keep up with economic changes, once the two year recalculation provision takes effect, it is going to make more difficult for family law lawyers to calculate the appropriate child support figures.

Modification of Visitation Based On the Age of the Child

It is no uncommon to see vistation arrangements involving very young child.  While family lawyers can plan for many different situations, not everything can be planned for or predicted.  What happens to such arrangements when the child gets older?

In a recent case of Sett v. Balcom, 64 A.D.3d 934 (3rd Dept. 2009), the Appellate Division, Third Department, had to address issues related to visitation arrangments put in place when the child was a year old.  Initially, the father was granted two-hour Sunday visitation the mother’s residence, and the mother received sole custody.  The order also permitted unsupervised and additional visitation but only at the mother’s sole discretion.  As the child was now 5 years old, the father brought a modification petition, prompted by the mother’s persistent refusals to permit expanded visitation, and sought joint custody and increased visitation, including overnight visitation.

Following a fact-finding hearing at which both parties testified, Family Court denied the father’s request for joint custody but granted him additional visitation, including overnight visitation.

The Applellate Division held that sound and substantial basis found in record to support Family Court’s decision to modify visitation on ground that petitioner made sufficient showing of change in circumstances warranting modification to promote child’s best interests.  Initial restrictions on father’s visitation stemmed from child’s young age at time and father not having meaningful contact with daughter.  At the time the modification petition was brought, the father was gainfully employed, involved in a stable relationship, lives in home with bedroom for child and enjoys cordial relationship with mother and extended family.  Moreover, when the mother was asked about her objections to increased visitation, the mother’s only stated concern was that the child might be uncomfortable. The mother never voiced any concern about the father’s ability to parent or the child’s safety in his presence. Moreover, again when asked, she raised only two minor concerns about his home, one of which was that it lacked toys. The mother also conceded that the child should have a close relationship with the father and that they played well together during visits.

According to the Appellate Division, nothing in the record—including potential reticence typical of a young child—revealed that expanded visitation would be harmful or detrimental to the child.

Therefore, if you are dealing with a custody and visitation arrangement that entered when the child was young, that arrangement might be ripe for modification. If you believe that a change would be appropriate, discuss your situation with an experienced family law attorney.

Divorce Actions and New Automatic Stay Orders

Since the enactment of Domestic Relations Law §236(B), often referred to as  the “Equitable Distribution Law,” divorce lawyers have had to deal with transfers of, or encumbrances on, marital property which might frustrate the eventual disposition of a divorce case.

Immediately after the enactment of the Equitable Distribution Law, attorneys attempted to prevent transfers and encumbrances of marital property by various means, such as seeking injunctive relief to prevent or undo any transfers, filing notices of pendency with regard to real property which would form part of equitable distribution, and seeking other forms of relief from the courts.  Eventually, the case law made clear that a notice of pendency cannot be filed in a divorce case since an equitable distribution action did not directly affect the title to, or the possession, use or enjoyment, of real property. This left injunctive relief as the only means to restraining transfers during the pendency of an action.  Since the burden of obtaining an injunction was considerable, the moving party had to make a requisite showing that the party to be restrained was threatening to dispose, or was already disposing, of marital assets so as to adversely affect the movant’s ultimate rights to equitable distribution.  Typically, the burden of making the application, and the expenses of doing so, fell on the non-titled spouse.

The different courts in New York State took different approaches to address this issue.  Here in Rochester, the supreme court justices handling matrimonial cases would issue, if requested, standing orders which restrained the parties from substantially altering their financial positions. However, the standing orders would be issued in most cases after a motion was brought or after a preliminary conference was held.

Now, effective Sept. 1, 2009, there is a statute which provides for an automatic stay in all matrimonial actions. The present DRL §236(B)(2) has been redesignated as DRL §236(B)(2)(a) and subparagraph (b) has been added, which reads:

b. With respect to matrimonial actions which commence on or after the effective date of this paragraph, the plaintiff shall cause to be served upon the defendant, simultaneous with the service of the summons, a copy of the automatic orders set forth in this paragraph. The automatic orders shall be binding upon the plaintiff in a matrimonial action immediately upon the filing of the summons, or summons and complaint, and upon the defendant immediately upon the service of the automatic orders with the summons. The automatic orders shall remain in full force and effect during the pendency of the action, unless terminated, modified or amended by further order of the court upon motion of either of the parties or upon written agreement between the parties duly executed and acknowledged. The automatic orders are a follows:

(1) Neither party shall sell, transfer, encumber, conceal, assign, remove or in any way dispose of, without the consent of the other party in writing, or by order of the court, any property (including, but not limited to, real estate, personal property, cash accounts, stocks, mutual funds, bank accounts, cars and boats) individually or jointly held by the parties, except in the usual course of business, for customary and usual household expenses or for reasonable attorney’s fees in connection with this action.

(2) Neither party shall transfer, encumber, assign, remove, withdraw or in any way dispose of any tax deferred funds, stocks or other assets held in any individual retirement accounts, 401K accounts, profit sharing plans, Keogh accounts, or any other pension or retirement account, and the parties shall further refrain from applying for or requesting the payment of retirement benefits or annuity payments of any kind, without the consent of the other party in writing, or upon further order of the court.

(3) Neither party shall incur unreasonable debts hereafter, including, but not limited to further borrowing against any credit line secured by the family residence, further encumbrancing any assets, or unreasonably using credit cards or cash advances against credit cards, except in the usual course of business or for customary or usual household expenses, or for reasonable attorney’s fees in connection with this action.

(4) Neither party shall cause the other party or the children of the marriage to be removed from any existing medical, hospital and dental insurance coverage, and each party shall maintain the existing medical, hospital and dental insurance coverage in full force and effect.

(5) Neither party shall change the beneficiaries of any existing life insurance policies, and each party shall maintain the existing life insurance, automobile insurance, homeowners and renters insurance policies in full force and effect.

The Office of Court Administration has  promulgated a Rule already and is in the process of issuing an Official Form incorporating the Notice required under the Statute.  Until the official form is issued, a divorce attorney should attach a notice to the summons stating that, upon service, an order is in effect and then reciting, word-for-word, the five elements listed above.  In my experience, the Monroe County Clerk’s Office will provide a form at the time the summons is filed, unless the requisite notice is already attached to the summons.

This legislation basically preserves the status quo during the pendency of a matrimonial action by shifting the burden of seeking relief from a spouse asking for the imposition of an injunction to a spouse moving to vacate or modify that restraint.  What is unclear at this time, is how this automatic order will be enforced, and what are the remedies for its violation.

Making Deals in Divorce and Subsequent Change in Circumstances

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

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.