Transmutation of Separate Property into Marital Property

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.

Prenuptial Agreements and Waiver of Retirement Rights

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.

Are Lifetime Medical Insurance Benefits Subject to Equitable Distribution?

Once in a while I see a divorce action where one of the parties to the action is entitled to lifetime medical insurance benefits as a result of his/her employment.  For obvious reasons, such benefits may be of great value to one or both parties.  What happens if one of the parties makes an argument that such benefits are subject to equitable distribution?

In Henig v. Henig, 2010 N.Y. Slip. Op. 50546(U) (Sup. Ct. Nassay Co. 2010), the husband was a former New York City Police Officer who retired in 2007. Since his retirement on December 31, 2007, he has been entitled to and does receive lifetime medical, dental and vision benefits for himself, wife, and the parties’ children.  Wife argued that the medical insurance is a marital asset and subject to Equitable Distribution, and/or equals a benefit to be included in determining husband’s income.

Wife argued that the Domestic Relations Law contemplates an expansive view of marital property and analogized the lifetime health benefits to a pension insofar as such benefits are an asset, received only upon retirement.   She claimed that husband’s rights to the coverage matured as of his retirement, and Wife has rights independent of the husband, i.e., if there were no divorce and husband were to die, Wife and children would still receive benefits.

While wife made that argument, however, her lawyer had not submitted any documentary evidence, specific to the plan, to substantiate these claims.   Wife’s attorney also argued that lifetime benefits, like a pension, are contractual rights, which have some value because they are received in lieu of higher compensation, which husband would have earned otherwise, however, wife’s counsel again provided no proof to substantiate this claim.

Husband argued that since enactment of DRL §236 B, neither the Court of Appeals nor the four appellate divisions have held that employee-subsidized health insurance benefits are marital property subject to Equitable Distribution.  In fact, in contemplation of the loss of such health benefits, DRL§255(a) directly addresses the issue stating that ” once a judgment is signed a party there to may or may not be eligible to be covered under the other party’s health insurance plan.” Husband’s lawyer also argued that amendments to DRL§236(B) provide that loss of health insurance benefits upon dissolution of marriage are factors that a court must consider for the purposes of determining maintenance and Equitable Distribution, but that such benefits are not itself an asset, and if the Legislature intended that such benefits be included in the definition of marital asset, it would have done so as it has amended and modified other provisions concerning health insurance.

Husband further argued that wife may elect continuation of coverage under a COBRA option, or she could obtain her own health insurance benefits through full-time employment, the cost of which is a consideration in her support award, if any.  Wife’s available remedy through the election of COBRA coverage would ensure the avoidance of any possible double-dipping by ordering the husband, to pay for her health insurance.  Husband’s counsel, however, has not submitted any proof of the availability of a COBRA option to wife upon dissolution of the marriage, nor was there any proof presented with as to wife’s ability to obtain benefits through employment.

As far as the health insurance benefits themselves, the husband currently pays $15.32 per month for such benefits and an annual deductible $300.00.  The continuation of the benefits is at a continued cost to husband, and his failure to make such payments will result in the cessation of such benefits.  In further support of the proposition that lifetime health benefits are not defined like a pension, husband’s lawyer asserted that wife has already received her marital portion of the insurance having enjoyed its benefits during the marriage, and even the period after husband’s retirement and until such time that the Judgment of Divorce is entered.  Furthermore, he argued that upon divorce Husband will pay the monthly premium from his separate property, and continuation of the health insurance policy is conditioned upon payments made from separate property and therefore any marital right to the insurance terminates upon divorce.

Wife’s divorce attorney cited Walek v. Walek, 193 Misc 2d 241 (Sup. Ct. Erie Co. 2002), where the trial court held that health insurance benefits were a marital asset and subject to Equitable Distribution. The court in Henig found that case distinguishable since in Walek, the husband used a portion of his sick time, which could have been paid to him directly, to fund the 10% required premium payment necessary to receive those post-retirement, lifetime benefits.  The sick time had a value, which was arguably marital property, which marital property was then used to directly fund those lifetime benefits.

Section 255 of the Domestic Relations Law states in pertinent part that:

A court, prior to signing a judgment of divorce or separation, or a judgment annulling a marriage or declaring the nullity of a void marriage, shall ensure that:

1. Both parties have been notified, at such time and by such means as the court shall determine, 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.
2. If the parties have entered into a stipulation of settlement/agreement on or after the effective date of this section resolving all of the issues between the parties, such settlement/agreement entered into between the parties shall contain a provision relating to the health care coverage of each party; and that such provision shall 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.
***

Section 236 B(6) of the Domestic Relations Law states in pertinent part that:

In determining the amount and duration of maintenance the court shall consider:

(11) the loss of health insurance benefits upon dissolution of the marriage; and
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The trial court held that the threshold question was whether the lifetime health benefits constituted property and the wife has failed to submit proof establishing this.  Even if it were to be deemed property, wife has failed to provide the court with a sufficient showing to justify classifying such benefits are “marital property” or that  the post-retirement lifetime benefits involved a reduction in husband’s earned wages in order to obtain such benefits or that these lifetime benefits are provided through the employer utilizing funds set aside from a portion of the husband’s income earned through his employment.  She did not allege that husband had an opportunity to “opt out” of such benefits in exchange for higher wages.

Additionally, the argument with respect to the de minimus amount husband is required to pay for the continued health insurance and that husband’s cost for such comparable medical benefits pales in comparison to that which it would cost wife was not persuasive.  Even if this argument were accepted, the loss of benefits for one spouse has been contemplated by the Legislature in its amendment to the Domestic Relations Law to include the loss of health insurance benefits in the determination of maintenance.  Although wife’s attorney argued that such savings for Husband constitutes an asset to which Wife contributed, this argument did not persuade the court.

What is the final lesson of Henig?  I agree with the court that the health benefits are not marital property as contemplated by the Domestic Relations Law.  Furthermore, it was the intent of the Legislature to exclude such benefits from the totality of marital assets, as evidenced by the amendments to the Domestic Relations Law that specifically ensure that such loss of benefits by a spouse post-judgment is a consideration in the determination of maintenance, as well the recent language adopted to ensure that all parties are aware of the possibility of loss of such health benefits.  Wife was not left without a remedy, since the future cost of health benefits is a consideration for any award of maintenance and Equitable Distribution.

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.

Divorce, Equitable Distribution and Appreciation of Separate Property

One issue that comes up periodically in divorce cases has to do with appreciation of separate property brought into the marriage by one spouse.  If that separate property is a business that appreciated during the marriage, did that appreciation come as active spousal effort, which would render the appreciation marital property, or did the appreciation come as a result of passive, non-spousal effort, and therefore should be treated as separate property? In other words, what was the comparable economic contribution of each party to the appreciation of such asset?

While the courts do not utilize the terms active and passive appreciation as much as they did in the past, it is clear from the recent decisions that those concepts are still utilized.  In Smith v. Winters, 64 A.D.3d 1218 (4th Dept. 2009), the Appellate Division, Fourth Department, recently answered the above question by evaluating how much the efforts of the titled spouse increased the value of the asset in dispute, by looking at what specific efforts of the titled spouse led to the appreciation.  In Smith, the plaintiff owned a business that later on purchased another company, PNA.  PNA has appreciated significantly during the course of the marriage.  After discussing the facts related to the plaintiff’s efforts and involvement in PNA, the court stated:

With respect to PNA, the court found that the value of PNA appreciated by $20 million during the course of the marriage but that the increase in value attributable to plaintiff was minimal when compared to the increase attributable to those hired by plaintiff to run the company. The court thus determined that only 10% of the appreciation in value of PNA was marital property subject to equitable distribution.

Subsequently, the court held that the non-titled spouse was entitled to 40% of the appreciated marital value based on her contributions as a homemaker.  Thus, the titled spouse, in this case the husband, was able to retain 96% of appreciation of PNA.

The above represents continuation of the trend toward reevaluating the status of marital property on the basis of various forms of contribution by the parties to the marriage, or, perhaps, third parties as well.  The courts have long held that “an increase in the value of separate property of one spouse, occurring during the marriage and prior to the commencement of matrimonial proceedings, which is due in part to the indirect contributions or efforts of the other spouse as homemaker . . . should be considered marital property”.  See Price v Price, 69 N.Y.2d 8, 11 (1986).  However, the latest decisions in this area are refocusing on requiring  “some nexus between the titled spouse’s active efforts and the appreciation in the separate property”, when a nontitled spouse’s claim to appreciation and the other spouse’s separate property is predicated solely on the nontitled spouse’s indirect contributions.  See Hartog v. Hartog, 85 N.Y.2d 36, 46 (1995).   Therefore in Smith, the Appellate Division Fourth Department held that the trial court properly considered the “active efforts of others and any additional passive or active factors” in determining the percentage of total appreciation that constitutes marital property subject to distribution.

The above case opens various possibilities to lawyers and titled-spouses contesting an appreciation claim.  Situations similar to the one in Smith will require a divorce attorney to evaluate carefully how the asset appreciated and what role each spouse or third parties played in that appreciation.

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.

Equitable Distribution and Degrees, Licences and Enhanced Earnings Capacity Acquired During the Marriage

In a divorce action, the court can distribute not only tangible assets, such as homes, pensions and investment accounts, but also the value of educational degrees, professional licenses and enhanced earnings obtained during the marriage.  An academic degree may constitute a marital asset subject to equitable distribution, even though the degree may not necessarily confer the legal right to engage in a particular profession. The fact that a degree is an asset to be equitably distributed should not be in dispute. Generally, the value of the degree, license or enhanced earning capacity is open for debate and is determined through the use of expert testimony. I have previously written about some of these issues, but I decided to revisit them in this post.

A recent case of Purygin v Purygina, 2009 N.Y. Slip. Op. 51408(U) (Sup. Ct. Kings Co. 2009), provides a good illustration of the issues involved and the typical approach utilized by the courts in addressing them. In Purygin, between September 1997 and December 2000, the husband attended Long Island University as a full time student so that he could become proficient in English and apply to medical school; during this time, he continued to work part time in odd jobs. He did not receive any degree from LIU. From January 10, 2001 through April 2002, he attended a medical school in the Carribean; during this time, the wife remained in Brooklyn with the parties’ son. Subsequently, he completed another portion of his education in Miami. On December 20, 2002, he passed the first step of the United States Medical Licensing Examination (USMLE). Between December 2002 and November 2004, the husband continued his education at Kings County Hospital and Brookdale Hospital, where he did his clinical rotations. On May 28, 2004, plaintiff passed the second USMLE. He completed Medical School and graduated on April 1, 2005. The husband left the marital residence in December 2005. On November 26, 2007, plaintiff took and passed the third USMLE. This action was commenced on April 24, 2008. Presently, the husband is in his third year of residency.

During the time that the husband attended LIU, the wife continued to work full time at the hair salon. Beginning in September 2001 through October 2004, she attended night school at Touro College and continued to work full-time in the hair salon during the day. She became licensed as an assistant physical therapist in August 2006.

The court appointed a neutral appraiser to value husband’s enhanced earning capacity. By report dated October 31, 2008, the appraiser concluded that the husband’s enhanced earning capacity resulting from the education that he received during the marriage was $1,584,000, taking into account an appropriate reduction for plaintiff’s student loans and the remaining 11% of the training required for him to become a board certified anesthesiologist.

The husband argued that the wife should not be entitled to share in the enhanced earning capacity that she resulted from the 98 courses that he took at LIU between September 1997 and December 2000, because the courses did not result in his obtaining any degree or certification and were only “a stepping-stone to a license to practice medicine,” which he has not yet obtained. He further argues that the wife should not be entitled to share in the enhanced earning capacity resulting from the courses that he took at the medical school, because his medical degree has no value without a medical license, which requires a minimum of three years of residency and passing three examinations. He also contended that the wife should not be entitled to share in the enhanced earning capacity resulting from the one year residency that he completed prior to the commencement of the action on the grounds that he still had two years of residency to complete at that time.

The husband also argued that the wife did not make a significant contribution to his enhanced earning capacity, since she did not sacrifice her career or change her lifestyle for his education.  The husband also emphasized the fact that the parties separated in December 2005, so that wife did not make any contributions towards his education after this date.

The wife argued that the husband’s education and training is marital property subject to equitable distribution and that she substantially contributed to his enhanced earning capacity by providing the family with the bulk of their economic support, arranging and paying for child care, cleaning, cooking, paying the bills and attending to all household chores.

Pursuant to DRL § 236(B)(1)(c), marital property is broadly defined as “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.” In O’Brien v. O’Brien, 66 N.Y.2d 576 (1985), the Court of Appeals held that a professional license could constitute marital property subject to equitable distribution to the extent that it is acquired during the marriage. In further explaining this decision, the Court of Appeals later stated that “[t]he statute is sweeping and recognizes that spouses have an equitable claim to things of value arising out of the marital relationship”.

The court held that applying the above principles of law to the facts of this case, plaintiff’s education at LIU, which was a necessary prerequisite to his acceptance at the medical school, is a marital asset, as was his medical degree and the two years and nine months of his residency, since this education and training are held to have contributed to his enhanced earning capacity as an anesthesiologist. As a result, these marital assets were found to be subject to equitable distribution. The court relied on the holding in Vainchenker v. Vainchenker, 242 A.D.2d 620 (2d Dept. 1997), where the Appellate Division, Second Department, held that:

Although the husband was a practicing physician in Russia prior to the parties’ marriage, his earning capacity in the United States was enhanced due to the medical training he received in this country during the marriage. The Supreme Court therefore properly determined that the husband’s New York medical license was a marital asset subject to equitable distribution.

(Vainchenker, 242 A.D.2d at 621 (2d Dept. 1997) (citations omitted).

Here, husband’s education was completed as of the date of the commencement of the action, as were two years and nine months of his residency. Further, courts routinely apportion the value of the enhanced earning capacity resulting from courses of study both before and during the marriage. While the instant case is different in that plaintiff was not eligible to receive his medical license for three months after the commencement of the action, it is not disputed that from January 10, 2000 through the date of commencement, plaintiff was working towards acquiring this license. The court stated that if a spouse is permitted to avoid equitable distribution of enhanced earning capacity by commencing an action after the necessary education has been acquired, but before the sought after license is obtained, the rationale behind O’Brien would be abrogated. Under the facts of this case, where husband completed the training necessary to obtain a medical license within three months of the commencement of the action, there is no speculation with regard to whether the necessary studies will be completed.

The court found that the wife made a contribution to husband’s enhanced earning capacity, with the amount of such contribution to be determined at trial and in determining the share of the enhanced earning capacity to which she is entitled, the court can entertain the argument that the parties separated in December 2005.

Accordingly, whenever reviewing assets available for distribution in a divorce action, a family law attorney will typically address issues related to distribution of any degrees, license, or enhanced earning capacity obtained during the marriage.  The non-titled spouse’s contribution to the parties’ household, while the other spouse was obtaining such degree, license or enhanced earning capacity, is very important and should be discussed with the lawyer representing no-titled spouse in the divorce action.

Pendente Lite Motions And Available Relief

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.

Overpayment of Pendente Lite Maintenance and Equitable Distribution

I have previously written that the Supreme Court has wide latitude in fashioning pendente lite (interim) maintenance awards while the divorce action is pending.  But what happens if the trial court ultimately decides that the pendente lite maintenance award was excessive?  The Court of Appeals recently addressed this issues in Johnson v. Chapin, 2009N.Y.  Slip. Op. 03630 (2009).

In Johnson, the Court of Appeals held that when a pendente lite award of maintenance is found at trial to be excessive or inequitable, the court may make an appropriate adjustment in the equitable distribution award.  Thus, the Court of Appeals held that the trial court did not abuse its discretion in giving husband a credit representing the amount of the pendente lite maintenance he paid that exceeded what he was required to pay under the final maintenance award.  In determining the temporary maintenance award, Supreme Court imputed an average salary in excess of $2 million to husband. However, at trial, it was established that his income was significantly lower. Given the disparity in the maintenance amounts, under the circumstances of this case, it was appropriate for the husband to receive a credit for excessive maintenance paid.

This decision is significant since it reaffirms the principle that pendente lite awards are temporary and are subject to adjustment.  An experienced divorce lawyer will not rest after obtaining a favorable pendente lite relief for the client, but will continue to work to make sure that the any pendente lite maintenance, or other interim award, is preserved as a part of a final decision.