Basics of Identifying Separate Property in Divorce

New York State Domestic Relations Law 236(B)(1)(d)(1) provides a list of specific types of property that may not be considered marital property and must be considered the separate property of the title-holding spouse. This property is exempt from equitable distribution. The statute addresses the following categories of property:

(1) Pre-marriage property;
(2) Gifted or inherited property;
(3) Compensation for personal injuries;
(4) Property acquired with separate property;
(5) Property identified as separate property by written agreement.

The property falling within the categories above is considered “separate property” under the Equitable Distribution Law. There may also be other types of property, in addition to the statutory list, which may not be considered “marital property”, such as property acquired after commencement of the marital action.

There is a presumption that property acquired during the marriage and prior to execution of a separation agreement or commencement of a matrimonial action is marital property. Therefore, the party who claims that the property acquired within those time frames is separate property has the burden of proof. Even though separate property is not subject to equitable distribution, it may be considered in making such distribution.

PREMARITAL PROPERTY

Property acquired before the marriage is separate property because the economic partnership created by marriage is not established until the marriage has taken place. This means that even if the parties cohabitated before marriage, the property acquired before marriage and the appreciation to that property to date of marriage, is not marital property.

Wedding gifts are considered to be marital property, unless the gift was something that could be used only by one spouse, or was specifically earmarked as exclusively intended for one spouse. Gifts given by one prospective spouse to the other prior to marriage are the separate property of the recipient spouse. As discussed in a previous post, engagement rings are the separate property of the recipient spouse.

GIFTED OR INHERITED PROPERTY

Property acquired by gift or inheritance by a party from an inheritance, is separate property. Where the gift or inheritance, however, is to both spouses jointly, the property should be viewed as marital. However, interspousal gifts are marital property. With respect to any gift claimed as separate property, the party making such claim will have to show that the property was intended for that spouse alone. Income from separate property is considered to be separate property.

PERSONAL INJURY COMPENSATION

Personal injury includes compensation for personal injury, libel, slander, and malicious prosecution; also assault, battery, false imprisonment or other actionable injury to the person.

PROPERTY ACQUIRED WITH SEPARATE PROPERTY

Property acquired in exchange for separate property is separate property, so long as it has not been commingled with marital property or an interest gifted to the other spouse.

PROPERTY BY AGREEMENT

The parties’ may by a written and acknowledged agreement define property to be separate, no matter what a court might determine.

COMMINGLED PROPERTY

Separate property co-mingled with marital property remains separate if it can be traced to its source and there has been no valid gift or agreement to the contrary. However, separate property that is commingled with marital assets, or placed in the spouses’ joint names, can become marital property. For example, if a spouse places his or her separate property into joint names, such as a house or a bank account, a presumption of a gift arises which, unless rebutted, results in the conclusion that the property is to be treated as marital property. This presumption, if not rebutted, is that the entire amount of the asset will be treated as separate property.

It should be noted that the spouse who contributed separate property may receive a credit for the amount of property contributed to the creation of the marital asset. Recent decisions have extended this concept to include the appreciation of the separate property as a credit to the spouse who contributed it. Similarly to a situation where marital property is used to pay a separate debt, where a spouse uses separate property to pay a loan on marital property, that spouse is entitled to a credit for such payment when the marital property is distributed.

Divorce and New York’s Residency Requirements

Requiring a period of residence for divorce actions ensures that individuals will not look for a state with more advantageous divorce laws, or use the courts of a state to obtain a “quickie divorce” without having established any real connection with the state.

New York’s residency requirements for filing for divorce are relatively strict compared to many other states. Section 230 of the Domestic Relations law provides that an action for divorce may be maintained only when any of the following conditions of New York residency apply:

1. You and your spouse were married in New York, and either of you is a resident of New York when the divorce action is started and has been a resident of New York for a continuous period of one year immediately before the commencement of the divorce action;
2. You and your spouse have resided in New York as husband and wife, and either of you is a resident of New York when the divorce action is started and has been a resident of New York for a continuous period of one year immediately preceding the beginning of the divorce action;
3. The grounds for divorce occurred in New York, and either you or your spouse has been a resident of New York for a continuous period of at least one year immediately before the beginning of the divorce action;
4. The grounds for divorce occurred in New York, and both you and your spouse are residents of New York at the time of the commencement of the divorce action;
5. Either you or your spouse has been a resident of New York for a continuous period of at least two years immediately preceding the commencement of the divorce action.

If any of the above five requirements are fulfilled, then either party may file for divorce in New York; not just the party meeting the residency requirement. Thus, it is possible to commence a divorce action in New York even if one spouse resides outside of New York State.

Basics of Distributing Retirement Assets

In 1984, the New York Court of Appeals decided Majauskas v. Majauskas, 61 N.Y.2d 481 (1984). This is the case that decided that the portion of the spouse’s pension, earned during the marriage, is marital property subject to equitable distribution. To the extent that a pension was earned during the marriage, it is, for purposes of New York law, considered marital property. The Majauskas decision sets forth the formula that normally is to be followed in dividing a pension plan. Along with pension plans, other types of retirement assets are divided in a typical divorce case. Retirement assets are usually divided by a QDRO.

A QDRO stands for a “Qualified Domestic Relations Order”. It is an order required by the 1974 federal statute known as ERISA (Employees Retirement Income Security Act), and applies to certain pension vehicles. QDRO may transfer retirement benefits from an employee-spouse to a spouse, former spouse or child of the employee. It must comply with the requirements of state law, as well as ERISA and other federal laws. The state domestic relations law aspects of a QDRO must be approved by the domestic relations judge, while the federal law aspects must be approved by the plan administrator from which the benefits are to be paid.

QDRO’s deal with participants and alternate payees. A “participant” is an employee who participates in either an employer sponsored or a union-sponsored qualified employee benefit plan. An “alternate payee” is a person to whom benefits are transferred in a QDRO and that person must be a spouse, former spouse, child or other dependent of the participant.

Qualified plans are divided under the Internal Revenue Code into two categories:

(1) Defined contribution plans;
(2) Defined benefit plans.

A defined contribution plan is a plan that requires the establishment of an individual account for each participating employee and provides benefits only from the amount contributed to the employee’s account, together with any income, expenses, gains or losses that are attributable to the account. Under a defined benefit plan the controlling factor is the benefit that will be provided to the employee upon his/her retirement and the amount contributed each year is actuarially computed to produce the desired benefit at the time of an employee’s retirement.

It is necessary to ascertain the type of plan to which the QDRO is directed and to understand the significance of a particular plan in the context of a QDRO. The most commonly used types of qualified employee benefit plans include:

(1) Traditional pension plans (defined benefit plan);
(2) Annuity plans (defined benefit plan);
(3) Profit-sharing plans (defined contribution plan);
(4) Money purchase pension plans (defined contribution plan);
(5) Target benefit plans (defined contribution plan);
(6) Employee stock ownership plans (defined contribution plan);
(7) 401(K) plans (defined contribution plans);
(8) Savings (or Thrift) plans (defined contribution plan);
(9) Simplified employee pension plans (i.e., SEP) (defined contribution plan);
(10) Cash balance pension plans (defined benefit plan);
(11) Hybrid plans (features of both defined benefit and defined contribution) – used by many public employee and teacher retirement programs.

Where both spouses have a pension, each may get a portion of each other’s pension, or create some other arrangement that benefits both parties. It is also possible to trade off pensions for other property in the marriage, or a spouse may waive his/her right to receive the pension.

Division of a pension is not automatic. The court has discretion to award the entire pension to the earner where, for example, there is a significant disparity in income.

Pending Bill in New York Assembly With Respect to Divorce and Child Support Standards Act

There is a bill pending in New York Legislature that could, if passed, make significant changes to New York’s laws dealing with divorce and child support. Assembly Bill A10446 represents a comprehensive effort to reform New York`s divorce and child support laws. The bill contains four major elements: (1) simplifies the grounds for divorce by replacing current grounds with no-fault grounds; (2) adopts a new approach to maintenance, referred to as post-marital income, by establishing guidelines for determining awards of post-marital income; (3)
establishes the right to counsel for a spouse who cannot reasonably afford counsel where the other spouse has obtained or can reasonably afford counsel; and (4) increases the cap on combined parental income used to determine the amount of child support from $80,000 to $500,000, as adjusted annually for any change in cost of living.

It is the last provision that is particularly interesting since there is a significant body of law holding that the $80,000 is the presumptive cap, and in order to calculate child support on combined parental income beyond $80,000, the court must explain its reasoning and provide appropriate justification for its actions in the decision. Even under the present statute, the court can determine whether or not to exceed the cap, and may consider other factors in determining the full support amount. If the bill passes, it is possible that the child support in situations involving high parental income will significantly exceed the children’s needs or any expenses associated with raising the children.

The likelihood of the bill passing into law are difficult to estimate since the bill includes provisions that would amount to a no-fault divorce. Past efforts to pass legislation allowing no-fault divorce in New York State were unsuccessful in view of significant opposition from a variety of different groups.

Child Support and Credit for College Expenses

I am often asked whether there should be a reduction in child support in a situation where the child is residing away from home at college and the parent paying child support is also contributing to the cost of college expenses. Since the child support is generally paid to provide shelter and food for the child, if a parent is paying for a room and board at college, the payor parent should only be paying for shelter and food at a single location. The case law holds that, in the absence of an agreement to the contrary, any such reduction or credit is discretionary with the court.

In Pistilli v Pistilli, 53 A.D.3d 1138 (4 Dept. 2008) plaintiff moved to modify the judgment by “[d]istributing the actual and anticipated college education costs associated with the parties’ children,” specifically the parties’ daughter, between the parties. Pursuant to an oral stipulation of the parties that was incorporated but not merged into the judgment of divorce, the parties “agreed to contribute to [their children’s college expenses] as they are then financially able.” The Appellate Division held that the court erred in failing to consider defendant’s maintenance obligation in calculating the percentage of defendant’s contribution to the daughter’s college expenses. After subtracting from defendant’s income the amount of taxable maintenance paid to plaintiff as indicated on the parties’ respective 2005 tax returns, which were used by the court in determining the parties’ respective incomes, it concluded that defendant’s percentage of the combined parental income was 64% rather than 80%, and thus defendant’s pro rata share of the daughter’s college expenses was reduced from 80% to 64%. The Appellate Division rejected defendant’s contention that the court erred in determining that he was entitled to a credit against his child support obligation only in the amount of his pro rata share of the daughter’s college meal plan, holding that a credit against child support for college expenses is not mandatory but depends upon the facts and circumstances in the particular case, taking into account the needs of the custodial parent to maintain a household and provide certain necessaries. Because plaintiff had to maintain a household for the daughter during the daughter’s school breaks and weekend visits, it could not be said that defendant was entitled to a credit for the daughter’s rooming expenses. Nevertheless, inasmuch as the Appellate Division reduced defendant’s pro rata share of the daughter’s college expenses from 80% to 64%, defendant’s child support credit based on the college meal plan had to reflect that reduction and it modified the order accordingly.

Basics of New York’s Grounds for Divorce

Despite the country-wide trend toward no-fault divorce, New York continues to require that the parties seeking divorce have specific grounds to do so. New York Domestic Relations Law §170 lists the six grounds for divorce. Of the six grounds, four are fault based. Marital fault means that one of the spouses has done something wrong in the context of the marriage. The four fault based grounds for divorce are:

1. The cruel and inhuman treatment of the plaintiff by the defendant such that the conduct of the defendant so endangers the physical or mental
well being of the plaintiff and makes it unsafe or improper for the plaintiff to cohabit with the defendant.
2. The abandonment of the plaintiff by the defendant for a period of one or more years.
3. The confinement of the defendant in prison for a period of three or more consecutive years after the marriage of plaintiff and defendant.
4. The commission of an act of adultery.

If cruel and inhuman treatment is the ground upon which the divorce action is brought, it may be based upon allegations of either physical or mental cruelty. To be a reason for divorce, the cruel and inhuman treatment must have such a serious effect on the physical or mental health of the divorce-seeking spouse, that it is not safe or proper for the parties to continue to live together. Incompatibility between husband and wife is not a ground for a divorce. Some examples of acts that courts have held to be cruel and inhuman treatment for divorce purposes include: physical attacks upon a spouse; constant screaming, profanity or other verbal abuse; staying away from the house too often without an explanation; publicly flaunting a relationship with another man or woman; and wrongfully accusing the other spouse of adulterous relations with another man or woman. Intentional refusal by a spouse to have sexual relations may be considered cruel and inhuman treatment where it actually has a physical effect upon divorce-seeking spouse. Alcoholism or drug addiction, or substance abuse by itself, usually is not a sufficient basis for divorce, unless the spouse becomes violent or abusive when under the influence so that the other spouse fears for his/her health and safety. Mental illness alone is not a sufficient basis for a divorce on the grounds of cruel and inhuman treatment, unless a spouse’s other behavior could be defined as cruel and inhuman treatment.

The acts or conduct on which the cruel and inhuman treatment is based must have occurred within five years prior to the commencement of the action to be considered by the court, unless it is part of a continuous course of conduct. There are no defenses to cruelty. For example, mental illness, justification or forgiveness is not a defense.

If the ground for divorce is abandonment, it make take two different forms, either actual abandonment or constructive abandonment. Abandonment usually means an actual departure of a spouse from the marital residence, without justification and without an intention to return for a period of one year or longer preceding the filing of the action for divorce. A constructive abandonment occurs when one spouse refuses to have sexual relations with the other, without excuse or justification, for a period of one year preceding the filing of the action for divorce.

If the divorce action is brought on the ground of adultery, the divorce-seeking spouse is likely to face a significant evidentiary burden. Plaintiff is not permitted to testify against the defendant, and any allegations of adultery must be corroborated, i.e., there has to be a witness able to testify that the spouse who allegedly committed adultery engaged in sexual relations or sodomy with another person. Often, adultery is proven by circumstantial evidence.

The two non-fault grounds are based upon a separation of, at least, one year, pursuant to a judgment of separation or written separation agreement. Even if the parties separated for a period of one year or longer, in the absence of a judgment or an agreement executed with the required formalities such separation will not be a basis for a divorce. A separation agreement sets forth the respective rights and duties of husband and wife with respect to the custody of children, visitation rights, support payments, distribution of property, and all other matters pertaining to the marital relationship.

Certain formalities must be precisely followed, or the written agreement will not qualify as a ground for divorce. It must be signed and acknowledged. The agreement must be filed with the Clerk of the County where either spouse lives before an action for divorce may be brought. At the end of one year from the date of the agreement, either spouse may sue the other for a conversion divorce, which is considered to be a no-fault divorce.

In an action seeking a conversion divorce, the plaintiff must establish that the separation agreement was properly signed and acknowledged and was properly filed; that the spouses lived apart during the period of the agreement up to the time of the divorce action; and that the plaintiff substantially complied with the terms of the separation agreement.

New York Court Grants Same Sex Divorce

A New York judge has ruled recently in C.M. v. C.C. (Sup. Ct. New York Co. October 14, 2008), that the New York court had subject matter jurisdiction to grant a divorce to a same sex couple who were married in Massachussetts. The court held that in following Martinez v. County of Monroe and other cases dealing with recognition of the same sex marriage, it had the subject marriage jurisdiction and the divorce case between two women could continue. The couple can now obtain their divorce in New York, assuming that they have sufficient grounds to do so, and meet other jurisdictional requirements of New York’s Domestic Relations Law.

I have previously written about Martinez v. County of Monroe, so this decision is merely a logical extension of that decision.

Basics of Equitable Distribution

The equitable distribution statute became law in July of 1980 and has evolved extensively since that time. Essentially, all “marital” property is subject to distribution except for “separate property.” Domestic Relations Law 236[B][1][c] defines “marital property” as:

All property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held, except as otherwise provided in agreement pursuant to subdivision three of this part. Marital property shall not include separate property as hereinafter defined.

Separate property is generally defined as inheritances, property owned prior to the marriage, gifts from non-spouses and income received in compensation for a personal injury. While appreciation of separate property is considered to be separate property, extensive case law has abrogated this concept significantly. In many cases, the courts have held that the appreciation of separate property may be subject to distribution. Domestic Relations Law §236 (B)(1)(d)(3) excludes from the definition of “marital property” … “property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse.” The courts have interpreted this language rather expansively, and efforts of a spouse may include such contributions as raising children, taking care of a household, and generally supporting the other spouse’s efforts at earning a living.

Marital property can be distributed even if it is held solely in the name of one of the parties. It is important to note that in terms of splitting martial assets, equitable does not mean equal. Assets do not have to be distributed equally to each party.

A significant portion of divorce litigation involves evaluating the assets and determining what percentage each party should receive of that asset. Property can include almost everything, including the marital home, vacation homes, automobiles, household furnishings, bank accounts, stock portfolios, pensions and retirement plans, interests in businesses and professional degrees. In New York, a party’s “enhanced earning capacity” which includes the value of any degree, license or certification obtained during the marriage can be distributed as well.

The court decisions addressing equitable distribution have held that there cannot be a distribution of property without a divorce or pursuant to a valid separation agreement. As a result, one of the common strategies utilized in divorce cases by the parties who do not wish to have property distributed, involves challenging the grounds for divorce.

Litigation support experts are commonly used in cases involving valuation of significant assets, including forensic and tax accountants, business evaluators, real estate appraisers and other similar experts. The use of these experts can make an equitable distribution case rather expensive to litigate.

Non-custodial Parent’s Right to Particpate in Child Rearing Decisions

In 1996, Mathew’s parents, Jesus Fuentes and Karen Fuentes, were divorced. On August 1, 1996, “Order Directing Custody” was entered, granting Mathew’s mother exclusive custody of Mathew. Mathew attended New York City public schools, where he received special education services to accommodate his disability.

In 2000, because Mr. Fuentes believed that the education accommodations Mathew received were inadequate, he requested that Mathew be reevaluated for additional services. After the Committee on Special Education for the Hearing, Handicapped, and Visually Impaired determined that Mathew’s current services were adequate, Mr. Fuentes requested a hearing to review the committee’s determination. On January 8, 2001, the Impartial Hearing Office denied Fuentes’s request for a hearing. Its Chief Administrator based her denial on Mr. Fuentes’s custodial status. Because Mr. Fuentes was the non-custodial parent of Mathew, Chief Administrator determined that he was not the “person in parental relation” as defined in N.Y. Educ. Law § 3212 and concluded that Mr. Fuentes did not have the right to participate in educational decisions affecting Mathew and refused to process his father’s requests.

Mr. Fuentes, the non-custodial biological father, brought an action in the Federal Court for the Eastern District of New York against the Board of Education of the City of New York, under 42 USC §1983 and 20 USC §1415(f)(1) [IDEA], to review the City’s assessment of his son’s special educational needs and to be granted an impartial hearing for reconsideration of the City’s determination that his son did not need more special education than what he was receiving. After determining that, under New York law, a non-custodial biological parent has no right to make special education decisions, absent a court order or agreement between the parties affording such rights to the non-custodial parent, the Federal Court for the Eastern District of New York dismissed the complaint for lack of standing [FRCP 12(b) and (c)].

The Second Circuit held that although the First and Second Departments of the Appellate Division have held that a non-custodial parent, absent an order or agreement to the contrary, has no right to make educational decisions, the Second Circuit chose to have New York’s Court of Appeals definitively state the law of New York and, thus, certified the following question: “Whether, under New York law, the biological and non-custodial parent of a child retains the right to participate in decisions pertaining to the education of the child where (1) the custodial parent is granted exclusive custody of the child and (2) the divorce decree and custody order are silent as to the right to control such decisions.” Fuentes v. Bd. of Ed. of City of New York.

I have previously written about the custodial arrangements and the right of decision-making associated with each type of custody, and while there are many decisions on this issues from the Appellate Division, the Court of Appeals so far has not issued a definitive ruling on this issue. When the Court of Appeals decides this case, this is likely to be the controlling statement of New York law on the rights of non-custodial parents with respect to their right to be involved in educational and other decisions effecting their children. The Court of Appeals is likely to issue its decision in the next few months.

“Cohabitation” and Interpretation of Separation Agreement’s Provisions Applicable to Maintenance

A typical separation agreement that provides for post-divorce maintenance will have a number of provisions describing circumstances under which such maintenance can be terminated. One of the more common clauses speaks of the spousal maintenance being terminated where the former spouse is cohabitating with another adult of opposite sex for a period of time. Most separation agreements do not define cohabitation, but the courts have held that in order for cohabitation to take place, there must be a sexual relationship, as well as a degree of economic partnership between the former spouse and the unrelated adult of the opposite sex. In Graev v. Graev, __ N.Y.3d __ (October 21, 2008) the Court of Appeals had to decide whether the term “cohabitation” as included in the parties’ separation agreement was unambiguous, and whether the prior standard utilized by the courts was still valid. In a 4-3 opinion, a divided Court of Appeals ruled yesterday that “cohabitation” is an ambiguous term whose definition for purposes of potential violations of separation and divorce agreements depends on what the parties understood it to mean when making their settlements. While all of the judges agreed that a couple need not share household expenses or function as a single economic unit to be cohabitating, the Court was divided over how to resolve the dispute between Linda and Lawrence Graev and the $11,000 in monthly maintenance fees he contends she forfeited by living with a boyfriend for at least 60 straight days in violation of their separation agreement. Since the Court of Appeals held that the term “cohabitation” as contained in the parties’ separation agreement was ambiguous, it remanded the case back to the trial court to hold a fact-finding hearing to determine what the parties’ understanding of this term was at the time the separation agreement was executed. As the Court of Appeals pointed in the footnote, “[t]he wisest rule, of course, is for parties in the future to make their intentions clear by careful drafting.”