Home » Publications & Outlines » Kathleen Donelli, White Plains Divorce Lawyer, Protecting Assets Before a Divorce - 1-3-08

Protecting Assets Before a Divorce

Partner

McCarthy Fingar LLP

Protecting Assets Before a Divorce

at

UJA-Federation of New York

130 East 59th Street, Room 710

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I. What Are Prenuptial & Postnuptial Agreements?

A prenuptial agreement is made before the marriage while a postnuptial agreement (also known as an antenuptial or a marital agreement) can be made at any time during the marriage. For convenience, this outline will refer to prenuptial and postnuptial agreements collectively as a marital agreement.

Under Domestic Relations Law §236(B)(3), a marital agreement is:

· an agreement by the parties,

· made before (i.e., a prenuptial agreement) or during the marriage,

· in writing, signed and acknowledged (Goldfarb & Matisoff),

· fair and reasonable when made,

· not unconscionable at the time of the divorce judgment.

A marital agreement may include:

(1) testamentary provision or waiver of right to election;

(2) ownership, division or distribution of separate and marital property;

(3) amount and duration of maintenance;

(4) custody (including religion, education) and child support, subject to DRL 240, i.e. best interest of the child.

C240:22 subject to supervisory role of the court

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Q. What are the benefits of having a Marital Agreement?

A. A Marital Agreement allows the parties to decide how their assets will be

divided if they get divorced. Without a Marital Agreement, upon a divorce, the court will decide:

· what is marital property and how it should be divided

· spousal support (also known as maintenance or alimony)

· child support.

If a spouse predeceases during the marriage, without a Marital Agreement the Estate Law guarantees the surviving spouse 1/3 of the deceased spouse's estate, called "a right of election."

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Q. When must a Marital Agreement be signed?

A. It can be signed before (i.e., a prenuptial agreement) or after the marriage.

If there is a waiver of pension rights, the agreement should be signed before and after the marriage since some cases have held that only a spouse can waive his or her right to the other spouse's pension.

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Q. Do you need an attorney?

A. Although courts will enforce marital agreements even if one or both parties have not been represented by an attorney, each party should be represented by counsel.

1) Matisoff - a marital agreement won't be enforced unless properly signed and acknowledged; Court of Appeals refused to enforce a prenuptial agreement because it was not acknowledged, as required by DRL § 236(B)(3), even though the spouses did not dispute that they had signed the agreement.

2) Easier to convince a Court not to enforce the agreement if a spouse has not been represented by an attorney.

Contra Forsberg, 631 NYS2d 709 (2d Dept. 1995). Marital

Agreement upheld even though Wife was not represented by

attorney where Wife didn't allege that:

· She didn't understand the marital agreement

· Husband concealed or misrepresented his assets

· No evidence of coercion or undue influence by Husband or by Husband's attorney.

Hoffman, 474 NYS2d 621 (A.D. 1984) upheld agreement in the absence of fraud or overreaching.

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Q. Will a court enforce a Marital Agreement?

A. Yes, unless it can be established that the Marital Agreement was:

· unfair and unreasonable when made,

· unconscionable at the time of the divorce judgment,

· a product of fraud, duress or coercion,

· not properly executed, or the

· unsupported spouse is likely to become a public charge.

(Propp, 493 NYS2d 147).

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Q. Do you need full financial disclosure?

A. Generally, yes, since a spouse could argue that he or she did not know

what rights were being waived.

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Q. Who typically should have a Marital Agreement?

A.

· second marriages to protect children of prior marriages,

· anyone with a significant amount of pre-marital assets,

· young people with family businesses,

· anyone who anticipates acquiring (professional licenses or degrees during the marriage so that they are not required to pay an "equitable portion" of their enhanced earning capacity to their spouse upon divorce,

· anyone who anticipates inheriting money during the marriage, particularly if you live in Connecticut, a state that does not recognize "separate property,"

· business owners who want to protect the active appreciation of the value of their business.

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Q. What should be covered in a Marital Agreement?

A.

· separate v. marital property (pp. 6-8)

· marital residence, including down payments (pp. 8-10)

· active v. passive appreciation (pp. 10-13)

· maintenance (aka alimony or spousal support)

· spouses' earnings during the marriage

· debts (p. 13 & 14)

· estate rights

· gifts (engagement ring, wedding gifts, gifts from third parties and gifts between spouses)

· businesses, professional licenses and degrees (pp. 15-18)

· life insurance

· retirement benefits (p. 14 & 15)

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Q. What about child support and custody governed by Child Support Standards Act?

A. It is less likely that a court will enforce provisions relating to child support and custody because these matters must always be governed by the child's best interest.

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Q. How long should a Marital Agreement last?

A. Until death, divorce or for a specified amount of time. It is frightening that a young person could sign a Prenuptial Agreement and 50 years later have it enforced against him or her.

The "non-moneyed" spouse should discuss a "SUNSET" Provision with his or her counsel. For example, if the parties remain married for a certain period of time, the marital agreement will have no force or effect.

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Q. What are some of the common mistakes people make:

· wait until just before (or after) the marriage,

· party with assets exercises total control over both attorneys,

· party without assets doesn't retain an attorney,

· failure to disclose all assets,

· inadequate legal representation (i.e. should retain an attorney who practices in this area of the law), e.g. Matisoff,

· commingling separate property with marital property (pp. 6&7)

· transmuting "separate" property into "marital" property by placing title in joint names (pp. 6&7).

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Q. Assuming there is no marital agreement, are there other precautions that can be taken to protect assets before a divorce?

A.

Do not "commingle" separate property with marital property. For example, if you have a brokerage account before the marriage, do not contribute your earnings after the marriage into this account.

Do not "transmute" separate property into marital property by changing the title of the account into joint names with your spouse.

Do not pay for living expenses with your separate property and save marital earnings.

If you are giving money to a married child and his or her spouse, be aware that gifts during the marriage from third parties are separate property.

Keep records so that you can trace separate property to money you had before the marriage, a gift from a third party, an inheritance and/or a personal injury award.

If you are physically separated, the moneyed spouse should start a divorce action (or enter into a written separation agreement) as soon as possible to stop the accumulation of marital property.

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Q. What are my alternatives to starting a divorce action?

A.

If you want to remain married, you and your spouse can enter into a marital agreement.

If you want to get divorced without court intervention, you can use a mediator or the collaborative law process to negotiate the resolution of your parenting and financial issues.

What is Collaborative Family Law?

Collaborative Law is a way of practicing law whereby the attorneys for both parties to a dispute agree to assist their clients in problem solving, resolving conflict and reaching agreement using cooperative strategies rather than adversarial techniques and litigation. The focus in collaborative law is on finding the common interests and highest priorities of the parties. The goal of the process is to develop effective relationships, solve problems jointly and prevent a court battle. In order to achieve a durable settlement in each situation, collaborative law may use a team approach and call upon the assistance of other non-legal professionals, such as financial planners and mental health professionals.

What is divorce mediation?

In divorce mediation, the spouses retain a mediator (usually an attorney or a mental health professional) who meets with both spouses to facilitate an agreement between the spouses on custody and financial issues. In addition to the mediator, each spouse usually retains his or her own attorney for advice during the mediation process and/or to draft or review the parties' separation agreement.

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II. Marital v. Separate Property

1) Definitions

"Marital Property" is defined in Domestic Relations Law ("DRL") §236[B][1](c) as follows:

"c. The term "marital property" shall mean 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 defined in DRL §236[B](1)(d) as follows:

"d. The term separate property shall mean:

(1) Property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse;

(2) compensation for personal injuries;

(3) 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 (emphasis added);

(4) property described as separate property by written agreement of the parties pursuant to subdivision three of this part."

2) Burden of Proof

Judson v. Judson, 255 A.D.2d 656, 679 N.Y.S.2d 465 (3d Dep't 1998)

"Property acquired during the marriage is presumed to be marital property and the party seeking to overcome such presumption has the burden of proving that the property in dispute is separate property."

Pullman v. Pullman, 176 A.D.2d 113, 573 N.Y.S.2d (1st Dep't 1991). There is a presumption that assets commingled with other property acquired during the course of the marriage are marital property.

3) Commingling and Transmutation

A. Financial Accounts

While the act of depositing separate property funds into a joint account creates a presumption of an intent to convert those funds into a marital asset, this presumption may be rebutted. The party claiming the funds to be separate property bears the burden of rebutting the presumption. In order to rebut the presumption, the party seeking to have the asset classified as separate property must prove, by clear and convincing evidence, that placing the funds into a joint account was solely for his or her own convenience.

Failure To Rebut Presumption of Marital Property

Imhof v. Imhof, 259 A.D.2d 666, 686 N.Y.S.2d 825 (2d Dep't 1999) - "Separate property can be transmuted into marital property when the actions of the titled spouse demonstrate his intent to transform the character of the property from separate to marital [ . . . .] Here, there is every indication that the husband intended to commingle his funds by depositing the proceeds of the sale of his separate property into joint accounts and by sharing the proceeds for family and business purposes."

Presumption of Marital Property Rebutted Because Separate Property Was Placed Into A Joint Account Merely As A Matter of Convenience.

McGarrity v. McGarrity, 211 A.D.2d 669, 622 N.Y.S.2d 521 (2d Dep’t 1995) - "The husband testified at trial that he inherited in excess of $250,000 from his mother and his brother. The major portion of those inheritances was received subsequent to the parties' physical separation. The husband deposited certain of these funds into the parties' joint accounts. As a result, the wife argues, these funds were transmuted into marital property, of which she is entitled to her equitable share. The husband sufficiently traced the funds from his inheritances to deposits into the parties' joint bank accounts. Moreover, he established that he simply deposited the money into whatever bank account was most convenient, whether near his office in Manhattan, or near the marital residence. Significantly, the bulk of the inheritance money was not received by the husband until after the parties were living separately, thus demonstrating the absence of any donative intent by the husband despite the wife's continued access to the accounts."

The Mere Use by the Party of His or Her Separate Account or Funds To Pay Joint or Marital Expenses Does Not Itself Convert the Separate Account Into a Marital Asset.

Spencer v. Spencer, 230 A.D.2d 645, 646 N.Y.S.2d 674 (1st Dep’t 1996) - "The fact that the plaintiff may have made withdrawals from his separate account to pay marital expenses does not alter this conclusion, as there was insufficient evidence of commingling to conclude that this account was transmuted into marital property."

The Presumption of Marital Property not Extended to Subsequently-Received Inherited Funds Deposited into Individual Bank Accounts.

Feldman v. Feldman, 194 A.D.2d 207, 605 N.Y.S.2d 777 (2d Dep’t 1993) - ". . . the fact that a portion of the husband's inherited funds were deposited into a joint account does not support the further inference that the husband intended to treat all subsequently-received funds, which were placed in his individual bank accounts, as marital property."

B) Marital Residence

The presumption of marital property in financial accounts is sometimes similarly applied to real property. In the matter of Schmidlapp v. Schmidlapp, 220 A.D2d 571, 632 N.Y.S.2d 593 (2d Dep’t 1995), the court determined that the marital residence was fully transmuted to marital property when the wife transferred title to herself and her husband as tenants in the entirety, notwithstanding the fact that the unimproved lot was the wife's separate property prior to the marriage.

However, most cases involving a marital residence give a credit for separate property even if title is in joint names. When the transmuted asset is real property, the courts tend to factor into the calculation any separate property contribution towards the attainment of that asset. That portion of a down payment, for example, which is comprised of separate property, is typically backed out of the value of the marital residence and returned to the party who contributed the separate property, even where the real property is deemed to be marital.

Diaco v. Diaco, 278 A.D.2d 358, 717 N.Y.S.2d 635 (2d Dep’t 2000) - "However, in the exercise of our factual review power, we modify the defendant's equitable share in the marital residence from $72,250 to $50,667 to properly reflect the plaintiff's contributions to that asset, and the parties' circumstances. We note that the house was purchased by the plaintiff and his father in 1966, and was placed in the parties' names in 1979. The plaintiff, by placing the marital residence in both names, changed the character of the property to marital property (see, Schmidlapp v. Schmidlapp, 220 A.D.2d 571, 632 N.Y.S.2d 593). However, each item of marital property need not be distributed on an equal basis (see, Coffey v. Coffey, 119 A.D.2d 620, 501 N.Y.S.2d 74). In view of the plaintiff's contributions of separate property, and the circumstances of the parties, an award to the defendant of one-third of its value is appropriate (see, Butler v. Butler, 171 A.D.2d 89, 574 N.Y.S.2d 387; Denholz v. Denholz, 147 A.D.2d 522, 537 N.Y.S.2d 607)."

Koehler v. Koehler, 285 A.D.2d 582, 727 N.Y.S.2d 913 (2d Dep’t 2001) - Where the parties took title to the marital residence as joint tenants before they were married, and where the wife paid for the house solely with her own funds, it was improper for the court to adjudge the property to be marital property and direct that it be sold. Nevertheless, any appreciation in the value of the property may be deemed marital property. In Koehler, the court determined that even where real property was titled jointly in the parties' names, the husband's lack of any contribution to the property precluded a distribution of the asset, and effectively returned to the wife her 100% investment of seed money into this marital asset.

Carr v. Carr, 291 A.D.2d 672, 738 N.Y.S.2d 415 (3d Dep’t 2002) - Husband allowed $195,000 credit for down payment and payments on principal of mortgage made with non-marital funds.

In Alessi v. Alessi, the court declined to award any portion of an increase in value in real property, finding that there was no transmutation of the asset, but did indicate that the non-titled spouse was entitled to a return of her share of marital funds contributed towards the mortgage on the property.

Alessi v. Alessi, 289 A.D.2d 782, 734 N.Y.S.2d 665 (3d Dep’t 2001) (citations omitted) - ". . . plaintiff offered no competent evidence and Supreme Court made no findings concerning any enhancement of the value of this property as a result of plaintiff's efforts during the marriage. Under the circumstances, plaintiff's interest in that property is limited to her equitable share of the marital funds applied toward repayment of the mortgage on the residence, which we determine to be 12 payments of $290 or $3,480."

4) Active v. Passive Appreciation

The Appreciation in Value of a Separate Asset May Also Become Marital Property if the Increase Was Due to the Direct Efforts of the Titled Spouse (and the Direct and/or Indirect Efforts of the Non-Titled Spouse).

Separate property may increase in value during the marriage. This increase in value may itself be considered a marital asset subject to equitable distribution between the parties. The long-standing law in connection with this concept was first elaborated by the Court of Appeals in Price v. Price. The court held that an increase in value of a separate asset may become marital property if that increase was due, in some part, to the efforts of the titled spouse and the direct or indirect efforts of the non-titled spouse.

Price v. Price, 69 N.Y.2d 8, 511 N.Y.S.2d 219 (1986). The court established the active/passive test, holding that the active appreciation in the value of separate property is subject to equitable distribution. The court reasoned 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 and parent, should be considered marital property."

Hartog v. Hartog, 85 N.Y.2d 36, 623 N.Y.S.2d 537 (1995) - "In Price v. Price, this Court set forth the (active/passive) test, which established the guidelines for determining whether the appreciation in a titled spouse's separate property has been transmuted into marital property based on the indirect contributions of the nontitled spouse (69 N.Y.2d 8, 511 N.Y.S.2d 219, 503 N.E.2d 684, supra; Domestic Relations Law §236[B][1][d][3]; [5][d][6] )."

The Court of Appeals in Price and Hartog established what has since become known as an "active/passive test" in determining whether the increase in value should be considered a marital asset. In short, this test requires the non-titled spouse seeking distribution of the increase in value to demonstrate that the increase occurred as a result of some active contribution, either directly or indirectly, to that increase in value, and that it did not occur as a result of "passive" market forces. However, even active contribution, must be demonstrated to have had a direct causal link to the increase in value.

Zielinski v. Zielinski, 289 A.D.2d 1017, 735 N.Y.S.2d 302 (4th Dep’t 2001) - "The court properly concluded that one half of the appreciation of plaintiff's interests in the businesses during the marriage was attributable to plaintiff's efforts, not to unrelated factors such as inflation or other market forces, and thus constituted marital property."

In Wegman v. Wegman, 123 A.D.2d 220, 509 N.Y.S.2d 342 (2d Dep’t 1986) the wife was awarded a share of the increase in value of her husband's separate 25% ownership interest in the business. The evidence presented was that the value of the husband's interest appreciated considerably during the parties' marriage, that the wife "contributed to the appreciation of that interest and she is therefore entitled to an award of a percentage of the appreciation of that separate asset, having shown that her direct and indirect contributions to the marital relationship were causally related to the enhancement in value of the business." The court reasoned that the wife "was required to totally support her husband and herself until January 1949 and always contributed all of her earnings toward the expenses of the household. She claimed she had suggested new products to be sold and sought out new employees, including her cousin's husband, who had worked in a medical laboratory. She also stated that she entertained large numbers of business guests on an average of twice per month, doing all of the planning, preparing, and cooking herself. She testified that she obtained investors from among her acquaintances and became active in civic affairs in order to meet people who might be helpful to her husband in his business." The court found this to be a significant contribution towards the growth of the husband's business interests and the increase in value thereof.

In the matter of Spencer v. Spencer, 230 A.D.2d 645, 646 N.Y.S.2d 674 (1st Dep’t 1996) the court held that the wife's indirect contributions as housewife and homemaker were a sufficient indirect contribution to the appreciation of brokerage account, which the husband had inherited. The court held that "the appreciation of this account, due to the plaintiff's management during the marriage, must be credited to the defendant, who is entitled to a fifty percent share of such appreciated value during the marriage as part of the marital estate. [. . . . ] Here, the plaintiff used his experience in accounting and taxation to manage the investments in the inheritance accounts with his son. Since the defendant indirectly contributed to the appreciation of this asset by handling the household matters, thereby permitting her husband the freedom to devote energy to his financial endeavors (Price, supra, at 16, 511 N.Y.S.2d 219, 503 N.E.2d 684), her contribution should be given consideration in the distribution of the appreciated value of this asset."

A Non-Titled Spouse's Active Management of a Separate Asset Does Not Always Result in Any Increase in the Value being Deemed Marital Property Because The Non-Titled Spouse Made No Direct Or Indirect Contribution or Failed to Demonstrate a Nexus.

In the matter of Elmaleh v. Elmaleh, 184 A.D.2d 544, 584 N.Y.S.2d 857 (2d Dep’t 1992), where the husband claimed that the value of the wife's interests in real property increased during the marriage, and where he had managed the properties on a full-time basis for nearly 20 years, he was denied distribution of any portion of the increase in value as he failed to demonstrate the manner in which his contributions resulted in the increase in value and the amount of the increase which was attributable to his efforts. The evidence at trial established that the increase in value was caused by an upturn in the real estate market.

A Titled Spouse's Active Management of a Separate Asset does not always Result in the Appreciation being Deemed Marital Property.

Lawson v. Lawson, 288 A.D.2d 795, 732 N.Y.S.2d 753 (3d Dep’t 2001) - Husband's interest in two real estate holding companies, owned by himself and relatives, was passive, allowing for exclusion of increase in value of the husband's interest during marriage as marital property for equitable distribution purposes, despite claim that the husband did some bookkeeping, prepared estate succession computer program involving one company, developed computer data base, and discussed business matters regarding companies with his mother from time to time.

The Court Sometimes Suggests that the Increase in Value Is Presumed Marital from the Date the Separate Asset Is Transmuted To A Marital Asset.

Rugen v. Rugen, 289 A.D.2d 218, 734 N.Y.S.2d 465 (2d Dep’t 2001) - "Contrary to the plaintiff's contentions, the Supreme Court properly applied the relevant factors of Domestic Relations Law §236(B)(5)(d) when it awarded her 50% of the appreciation in the marital residence from May 2, 1990, the date that the residence was transformed from the defendant's separate property into marital property, through January 21, 2000, the date of the trial."

5) Debts

Marriage is viewed as an economic partnership where spouses share in profits and assets of the partnership as well as in the losses and liabilities incurred in pursuit of marital wealth. (Gelb v. Brown, 163 A.D.2d 189, 558 N.Y.S.2d 934).

Liabilities, as well as assets, are valued and allocated between the spouses. Savage v. Savage, 155 A.D.2d 336, 547 N.Y.S.2d 306; see, e.g., Cook v. Cook, 237 A.D.2d 891, 656 N.Y.S.2d 1000.

III. The Commencement of a Divorce Action Stops the Accumulation of Marital Property But The Court Has Discretion to Value Marital Property at Anytime From The Date of Commencement To The Date of the Trial

BASIC RULE (that's never followed): As soon as is practicable after a matrimonial action has been commenced, the court shall set the date or dates the parties shall use for the valuation of each asset. The valuation date or dates may be anytime from the date of commencement of the action to the date of trial. (DRL §236 (B) (4) (b)).

The court has wide discretion and flexibility in selecting appropriate valuation dates. (Maddelina v. Maddelena, 217 A.D.2d 606, 629 N.Y.S.2d 463). Generally, passive assets, whose values are affected by outside influences such as inflation or market forces, should be valued as of date of trial and active assets, whose values are affected by participation of the titled spouse, should be valued as of the date of commencement. (Heine v. Heine, 176 A.D.2d 77, 580 N.Y.S.2d 2311.) However, such formulations should only be regarded as helpful guideposts and not immutable rules of law. (McSparron v. McSparron, 87 N.Y.2d 275, 639 N.Y.S.2d 265 (1994)).

· Pensions are valued as of the date of the commencement of the action. Cohn v. Cohn, 155 A.D.2d 412, 547 N.Y.S.2d 85 (2d Dep’t 1989).

· Marital Residence is generally valued as of the trial date. Lerardi v. Lerardi, 151 A.D.2d 548, 542 N.Y.S.2d 322 (2d Dep’t 1989).

IV. Retirement Benefits

1) Defined Benefit v. Lump Sum

Need to either "present value" the defined benefit plan or transfer 50% of the portion that accumulated during the marriage pursuant to a Qualified Domestic Relations Order ("QDRO") using the formula set forth in Majauskas, 61 N.Y.2d 481 (1984).

2) Statutory Requirements of QDRO's - IRC (414)(p)

a. Name and address of participant and Alternate Payee,

b. Amount or percentage of benefits payable to Alternate Payee,

c. Number of payments or period for which payments are required,

d. Each plan to which Order applies,

e. Must not alter form of benefit and

f. Same benefits only to one Alternate Payee: the one who files the QDRO first.

You do not need a QDRO to rollover IRA's but you do need a divorce judgment.

3) Disability Pensions

The issue to be determined in the case of disability pensions is to what extent these payments represent deferred compensation or compensation for personal injuries. Deferred compensation is marital property and compensation for personal injuries is separate property. (Mylett v. Mylett, 163 A.D.2d 463, 558 N.Y.S.2d 160).

(Stuart v. Stuart, 140 Misc.2d 494, 531 N.Y.S.2d 194): For equitable distribution purposes, a veteran's disability pension constituted separate property.

Dolan v. Dolan, 78 NY2d 463, 577 NYS2d 195, (1991): Portion of ordinary disability pension which represents deferred compensation related to length of employment occurring during marriage constitutes marital property subject to equitable distribution.

Dolan v. Dolan, 167 AD2d 654, 562 NYS2d 875, 877-878 (3d Dep't 1990): Because husband's disability benefits, payable under NYC Administrative Code, were partially compensation for his years of service, as evidenced by fact that one must have been employed for at least 10 years to qualify for same, trial court properly determined that the portion attributable to compensation for personal injury, i.e. the disability portion, was husband's separate property, but that the portion attributable to deferred compensation was marital property in which wife entitled to share.

V. Licenses and Degrees

1. A professional degree and/or license acquired during the marriage is a marital asset subject to equitable distribution. O'Brien v. O'Brien, 66 N.Y.2d 576, 498 N.Y.S.2d 743.

2. Other types of licenses:

(a) License as practical nurse held marital property. Morales v. Morales, 230 A.D.2d 895,646 N.Y.S.2d 884 (2d Dep’t 1996).

(b) License as school guidance counselor also held to be marital property. Holihan v. Holihan, 159 A.D.2d 685, 553 N.Y.S.2d 434 (2d Dep’t 1990).

(c) However, uncompleted studies that might lead to a license in the future are not to be treated as marital property. Kyle v. Kyle, 156 A.D.2d 508, 548 N.Y.S.2d 781 (2d Dep’t 1989).

(d) Physician's assistant and certification as a physician's assistant is marital property. Morimando v. Morimando, 145 A.D.2d 609, 536 N.Y.S.2d 701 (2d Dep’t 1988).

(e) Fellowship in the Society of Actuaries earned during the marriage and any corresponding enhanced earning capacity is marital property. McAlpine v. McAlpine, 176 A.D.2d 285, 574 N.Y.S.2d 385 (2d Dep’t 1991).

3. An academic degree is marital property to the extent that it has been earned through a course of study undertaken during the marriage. McGowan v. McGowan, 142 A.D.2d 355, 535 N.Y.S.2d 990 (2d Dep’t 1988).

(a) Bachelor's degree in Technology Computer Science Program earned during the marriage is a marital asset, which a share of the enhanced earning capacity resulting therefrom should be distributed to the spouse without such degree. Smith v. Smith, 227 A.D.2d 891, 643 N.Y.S.2d 274 (4th Dep’t 1996).

(b) Master's in Business Administration deemed marital property, of which the enhanced earning capacity attributable to same should be valued for purposes of equitable distribution. Miyake v. Miyake, N.Y.L.J., Oct. 5, 1998, at 29.

THE HOUGIE ISSUE: Is "Exceptional Earnings Capacity" Not Resulting from a Degree or License Marital Property?

The First Department has held that enhanced earning capacity as an investment banker is subject to equitable distribution regardless of whether such career requires a license. Hougie v. Hougie, 261 A.D.2d 161, 689 N.Y.S.2d 490 (1st Dep’t 1999).

The career and celebrity status of a well known opera singer is marital property, where the non-celebrity spouse contributed. Elkus v. Elkus, 169 A.D.2d 134, 572 N.Y.S.2d 901 (1st Dep’t).

Enhancement of a medical license by emergency room employment, without a formal certification for this specialty, is marital property. Madori v. Madori, 151 Misc.2d 737, 573 N.Y.S.2d 553, aff'd on other grounds, 201 A.D.2d 859, 608 N.Y.S.2d 331 (3d Dep’t 1994).

The skills of an artisan, actor, professional athlete or any person whose expertise has enabled them to become an exceptional wage earner should be valued as marital property subject to equitable distribution. Golub v. Golub, 139 Misc.2d 440, 527 N.Y.S.2d 946 (Sup. Ct. N.Y. Co. 1988).

Hougie Rejected

Absent a degree or license, attendance at the Harvard Advance School for Banking did not constitute marital property subject to equitable distribution. West v. West, 213 A.D.2d 1025, 625 N.Y.S.2d 116 (4th Dep't 1995).

In Spence v. Spence, 287 A.D.2d 447 (2d Dep't 2001), the Second Department rejected Hougie, plainly stating: "The husband's enhanced earning capacity as an investment banker is not marital property subject to equitable distribution. The husband earned his MBA, Series 7 license, and Series 63 license four years before the marriage. Accordingly, his increased earning capacity is not attributable to a professional license or degree acquired during the marriage (citing O'Brien, McSparron and West). To the extent that the decision of the Appellate Division, First Department in Hougie v Hougie (261 A.D.2d 161), holds to the contrary, we decline to follow it."

In Halaby v. Halaby, 289 A.D.2d 657 (3d Dep't 2001), the Third Department cites Hougie, but found insufficient evidence to conclude that the Husband's postdoctoral fellowship earned during the marriage increased his earning capacity.

VI. Bankruptcy

Maintenance and child support are not dischargeable in a bankruptcy proceeding. A distributive award (i.e. property award) is dischargeable in bankruptcy. However, the characterization of an award "by the divorce court or the parties is not by itself, dispositive." "Distributive awards" under New York law can be found to be in the nature of support, and an award labeled as maintenance, may be found to be a "dischargeable property settlement." In Re Bonheur, 148 B.R. 379, 1992; Bank v. Lexis, 2019 (E.D.N.Y. 1992). Practice Tip: In Separation Agreement or Stipulation of Settlement, state that the obligation is not dischargeable in bankruptcy.

Finfer v. Finfer, NYLJ May 3, 1994 at 22, col. 3. Having failed to disclose assets in Bankruptcy Court, the husband was precluded from recovering the same in a matrimonial action.

VII. Tort Actions

· One year Statute of Limitations for Intentional Tort

· There is no requirement in New York that actions for tort occurring during marriage be joined with a divorce action. See Chen v. Fischer, 6 N.Y. 3d 94 (2005) (although the Wife’s “personal injury claim could have been litigated with the matrimonial action – as the facts arose from the same transaction or series of events…she is not precluded from litigating that claim in a separate action.”)

Contact Me

If you think you may require the assistance of Kathleen Donelli in any matter, email (kdonelli@mccarthyfingar.com) or phone her (914-385-1010) with any question you may have.