Husband Loses Millions in Separate Property Credits Due to Prenuptial Agreement’s Use of ‘The’

800px-Magnifying_glass_with_infinite_focusIn legal matters, sometimes the littlest things make the biggest differences. It’s why people speak of “the fine print.” In some cases, it might be the definition of the word “is.” In a recent multi-million-dollar divorce, it was three little letters:  “the.” A prenuptial agreement’s use of the phrase “the marital property,” instead of “marital property,” made all the difference, leading the Appellate Division to reject millions of dollars of separate property credits the husband sought.

The credits related to a prenuptial agreement that Lawrence Babbio Jr. and Sheri Babbio signed before they married. The agreement spelled out certain circumstances under which a spouse could claim a separate property offset credit. Specifically, a spouse was entitled to pursue a credit if the marriage lasted less than 10 years and the spouse seeking the credit could demonstrate that he or she used at least $1 million of separate assets to purchase the piece of marital property.

When the couple divorced after less than a decade of marriage, the husband sought separate property credits for a Park Avenue apartment, a home in Connecticut, and other parcels of real estate in Connecticut. He also claimed credits for a Goldman Sachs account, a JP Morgan account, and ownership interest in Greycroft Partners, a venture capital firm. The trial court granted part of the husband’s request, allowing him to claim millions in credits on the real estate holdings.

The Appellate Division interpreted the agreement differently. The Appellate Division’s ruling illustrates that the phrase “don’t sweat the small stuff” definitely does not apply to prenuptial agreements. The linchpin of the appeals court’s decision was the use of the word “the” in the section governing separate property credits. The contract stated that, to be entitled to a credit, a spouse must “identify One Million ($1,000,000) Dollars or more of Separate Property that was used for the acquisition of the Marital Property.” The court reasoned that, since the parties used the phrase “the Marital Property,” and not “Marital Property,” that meant that the spouse seeking a credit must show that he or she spent at least $1 million on each piece of marital property for which he or she sought the credit, and not simply prove that the total amount of separate property he or she spent was $1 million or more.

Using this interpretation of the agreement and this proof requirement, the husband was only entitled to a credit for the Connecticut home. He had evidence showing that he spent $5 million of separate property toward the purchase of that property. For the financial accounts, the venture capital firm holdings, and the other Connecticut real estate parcels, the husband did not have proof that he spent $1 million or more of separate property, so he was entitled to no credit on those items.

Prenuptial agreements can provide invaluable amounts of peace of mind to one or both spouses entering a marriage. The key to a successful prenuptial agreement is ensuring that you understand everything your “prenup” does, or does not, do. Obtaining wise counsel before you sign a prenuptial agreement can potentially save you thousands of dollars, or more. For advice and representation in establishing your prenuptial agreement, consult New York family law attorney Ingrid Gherman. Her skills and years of experience can help you ensure that the agreement you sign properly protects your interests.

Contact her online or by calling (212) 941-0767 to schedule your confidential consultation.

More blog posts:

When New York Property is at Risk of Equitable Distribution in Divorce, New York Divorce Attorney Blog, Dec. 9, 2014