Appellate Court Adjusts Trial Court’s Distribution of Business Interests in New York Divorce Case

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A New York appellate court considered the appeal of a wife in a divorce case, who objected in part to the trial court’s distribution of marital property. This included interests in several business entities. The wife challenged the characterization of two of the business interests as separate property, as well as the amount of the distributions awarded to her. The Appellate Division agreed with some of her arguments and adjusted the lower court’s judgment based on factors like the wife’s contributions as the primary caretaker of the couple’s children.

The couple got married in 1988 and had two children, both of whom were over the age of 21 when the court issued its order. The husband filed for divorce and ancillary relief several years ago, and the case went to trial in the Supreme Court, Nassau County in early 2012. The wife appealed on multiple issues, including the distribution of interests in three business entities:  a one-third interest in a family-owned corporation that operated a hardware store, a one-third interest in a limited liability company (LLC) that acted as a holding company for a piece of real estate in Manhattan, and a 12.9% interest in an LLC that operates an MRI facility located in Westchester County.

The trial court ruled that the interests in the hardware store and the holding company were the husband’s separate property, while the parties stipulated before trial that the interest in the MRI business was marital property. With regard to the hardware store, the trial court awarded the wife $69,900, which represented 15 percent of the increase in value of the husband’s interest in the business. It also awarded her 15 percent of the value of the husband’s interest in the holding company, a total sum of $184,950. Finally, the court awarded the wife 50 percent of the net profit distributions received by the husband from the MRI business until her 66th birthday.

On appeal, the wife claimed that the trial court erred by characterizing the hardware store and the holding company as separate property, and that it failed to make an equitable distribution of the MRI business. The Appellate Division ruled as follows:

– Hardware store:  The trial court correctly characterized the husband’s interest as separate property, since it was a “gift from a party other than the spouse,” specifically his father and uncle, received during the marriage. The court should have awarded the wife 25 percent of the increase in value, however, instead of 15 percent, on account of her contributions “as primary caretaker of the parties’ children, as a homemaker, and as a social companion to the [husband], while foregoing her career.”

– Holding company: The trial court should have characterized this as marital property, since it was acquired during the marriage and the husband failed to show that he used separate property to purchase it. The wife’s share was also increased to 25 percent.

– MRI company: The trial court’s distribution was inequitable, and the appellate court remanded the matter with instructions to recalculate the wife’s share.

The process of distinguishing separate property from marital property in a New York divorce case is often difficult. It requires a careful inventory of a couple’s assets and an analysis of when and how they were acquired, as well as how they were managed during the marriage. Evaluating business interests can be especially tricky, since it requires an assessment of each spouse’s contributions of time and resources to a business.

For the past 30 years, Ingrid Gherman has practiced family law in the greater New York City area, helping people deal with difficult questions of property distribution. To schedule a confidential consultation, contact us today online or at (212) 941-0767.

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