Articles Posted in Equitable distribution of marital property

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Divorce is a matter of state law in the U.S. in almost every circumstance. Each state has jurisdiction over family law disputes within its territory, but more and more people’s lives are not contained within a single state. People living in New York City might own real property in another state, and assets can cross state lines in other ways. This can create complications in a divorce case, since state courts can only exercise jurisdiction over property located in that state. New York law allows courts to distribute property located in this state after issuance of a divorce decree in another state or another country. A recent order by a Manhattan court addressed a dispute over property located in New York City, between spouses whose divorce case was pending in Monaco. THA v. MAA, No. 161488/2015, dec. order (N.Y. Sup. Ct., N.Y. Cty., Jan. 18, 2017). The order offers an idea of how and when a party to a divorce should seek a New York court’s involvement in distribution of property.

The dispute in THA involves two main legal issues: the alleged concealment of marital property and the court’s jurisdiction over property located in New York City. In a divorce matter, the spouses must make a full disclosure of all marital property in their possession or subject to their control. Intentional concealment of marital property from the other spouse or the court can result in sanctions, and can also affect how the court orders the distribution of property.

In order to bring an action in a particular court, the plaintiff or petitioner must be able to show that the court has jurisdiction over the defendant, known as in personam jurisdiction, or over a particular item of property, known as in rem jurisdiction. A New York City court might have in personam jurisdiction over the parties to a divorce if they live here, but it would lack in rem jurisdiction over property located outside of the State of New York. If a divorce decree issued by a court outside of New York affects property located in New York, § 236(B)(5) of the Domestic Relations Law (DRL) allows the courts of this state to order the distribution of such property, mostly in accordance with New York law.
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A person seeking a divorce anywhere in the United States in 2016 is no longer required to prove wrongdoing by the other spouse. In 1970, California enacted the nation’s first “no fault” divorce statute, which allows a spouse to bring a cause of action for divorce based on “irreconcilable differences.” New York was the last state to authorize no-fault divorce, on the ground that “[t]he relationship between husband and wife has broken down irretrievably for a period of at least six months,” in 2010. Many states now only allow no-fault divorce, but New York is among the states that still allow fault-based claims for divorce, such as “cruel and inhuman treatment,” abandonment, and adultery. This can play a role in multiple aspects of a New York divorce, as a Brooklyn court noted in a December 2015 decision, Alice M. v. Terrance T. The court went so far as to describe it as a perfect example of “egregious conduct by one spouse against another spouse.”

The two main issues in the Alice M. case were the equitable division of marital property and a claim for spousal maintenance. Under New York law, most property acquired during a marriage is deemed marital property. Section 236(B)(5) of the New York Domestic Relations Law (DRL) establishes procedures for the equitable distribution of marital property, based on factors like the age and health of the parties, each party’s income, equitable claims or waste by one spouse, or other factors that the court “expressly find[s] to be just and proper.” The court in Alice M. noted that, based on a precedent case, “marital fault is not…‘a just and proper’ consideration in determining equitable distribution of marital property.”

Spousal maintenance, sometimes still known as alimony, is governed by § 236(B)(6) of the DRL. The court may order an amount to be paid by one spouse to the other, based on economic factors like whether child support is to be paid and in what amount, the payor’s ability to pay, and the payee’s needs; and on fault-based factors like waste of marital property and acts of domestic violence by one spouse against another.

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Divorce typically requires a near-total reorganization of one’s home, family, and personal life. In some cases, it affects the workplace too, such as when spouses are also business partners. A recent court order effectively “broke up” a pair of business owners, who had also once been a romantic couple, after finding that their personal animosity made running the business together impossible. Not all instances of businesses split up by divorce are quite so dramatic. Sometimes ex-spouses are able to continue running a business together, but New York’s business and family laws provide means for divorcing couples to complete the divorce with minimal adverse impact on the business.

In August 2015, a Delaware Court of Chancery judge issued a 106-page order in In re Shawe & Elting LLC, et al., appointing a custodian to effect the sale of a profitable business corporation. The two parties to the case, EE and PS, owned 50 and 49 percent of the stock in the company, respectively, although the court treated them as having equal shares and voting rights. They reportedly started the business in a business school dorm room in 1992. They grew it into a global provider of translation services, with millions in annual revenue.

The two became engaged in 1996, according to the court, but EE broke it off in 1997. Although the business became quite profitable over the years, the court found that the relationship between EE and PS, who essentially owned the company 50/50, had deteriorated to a point of “complete dysfunction,” resulting in “irretrievable deadlocks over significant matters” that threatened “irreparable injury” to the business. It granted EE’s motion to appoint a custodian, as permitted by Delaware law in cases of deadlocks, to sell the corporation.

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In a New York divorce matter, a court cannot grant a final divorce until the parties have resolved a wide range of issues, including an equitable distribution of marital property. If the parties can agree on a resolution, they may ask the court to approve their agreement as the final judgment of divorce. If they cannot agree on one or more issues, however, the court must decide for them. The husband in a divorce case in Erie County sought to vacate the judgment of divorce, claiming that it did not represent his agreement on property division and therefore left certain issues unresolved. The New York Appellate Division, Fourth Department ruled in his favor earlier this year in Marshall v. Marshall, finding that he had a valid challenge to part of the divorce judgment. It vacated that part of the judgment and remanded the case to the trial court to resolve those issues.

During the divorce proceeding, according to the appellate court’s order, the wife/plaintiff’s attorney recited an oral stipulation of settlement into the record in court, stating that the parties were waiting on a proposal from a third party regarding valuation of their retirement accounts. The husband/defendant stated in court that he agreed with the oral stipulation, except for three unresolved issues relating to offsets in the valuation of the marital residence, payments on a home equity loan, and the allocation of the pension and retirement accounts. Resolving these issues depended on the valuation of the retirement accounts.

The parties agreed that they would amend their stipulation if they resolved the remaining issues, or return to court if they could not. They signed a written agreement adopting the oral stipulation. The husband then withdrew his appearance and allowed the wife to proceed by default. The parties’ attorneys reportedly received the report containing the proposal for the retirement accounts in January 2011. The husband stated that he “adamantly disagreed” with the proposal. The court, however, entered a final judgment of divorce that June.

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New York law generally categorizes property acquired during a marriage as “marital property,” meaning that the property belongs to both spouses regardless of who holds title. Property owned by one spouse before the marriage is considered that spouse’s “separate property.” In some situations in a divorce proceeding, one spouse may have an equitable claim to the other spouse’s separate property, or may be able to claim that certain separate property has become marital property over the course of the marriage. A New York appellate court recently considered a situation in which both spouses contributed to the purchase of an asset titled in the husband’s name, the marital residence, prior to the marriage. Its decision in Ceravolo v. DeSantis held that the residence remained the husband’s separate property, but it recognized that the wife may have an equitable claim for reimbursement. A dissenting justice concluded that the residence should have been deemed marital property.

The parties married in July 1996. More than two years earlier, in January 1994, they purchased the residence at issue in the appeal. The husband-to-be paid $130,000 of his own money and obtained a $100,000 loan from his father, which was secured by a note and mortgage. The future wife contributed $30,000 towards the purchase price but did not attend the closing. The husband took title to the property in his name alone, and the title remained unchanged throughout the marriage.

The wife made all payments on the mortgage, beginning shortly after closing, and continuing until the mortgagor released the lien in 2003. The wife filed for divorce in June 2010. After a trial, The Supreme Court in Albany County, New York entered a judgment of divorce in March 2013. It ruled that the wife’s mortgage payments converted the property from separate to marital property. It awarded the wife $170,000, which was one-half of the stipulated value of the residence. The husband appealed this and other parts of the divorce judgment.

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People who serve in the United States Armed Forces are entitled to a variety of benefits through the U.S. Department of Veterans Affairs (VA), including pensions and other retirement income, health care, life insurance, and dependent and survivor benefits. In a divorce in the state of New York, certain VA benefits are treated as assets subject to equitable distribution. VA benefits may also constitute income to be considered in calculating child and spousal support. The divorce process can present concerns for both veterans and spouses of veterans, both of whom may worry about losing assets or income streams on which they depend.

The New York Times recently published a story by the former spouse of a National Guard member who deployed to Iraq and returned home with physical and psychological injuries. She describes helping him obtain assistance through the VA, and the ongoing treatments and tests that eventually resulted in diagnoses of post-traumatic stress disorder (PTSD) and traumatic brain injury (TBI). Unfortunately, the two were not able to make the marriage work, and they divorced. The author states that she is lucky, since she has a job that provides benefits. Many military spouses who end up divorcing find themselves cut off from support from the VA.

Several types of VA benefits are particularly important in a divorce proceeding:

– Pensions:  Some veterans are eligible for tax-free retirement benefits.
– Life insurance:  The VA provides numerous life insurance options for veterans and their dependents.
– Health care:  The VA operates a large network of healthcare facilities, including hospitals and clinics.

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Property division is among the most challenging parts of the divorce process. Systems for distributing property acquired during a marriage, as well as property owned by a spouse prior to the marriage, differ from state to state and country to country. Several high-profile divorce cases involving extremely wealthy people who live overseas, but own property in New York City, demonstrate just how complicated property division can be.

Some U.S. states have a “community property” system, in which property acquired during a marriage is presumed to belong to a community estate. In a divorce case, the court must approve a division of the community estate and determine whether any property is the separate property of one spouse. New York has an “equitable division” system. Each spouse owns their own income and may manage their own assets. A court must approve an equitable division of property in order to grant a divorce, based on a wide range of factors such as each spouse’s income, the length of the marriage, the spouses’ ages and health needs, and any acts of waste or fraud by one spouse.

New York City has seen several divorces involving wealthy Russian businessmen expand into this state’s legal system. This usually involves claims for New York City real estate owned by a divorcing couple. Russia’s marital property laws resemble the community property laws found in some U.S. states:  a husband and wife own anything acquired during the marriage as common property. Anything owned by one spouse prior to the marriage, or received by one spouse as a gift or inheritance during the marriage, remains their separate property. Where these recent Russian cases seem to differ from most New York divorce cases is in the sheer amount of property to be divided.

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An unusual lawsuit filed in state court in Manhattan claims that the defendant harmed the plaintiff by not getting a divorce. The parties were allegedly involved in a romantic relationship for several years, although the defendant was still married to someone else. The plaintiff is seeking reimbursement for time spent as the defendant’s “glorified gofer,” as the New York Post puts it. The lawsuit is somewhat reminiscent of cases in which a person claims compensation or support from a former romantic partner, in the absence of a marriage relationship. This type of claim is informally known as “palimony,” a combination of the words “pal” and “alimony.” The case is also notable for the defendant’s alleged claim that he is unable to obtain a divorce.

The plaintiff claims that she is entitled to $2 million in compensation. The 67-year-old plaintiff was reportedly involved in a relationship with the defendant, an 88-year-old retired media executive, for about six years. During that time, she claims that she performed various business and personal services for him, including promoting a memoir he wrote and investigating his wife in search of evidence he could use in their divorce proceeding.

Throughout the relationship, the defendant resided with his wife. He allegedly claimed that his wife refused to agree to a divorce, telling the plaintiff that his wife said she would “see them bury you six feet under before I grant you a divorce.” New York does not actually require both spouses’ consent in a divorce case. A court may grant a divorce if one spouse states, under oath, that the marital relationship “has broken down irretrievably for a period of at least six months,” although the court must also resolve issues like equitable distribution of marital property. A refusal to “grant” a divorce might just mean a refusal to cooperate in this legal process.

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A New York appellate court in Brooklyn recently ruled that a woman could substitute the estate of her deceased ex-husband in a post-divorce proceeding to determine an equitable distribution of property. The executor of the estate objected, claiming that the court actions ended with the husband’s death. The trial court disagreed and granted the wife’s motion. The appellate court affirmed that order in May 2015 in Charasz v. Rozenblum.

The unusual case essentially began when the husband filed for divorce in July 2010. The wife counterclaimed for divorce soon afterwards. The parties had three children, who were approximately 13, 10, and seven at the time the divorce case started. While the case was pending, the husband was diagnosed with advanced stage brain cancer in May 2012. The court granted a divorce for the husband on the ground of constructive abandonment several months later, but it reserved the division of property and other economic issues. A lengthy trial followed, beginning in late 2012 and ending in about February 2013.

After the trial ended, the husband removed the wife and children as beneficiaries on a life insurance policy and several investment accounts, reportedly worth a total of about $5 million. He designated his mother, sister, and the executor of his estate as beneficiaries, in violation of the court’s order. On March 21, 2013, before the court entered a judgment in the case, the husband committed suicide.

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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.
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