Monthly Archives: November 2008

Continued from Part 1

The next step in distributing marital property under DRL 236 B(5) is to identify all property held by both spouses, both marital and separate. Parties are required to complete a sworn statement of net worth. The statement of net worth has a duel purpose; it allows honest parties to fully disclose all assets held. It also locks each party into what they claim is owned. Should undisclosed assets later be discovered, penalties can range from slight to severe, depending on the nature of the asset and why it was not disclosed.

The most common assets include the following:

• Cash
• Checking and Savings Accounts
• Brokerage Accounts
• Stocks
• Bonds
• Retirement Accounts
• Pensions (vested and non vested)
• Real Estate
• Contingent Interests
• Loans due to the party
• Automobiles
• Jewelry
• Business interest

In addition to these obvious tangible assets, there is an additional asset which is unique to New York divorces; a professional license is considered an asset in addition to a professional practice. See O’Brien v. O’Brien. This “asset” is arrived at by calculating the estimated future earning capacity of the person with the license and subtracting the earning capacity had they not obtained the license. The difference is then reduced to a present dollar amount. How that is calculated will be discussed in a later part in this series.

Since the 1985 holding of O’Brien, the concept of converting future earning potential into a marital asset has been greatly expanded.

The fairness of O’Brien has been questioned quite extensively, and I am among those who think it is an absurd ruling except in very limited circumstances. Thus far, efforts to have the State Legislature overturn O’Brien have failed.

Community Property contrasted with Equitable Distribution

There are two main concepts to marital property, community property and equitable distribution.

Community Property

There are nine community property states - Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Under the doctrine of community property, each spouse has a vested interest in all marital property regardless of title. Marital property remains jointly held until the marriage is terminated by divorce, or upon death of either party. This interest can be asserted during the marriage, after a marriage, in conjunction with a divorce or annulment, or as a claim against an estate.

Contrary to common belief, community property does not mean that the marital property is divided 50-50. States are free to determine how marital property is disposed of in a divorce. Texas will divide community property on an equitable basis, while California presumes that all community property will be divided equally.

Equitable Distribution

Most states, including as New York, use equitable distribution to divide marital property. Under equitable distribution, there is no enforceable right or vested interest in marital property outside of an action to dissolve the marriage. That means that absent a divorce or an annulment, the court is powerless to distribute any marital asset. If a divorce is denied due to a lack of grounds, there can be no equitable distribution. Likewise, there can be no equitable distribution under an action for a judicial separation (DRL 200) since the status of the marriage is not changed.

New York courts will be constrained by this concept when dealing with equitable distribution. For example, in Meier v. Meier, the trial court granted the divorce and divided the marital property. However, on appeal, the Appellate Division reversed the granting of the divorce. Therefore, the marital property was not subject to equitable distribution. The court held

Equitable distribution of the parties’ marital property, unlike maintenance, custody and child support, is only available in actions where the marital relationship is terminated by divorce, dissolution, annulment or the declaration of the nullity of a void marriage, or in a proceeding to obtain a distribution of marital property following a foreign divorce judgment (Domestic Relations Law § 236 [B] [5] [a]; [6] [a]; § 240 [1].

In Adamo v Adamo, the Appellate Division denied a request to sell marital property in a pendente lite motion, as absent some alteration of the marital relationship, the court lacks the authority to direct the sale of any marital asset.

What does this mean in a New York divorce? New York is the only state which does not have true no fault divorce. Contesting grounds can do more than “preserve a marriage,” it can divest the court of the authority to equitably distribute the marital property. Therefore, in conjunction with equitable distribution, grounds can be a significant tactical consideration in a divorce.