NY Divorce Essentials
New York Equitable Distribution
A Summary of How Marital Property is Divided in NY under Domestic Relations Law Section 236 B
By J. Douglas Barics
Updated March 2016
Equitable distribution is the means by which New York distributes marital property in a divorce. Domestic Relations Law Section 236 B is the controlling statute for all divorce actions filed after July 19, 1980. DRL 236 Part A applies to divorces filed prior to that date, and is effectively an obsolete law.
DRL 236B is only the starting point in understanding the equitable distribution of marital property. Case law has greatly clarified many aspects and in some cases, expanded New York's equitable distribution far beyond what was envisioned when DRL 236B was enacted.
1. HISTORICAL CONTEXT OF EQUITABLE DISTRIBUTION UNDER DRL 236 B
Prior to the enactment of domestic relations law 236 B, New York was a common law property state; marital property as it is now known did not exist. Property and assets simply went to the spouse who held title. The only remedy available was alimony for wife, no provision existed to grant alimony to husbands. Moreover, if a husband could prove marital fault rested with the wife, she would be precluded from receiving alimony.
All this changed following the Supreme Court case of Orr v Orr, which the Supreme Court of the United States struck down gender based divorce statutes. In response, New York, adopted a gender neutral approach and for all divorce cases commenced since July 19, 1980. Equitable distribution is now used to divide marital property without regard to title. For divorces commenced under DRL 236 B, alimony was abolished and replaced by the gender neutral maintenance. This was done to help differentiate between actions which fell under DRL 236 B and DRL 236 A, and to avoid the perceived stigmatism of the word alimony.
2. NEW YORK EQUITABLE DISTRIBUTION AS ANCILLARY RELIEF
DRL 236 B(5)(a) provides that equitable distribution of marital property shall be made "in an action wherein all or part of the relief granted is divorce, or the dissolution, annulment or declaration of the nullity of a marriage." This provision authorizes the court to equitably distribute marital property only when there is a change in the marital status through a divorce or an annulment. Absent such a change, the court is powerless to distribute marital property. The sole exception is also contained in DRL 236 B(5)(a), which authorizes a special proceeding for equitable distribution following a foreign divorce. This appears to be a legislative oversight, as equitable distribution shall occur in New York divorces and annulments, but not for foreign annulments.
Should there be no matrimonial action filed, or if the status of the marriage is not requested to changed such as in an action for a separation under DRL 200, or if the divorce or annulment is denied, the non titled spouse has no right to seek equitable distribution of the marital property, since DRL 236 B(5)(a) requires that the divorce, dissolution or annulment of the marriage must be granted. For example, in Walczak v. Walczak, 206 A.D.2d 900 (4th Dept. 1994) the Supreme Court granted a divorce following a trial, and made a determination of equitable distribution. On appeal, the Appellate Division held the trial court improperly granted the divorce, and since no divorce was granted, " the marital property was not subject to equitable distribution (Domestic Relations Law § 236 [B]  [a])." In Meier v. Meier 156 A.D.2d 348 (2nd Dept. 1989), following a jury trial on the divorce grounds, the court made an award of equitable distribution. The Appellate Division reversed, finding that the plaintiff failed to meet the level of proof on the grounds of cruel and inhuman treatment under the Brady and Hessen standards. In reversing the award of the divorce to the plaintiff, the court further 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]  [a];  [a]; § 240 ;".
It therefore follows that by definition, equitable distribution of property can never be modified, since any post judgment application by a former spouse cannot change their marital status, and would run afoul of DRL 236 B(5)(a).
Likewise, the court cannot entertain a pendente lite motion for equitable distribution since the change in the marital status required by DRL 236 B(5)(a) is not met. In Adamo v Adamo, 18 A.D.3d 407 (2nd Dept. 2005) the Appellate Division held that "It is well settled that before some alteration in the marital relationship, courts lack the authority, absent the consent of the parties, to direct the sale of the marital residence owned by the parties as tenants by the entirety." Adamo remains the controlling law, and parties should not expect the court to grant a pendente lite motion to sell marital property. In Sedgh v Sedgh 142 Misc. 2d 931 (Sup. Ct. Nassau County 1989) the Supreme Court of Nassau County declined to follow two other Supreme Court decisions which granted a pre trial motion to sell the marital home.
3. IDENTIFYING MARITAL AND SEPARATE PROPERTY
Under DRL 236 B (4), mandatory financial disclosure is required for all income and assets without regard to whether it is marital or separate. A comprehensive but non exhaustive list of assets include: cash, checking accounts, savings accounts, security deposits, securities, notes, mortgages held, stocks, stock options, commodity contracts, broker's margin accounts, loans to others, accounts receivables, business interests, cash surrender value of life insurance, vehicles, real estate, interests in trusts, contingent interests, household furnishings, jewelry, art, antiques, precious metals, tax shelter investments, collections, judgments, causes of action, patents, and trademarks. To this end, both parties to a divorce must complete and file a statement of net worth. The court in Majauskas v. Majauskas 474 N.Y.S.2d 699 (Court of Appeals, 1984) ruled that vested pensions are marital property. This holding has been expanded to include unvested pensions and other retirement accounts.
A disability pension is considered to be both marital and separate. The portion of a disability pension that a spouse would have received had they not become disabled is marital. Dolan v. Dolan, 78 NY2d 463 (Court of Appeals 1991). This value is subtracted from the total value of the disability pension. Newell v. Newell, 121 Misc. 2d 586 (Sup. Ct. Queens County, 1983).
In addition to the tangible assets listed above, from 1985 to 2016, a professional degree, professional license or special training or skills which enhances the earning capacity of a spouse was considered an asset which could be distributed.
DRL 236 B(5) was amended, and effective January 23, 2016, professional licenses cannot be directly awarded. However, the new revisions do allow for an indirect award by allowing them to be considered. While it is too early to know how this new revision will evolve, it appears that licenses will be used to determine the distribution of other assets, even though the license itself cannot be directly awarded.
DRL 236 B(5) never defined a license or enhanced earnings as a marital asset. Instead, it came about through litigation as a result of the Court of Appeals ruling in O'Brien v. O'Brien, 498 N.Y.S.2d 743 (Court of Appeals, 1985) which created this new asset as a remedy to a wife who paid for her husband's medical schooling only to find there were no marital assets to be awarded when the husband commenced a divorce right after obtaining his license. Since O'Brien, the concept has been expanded through subsequent decisions beyond the initial holding of professional licenses, and now includes training or skills which enhance a spouses earning capacity. Following the holding of O'Brien, the Appellate Division case of Marcus v. Marcus held that for some cases, the value of the professional license will merge with the professional practice. The concept of merger was eliminated in the Court of Appeals case of McSparron v. McSparron, 87 N.Y.2d 265 (Court of Appeals 1995) which held that both a license and practice must be evaluated. The Court did warn against duplicate awards, but offered little guidance on how to do so.
From its inception in 1985, the concept of classifying professional licenses as an asset has not been adopted by any other state, despite O'Brien being decided over twenty years ago, and the entire concept remains highly criticized by many members of the bar association. Efforts to have the legislature change the statute failed until January 2016, when the amended statute became effective and eliminated professional licenses and enhanced earnings as an asset.
While the new statute did eliminate enhanced earnings as an asset to be distributed directly, the amended provision does allow the court to consider the contributions to the other spouse's license or enhanced earnings as a factor in distributing other assets. This amended is ironic, as it still allows for indirect distribution of enhanced earnings only if there are other assets being awarded. But if the only asset is the license or enhanced earnings, no such award could be made. Yet this was the exact reason why the Court of Appeals created this asset in the O'Brien case to begin with.
To the extend that enhanced earnings will still play a factor in equitable distribution, this concept can produce some very curious results. In Holterman v Holterman, 3 N.Y.3d 1 (Court of Appeals, 2004) the wife was awarded a distributive share of the husband's future earnings, which was to be paid over time. The husband argued that since the wife was receiving a share of his income via equitable distribution, his child support should be based on his share of his income. The Court of Appeals disagreed, and stated that since DRL 240 did not permit child support to be reduced by a distributive award, the husband's child support would be based on both his share of his earning plus his ex wife's share. As the dissent calculated, after child support, maintenance, equitable distribution, and taxes, the husband was left with a little more than $16,000 per year from his $181,000 income. While this is an extreme case, it does illustrate the dangers facing the monied spouse.
4. CLASSIFICATION OF PROPERTY AS MARITAL OR SEPARATE
Once all property has been identified, the next step is to classify each asset as either marital or separate.
Separate property is defined under DRL 236 B(1)(d) as the following:
- property acquired before the marriage
- property acquired by bequest, devise, descent (i.e., an inheritance)
- gifts to one spouse from anyone other than the other spouse. However, it is often disputed whether a gift was to one or both spouses, the latter making it marital property.
- compensation for personal injury cases, but only that part which constitutes punitive damages and pain and suffering.
- separate property acquired in exchange for separate property.
- appreciation of separate property will be considered separate property if the non titled spouse did not contribute towards the appreciation.
- property designated as separate by a validly executed marital agreement as defined in DRL 236 B(3).
Marital property defined as any property which is not within the definition of separate property, and is any property which is acquired by either party during the marriage, regardless of who actually owns the asset. Thus, a business interest, real estate, bank accounts, pensions, and professional licenses are marital property and are subject to equitable distribution. Likewise, portions of personal injury awards covering lost wages are also marital property, as is appreciation of separate property when the non titled spouse can show contribution towards the appreciation.
Engagement rings are separate property, as it was given prior to the marriage. See Lipton v. Lipton 134 Misc.2d 1076 (Sup. Ct., New York County 1986). Wedding gifts are gifts made to both spouses and are therefore marital. Nehorayoff v. Nehoravoff, 108 Misc. 2d 311 (Sup. Ct., Nassau County 1981).
Property acquired during the marriage is presumed to be marital property. Raviv v. Raviv, 153 AD2d 932 (2nd Dept. 1989). This presumption may be overcome by the party seeking to prove it is separate, but absent such proof the default is to assume it is marital. Likewise, when one spouse puts property in the name of both spouses, the asset becomes marital. See Lisetza v. Lisetza, 135 AD2d 20 (3rd Dept. 1988). However, the transferring party should be given a credit. Robertson v. Robertson 186 AD2d 124 (2nd Dept. 1992).
Classifying the appreciation of separate property as marital or separate was addressed in the Court of Appeals Case of Price v. Price, 69 N.Y.2d 8 (Court of Appeals 1986) which held that if the titled spouse took no active actions regarding the separate property, and the appreciation was due to market conditions, then the property would remain separate. If the titled spouse did actively manage the separate property, then that activity is marital. However, for the non titled spouse to be entitled to a share of that, he or she must still show some sort of contribution towards the appreciation. The holding of Price was expanded in Hartog v. Hartog, 85 N.Y.2d 36 (Court of Appeals, 1995) in which the Court of Appeals said the non titled spouse must show the titled spouse actively participated in the appreciation by some degree.
If marital property is used to pay separate property expenses or obligations, these payments cannot be recouped. This specific issue was decided by the Court of Appeals in Mahoney-Buntzman v Buntzman 2009 NY Slip Op 03629 [12 NY3d 415]. In this case, marital income was used during the marriage to pay the husband's existing child support and maintenance obligations from a prior marriage. The Court of Appeals held that the wife could not recoup these payments. The Court held that expenses paid during the marriage before either party is seeking to end the marriage, and provided there is no fraud or concealment, should not be reviewed by the court under most circumstances, and that the parties choice as to how they spend marital funds should be respected. However, the rule set forth in Mahony-Buntzman is not absolute. In Levenstein v Levenstein 2012 NY Slip Op 07090 [99 AD3d 971], the Second Department held that the wife was entitled to a credit for marital funds used by the husband to pay arrears that existed prior to the marriage. The Second Department distinguished Levenstein from Mahony Buntzman, reasoning that the obligations in Levenstein existed prior to the marriage, while the obligations in Mahony Buntzman accrued during the marriage. Moreover, the Levenstein action was an annulment based upon bigamy, and the court held that it would be inequitable to allow the husband to benefit from his criminal activity. In Iarocci v Iarocci 2012 NY Slip Op 06191 [98 AD3d 999], the Second Department affirmed the trial court decision to give the wife a credit based upon the husband repaying his sister a debt accrued prior to the marriage.
5. VALUING MARITAL PROPERTY
Once all property is disclosed and classified, the next step is to establish a value on all property. Valuation of property leads to another issue; which date should be used in determining value.
(a) Valuation date of marital property
Before the court can determine a value for each asset, it must first establish which date should be used to set value. Under DRL 236 B(4)(b) the court is free to use any date between the commencement date of the matrimonial action to the date of trial. Each asset may have a different date to set value.
The general rule for setting a valuation date is the passive/active approach. Assets which appreciate passively through market forces are often valued at the date of trial, while assets which appreciate actively through contribution of the parties are often valued at the date of the commencement of the action. Needless to say that when the value of an asset fluctuates greatly, the date of valuation can become a highly contested issue.
It is possible to file a pre-trial motion which seeks to have the court set a valuation date, rather than have the issue of valuation dates determined at trial. An order arising from such a motion may be subject to an appeal, but not always. Under CPLR 5701, an order arising from motion made on notice is appealable and if the court fixes a valuation date, that determination is subject to appeal as it involves some of the merits and affects a substantial right. See CPLR 5701(a)(2)(iv) and CPLR 5701(a)(2)(v). But if the order simply defers the matter to trial, the issue as to whether there is an aggrieved party under CPLR 5511, as there is no ruling against either party, since an order deferring a matter to trial is simply deferring a judicial determination to a later date. As with all interlocutory orders, the right to appeal them is preserved for review under CPLR 5501(a)(1) in an appeal from the final judgment. The exception to a CPLR 5501(a)(1) review will occur if an appeal is taken from an interlocutory order, not perfected in a timely fashion, and subsequently dismissed. Under the Court of Appeals holding of Rubeo v National Grange Mutual Insurance Co. (Court of Appeals 1999), appeals dismissed preclude future appellate review of the same issue. Appeals from interlocutory orders also terminate when a final judgment is issued, See Matter of Aho (Court of Appeals 1976).
Appeals from non final orders such as the setting of valuation dates must not be taken lightly, as there are may procedural traps for the unwary.
(b) Assignment of a dollar amount
Once a valuation date is set, a dollar value will be set for each asset. Some assets are simple to assign a value, such as bank accounts, stocks and cash. Other assets will require an expert's opinion to set a value, such as real estate, business interests, or a professional license. In many cases, the value of an asset will not be agreed upon, and the court will decide value after hearing both sides during the trial.
Case law has held that failure to establish value can preclude the court from including that asset in the division of property. See Elkus v. Elkus 169 AD2d 134 (1st Dept. 1991). However, this rule is often not enforced, and many cases are remitted from the Appellate Division back to the trial court to have marital assets valued.
As separate property is a factor in making a determination for equitable distribution, the value of separate property should also be evaluated.
6. APPLICATION OF THE STATUTORY FACTORS
In making an "equitable" distribution of marital property, the court will consider the following statutory factors enumerated in DRL 236 B(5)(d). The court need not consider each and every factor in making this determination. Nor is any one factor dispositive. This list should be used as a guideline only.
Factor 1: The income of the parties at the time of the marriage and at the time of the commencement of the action. DRL 236 B(5)(d)(1)
A change in the relative incomes of each party will be a factor considered by the court under DRL 236B(5)(d)(1). A spouse whose income has grown less than their spouses, or whose income has decreased, will tend to be favored in receiving a larger share of the marital assets.
Factor 2: The duration of the marriage and the age and health of both parties. DRL 236 B(5)(d)(2)
The duration of the marriage and the age and health will be a factor considered by the court pursuant to DRL 236B(5)(d)(2). For a very short marriage, courts will often tend to "unwind" it and put each party back in the position they would have been had there been no marriage not. For longer marriages, the court will divide the marital property it deems fair under the circumstances, and for long term marriages, a fifty fifty division of marital assets is the norm.
The age and health will be a factor, as a spouse who is unable to work due to health reasons or loss be unable to secure a profession due to age may result in a greater award of marital property. Any maintenance award must be taken into account as well.
Factor 3: The need of a custodial parent to occupy or own the marital residence and to use or own its household effects. DRL 236 B(5)(d)(3)
If there are sufficient assets to offset the home, the court may award ownership of the marital home to the custodial parent. If not, the court may award the custodial parent the exclusive right to occupy and use the marital home for a specific period of time under DRL 234 and DRL 236 B(5)(f), often until the youngest child reaches either eighteen or twenty one years of age.
Factor 4: The loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution. DRL 236 B(5)(d)(4)
A spouse has various inheritance rights which are lost following a divorce. The loss of these rights is a factor under DRL 236B(5)(d)(4), but is rarely used by the courts. This factor should still be considered, especially if there is significant amount of separate property that a surviving spouse may have otherwise inherited.
The loss of pension rights has been largely offset by the 1984 Court of Appeals case Majauskas v. Majauskas and subsequent case law. Majauskas held that a pension is a marital asset subject to equitable distribution.
Factor 5: The loss of health insurance benefits upon dissolution of the marriage. DRL 236 B(5)(d)(5)
The cost of maintaining a new health insurance policy post divorce can be a factor in determining equitable distribution under DRL 236 B(5)(d)(5).
Factor 6: Any award of maintenance under subdivision six of this part. DRL 236 B(5)(d)(6)
An award of maintenance made under DRL 236 B(5)(d)(6) will be a factor considered by the court. In some cases, an award of maintenance may work against receiving a greater share of the marital property than what would have otherwise been awarded. An award of maintenance may also affect which assets are distributed, as an award of maintenance decreases the need for income producing property.
Factor 7: Any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party. The court shall not consider as marital property subject to distribution the value of a spouse's enhanced earning capacity arising from a license, degree, celebrity goodwill, or career enhancement. However, in arriving at an equitable division of marital property, the court shall consider the direct or indirect contributions to the development during the marriage of the enhanced earning capacity of the other spouse. DRL 236 B(5)(d)(7)
This statutory factor allows the court to consider the contributions of the non titled party in determining that spouse's share of the martial property. Thus under DRL 236B(5)(d)(7), if one spouse acquires marital property in his or her name alone, the other spouse may show contribution towards that property by providing services as a spouse, taking care of the parties children, working, or being a home maker.
The 2015 amendment, effective January 23, 2016, to this provision almost, but not quite, overrules the case of O'Brien v O'Brien, and eliminates professional licenses and enhanced earning capacities from being distributed directly, but still allows enhanced earnings to be considered.
Factor 8: The liquid or non-liquid character of all marital property; DRL 236 B(5)(d)(8)
The liquidity (i.e., how easily the marital property may be converted to cash) will be a factor considered by court in distributing marital property. DRL 236B(5)(d)(8) recognizes that highly liquid assets may simply be divided, while non liquid assets may give rise to a distributive award, or warrant an award of maintenance instead.
Factor 9: Probable future financial circumstances of each party. DRL 236 B(5)(d)(9)
Under DRL 236B(5)(d)(9), a poor future financial outlook will be a factor considered, both in the share of marital property awarded to each spouse, as well as specific assets. For example, a spouse with greater need for income may be awarded income producing marital assets as his or her equitable share.
Factor 10: The impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party; DRL 236 B(5)(d)(10)
The difficulty or impossibility in evaluating an asset can affect how other marital assets are divided. Some assets cannot or from an economic sense, be divided. In those cases, DRL 236B(5)(d)(10) allows the court to keep an asset intact, and use other assets or other financial consideration to offset the undivided marital property. For example, dividing a small business between divorcing spouses often makes little sense. In these cases, another asset may be used to offset the marital portion of the business, or a distributive award of cash made pursuant to DRL 236 B(5)(e) may be used instead. The end result is that each spouse still receives the same dollar amount, but some assets may be retained solely by one spouse.
Factor 11: Tax consequences to each party. DRL 236 B(5)(d)(11)
The court may consider the tax impacts to the parties under DRL 236B(5)(d)(11) when deciding how to distribute marital assets. Expert testimony will generally be required. In theory, the court will try to minimize the taxes paid by each party, thereby increasing the size of the after tax marital estate.
Factor 12: The wasteful dissipation of assets by either spouse; DRL 236 B(5)(d)(12)
Wasteful dissipation of marital assets by a spouse may be offset by awarding the other spouse a greater share of the remaining assets. What constitutes wasteful dissipation under DRL 236B(5)(d)(12) is a question of fact for the court to decide.
Factor 13: Any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration; DRL 236 B(5)(d)(13)
Transferring assets to a third party for less than what they are worth will almost always result in severe sanctions against the offending party under DRL 236B(5)(d)(13). The court can and almost always will award a higher percentage of the remaining assets to the other spouse. In addition, a separate action may be filed to undo the transfer. This action, while separate, can be joined together with the divorce action and the two cases tried together.
Factor 14: Any other factor which the court shall expressly find to be just and proper. DRL 236 B(5)(d)(14)
Under DRL 236B(5)(d)(14), the court may consider any other factor in its discretion.
7. DISTRIBUTIVE AWARD IN LIEU OF EQUITABLE DISTRIBUTION
A distributive award, defined in DRL 236 B(1)(b), and authorized under DRL 236 B(5)(e), is a cash payment which is used in conjunction with equitable distribution of marital property when it is impractical or burdensome to divide specific property, or to balance the division of property under equitable distribution when it is impossible or impractical to allocate each spouses' share using non cash assets alone.
8. TAX ASPECTS OF EQUITABLE DISTRIBUTION
A transfer of property from one spouse to another as part of a divorce to a spouse or former spouse is a non taxable event.
The article "New York Equitable Distribution: A Summary of How Marital Property is Divided in New York under Domestic Relations Law Section 236 B" is provided as a free educational service by J. Douglas Barics, attorney at law, and does not constitute legal advice. Legal advice may only come from a qualified attorney who is familiar with the facts and circumstances of a specific case.
If you have any questions or comments, please feel free to contact Mr. Barics at firstname.lastname@example.org or (631) 864-2600. For more articles and information, please visit www.jdbar.com.
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