When a couple goes through a New York divorce proceeding, the court is tasked with dividing up the couple’s assets and liabilities. While this may seem intuitively simple, in practice, dividing up assets and liabilities that have accrued over the course of a relationship can be exceedingly complex. In New York, courts use a method called equitable distribution to do this.When a judge uses equitable division to divide up assets and liabilities, the judge takes into account many factors about the couple, including their roles in the marriage, level of education, income-earning potential, and future obligations. The judge will generally not include separate assets or liabilities that were obtained or taken on prior to the marriage.
Back in 2009, the New York Court of Appeals issued an important decision discussing how lower courts should equitably distribute certain assets and liabilities.
The Facts of the Case
Husband and wife were married in 1993. At the time of the marriage, the husband was obligated to pay his previous wife maintenance support. He had two children from his prior marriage, and the wife had one child from a prior relationship.
During the marriage, the husband sold his interest in two companies that he had started prior to entering into the marriage. The husband reported the income from sales on a 1099 on the couple’s joint tax return. Additionally, in 1996, he took out a loan to enroll and complete an advanced-degree program. The loan was paid back two years later.
In 2003, the wife filed for a divorce. Relevant to this case, she sought credit for the marital assets that were used for the husband’s maintenance payments to his former spouse, as well as the marital assets that were used to pay back the husband’s student loan. She also asked that the husband not be allowed to exempt the money he obtained from the sale of his interest in the companies because it was not proceeds from the sale of stock, which is normally considered a separate asset.
The Court’s Decision
The court handled each of the issues in turn, starting with the husband’s maintenance payments to his former wife. The court concluded that these payments were not “solely to the benefit of one spouse” and that the wife was not entitled to a credit. The court explained that when marital property is used to pay down one spouse’s debt (or increase the value of one spouse’s separate property), courts should normally respect the couple’s decision that was made at the time and not intervene after the fact to award a credit. Thus, in this case, the husband’s spousal maintenance obligations were not the type of payments that were entitled to recoupment.
The court then moved on to the husband’s student loan debt, holding that the wife was not entitled to a credit. The court explained that the husband obtained the degree while married, and even though it did not significantly contribute to his income-earning potential, the wife would have stood to benefit during the marriage had the degree resulted in a higher income. In a footnote, the court mentioned that, had the debt remained outstanding, it would be reasonable to consider it the separate debt of the husband.
Finally, the court held that the proceeds from the husband’s sale of his interest in the companies should be considered marital property. The court explained that he treated the funds as joint property when he filed the couple’s tax return, and parties are not permitted to take a position in a divorce case that is contrary to what is stated in a tax return.
Are You Involved in a Long Island Divorce?
If you are currently going through a New York divorce, or are considering filing for a divorce, you should first reach out to a dedicated New York family law attorney to discuss your situation. It may be that you can take actions early in the process to ensure you are in a more favorable situation down the road. At the Law and Mediation Office of Darren M. Shapiro, we represent clients in all types of New York divorce and child custody matters. We have experience handling a wide range of issues and advocate zealously on behalf of our clients. To learn more, and to set up a free consultation with Attorney Shapiro to discuss your case, call 516-333-6555.
More Blog Posts:
New York Divorce and Claiming Children as Dependents Under the New Tax Law, Long Island Family Law and Mediation Blog, January 15, 2018
Addressing Client Rights and Responsibilities in Family Law Cases, Long Island Family Law and Mediation Blog, February 3, 2018