Divorce 101

Heart Breaks, Head Aches and the Art of Equitable Distribution

Archive for category equitable distribution

New York’s “No Fault” Divorce Bill

Jul 26

Posted by Charles Messina in Grounds, Maintenance, Uncategorized, equitable distribution | No Comments

It seems that every year, the New York Legislature tries, and fails, to pass a “No-Fault” divorce bill.

This year is no different.  There have been different versions running around the Assembly and the Senate, both known as the Divorce Reform Act of 2010 (Assembly Version versus Senate Version).

The long and short of it is this:

  1. There will be a new ground for divorce in New York (to be set forth in Domestic Relations Law (DRL) § 170 (7)) as being :”The relationship between Husband and Wife has broken down irretrievably for a period of at least six months, provided that one party has so stated under oath.”  This amounts to “no-fault” inasmuch as it does not require one party to prove fault on the part of the other, as has traditionally been required in New York.
  2. There is a new provision providing for the formulaic calculation of Temporary Maintenance awards amending DRL § 236-B.
  3. In order to opt-out of the statutory formula, a specific statutory waiver must be included in the order or agreement similar to that used to opt-out of the Child Support Standards Act (CSSA).
  4. There are additional considerations enumerated for the Court to look at, including one that may bring enhanced earnings claims (O’Brien claims) within the terms of the statute.
  5. There would be a rebuttable presumption that counsel fees are to be awarded to the less-monied spouse, on a timely basis, pendente lite.

So what does all that mean in English?  It means that New York State is trying to move into the 20th Century (NOTE:  the rest of the world currently lives in the 21st Century) in terms of divorce law.

The most interesting part of the proposed legislation is perhaps the formula propounded by the legislature to determine temporary maintenance (that’s alimony to the rest of the world).  The calculation goes something like this:

  1. Take 30% of the monied spouse’s adjusted gross income and subtract from it 20% of the non-monied spouse’s adjusted gross income (adjusted gross income is defined in the bill similar to the definition set forth in the CSSA).
  2. Multiply the adjusted gross income of the monied spouse by 40% and subtract from this sum the non-monied spouse’s adjusted gross income.
  3. Choose the lesser of the two sums from numbers 1&2 and that is your presumptively correct amount of temporary maintenance.
  4. The above applies up to an income cap of $500,000 (as if anyone in Western new York will need to worry about that).
  5. The duration of the temporary maintenance is to be determined by the Court “…by consideration of the length of the marriage.”  (please don’t ask, because I don’t know what that means).
  6. If the Court finds the presumptively correct amount of maintenance to be unjust or inappropriate, the Court can deviate from the presumptively correct amount by considering any or all of 17 enumerated factors and setting forth in a written Order the presumptively correct amount, the factors it considered in adjusting that amount, and the reasons why it adjusted that amount.  (The written findings cannot be waived by the Court, the parties, or the attorneys).
  7. The parties can opt-out of the presumptively correct amount in a written agreement or oral stipulation so long as it includes certain waiver language set forth in the statute.

And the question everyone is going to want the answer to:  Will this new legislation give me a change in circumstances sufficient to go back and get my maintenance changed?  NO!  The text of the bill specifically states that it will not.

One of the more interesting provisions of the bill, (in my humble opinion) is the fact that it directs the Court to consider “The contributions and services or the party seeking temporary maintenance as a spouse, parent, wage earner, and homemaker and to the career or career potential of the other party.”

This seemingly brings the enhanced earnings claims (which have been a creature of case-law under O’Brien and its progeny) into the realm of statute and with one stroke of the pen changes the nature of an enhanced earnings claim from equitable distribution to maintenance.  The biog deal here is that distributive awards are not taxable, but maintenance is includable as income to the person receiving it and deductable to the person paying it.  I’m interested to see what will become of this if the bill is ever signed into law; which brings us back to my original comments…

The State of New York still has no “No-Fault” divorce law and the Governor has not, as of this date, signed the Divorce Reform Act of 2010 into law.

Knock Knock… Whose there?

No-fault divorce… No-fault divorce who?

No-No-fault divorce in New York, that’s who!

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The Tax Man Cometh

Feb 18

Posted by Charles Messina in Uncategorized, equitable distribution | No Comments

This time of year, I am often asked the question by my divorce clients:  How should we file taxes?

While the question may seem grossly simple, there is no simple answer.  A number of factors must be taken into account, including:

  • How far into divorce proceedings are the parties?
  • How close is a final judgment of divorce to being granted?
  • What was the income of each party for the given tax year?
  • Is there an agreement as to how any exemptions for children will be handled?
  • Is there an agreement as to how the parties will split any refund?
  • Is there an agreement as to how the parties will contribute to any tax liability?
  • Are both parties W-2 wage earners, or will a Schedule C be completed?

Generally speaking, married filing jointly is often the most advantageous way to file while going through a divorce.  The parties can either agree ahead of time how to split up any refund or tax liability, or, if they cannot agree, often the refund (if there is one) will go to one of the attorneys to hold in escrow until the parties can either decide amongst themselves how to divide it, or the Court makes that decision for them.

Occasionally, there are issues of a family business, that one party is highly involved with and the other party knows next to nothing about.  This situation can present serious issues if there is any question of one party “cooking the books” and then requesting that the other party file a joint return.  Such a situation can leave the innocent party open to serious liability for signing a fraudulent return.

In the case of the average John and Jane Doe, W-2 wage earners, there can arise an issue where one party has had nothing withheld from his or her pay checks, and the other party has had a large amount withheld from each pay check.  In this situation, the party who has had money withheld, will usually want to file married separate, because he or she will get a large refund.  On the other hand, the party who had nothing withheld (counting on the withholding of the other spouse to cover the tax liability for the year) will usually owe a large tax liability.  When this occurs, filing jointly is usually the way to solve the issue.  In the event that one party surreptitiously files married filing separately to grab the big refund, leaving the other party with a huge and unanticipated tax burden, the remedy usually lies with a motion to the divorce court to equalize the refund vs. burden.   Courts look dimly upon such behavior, be warned.

Remember that if children are involved, the non-custodial party (the one the kids are not regularly living with) will need to have IRS form 8332 executed by the custodial parent (the one the kids regularly reside with) to submit with the tax return in order to claim a dependency exemption (assuming the parties agreed that the non-custodial parent would take one or more dependency exemptions).  IRS form 8332 is available here.

The safest way to decide how to file taxes while a divorce is pending is to discuss the matter with your attorney.  While I have addressed a few common issues that arise, every situation is unique and requires careful consideration by someone with the knowledge and experience to guide you through making an appropriate choice.

Going through a divorce, the parties also need to remember that the attorneys are not CPA’s or tax Preparation experts.  With that in mind, one usually safe answer to the old question, “How should we file taxes?” is to go to a CPA or Tax Preparation Professional, have him or her run the numbers under the various filing options, and to go with the most advantageous.

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Paging Dr. O’Brien… Enhanced Earnings Claims

Nov 20

Posted by Charles Messina in Uncategorized, equitable distribution | No Comments

New York State is a funny place to get a divorce…  it is so generous!  In 1985, Dr. O’Brien divorced his wife.  Mrs. O’Brien, being the smarty pants that she was (or maybe that her attorney was the smarty pants)decided that she would seek a distribution of her husband’s newly acquired medical license in equitable distribution.  In English, she thought she should be paid for all the money the good doctor would make over the course of his working life by virtue of the fact that he got a medical license during the marriage.  Mrs. O’Brien’s theory was that she had contributed to him getting that license by cooking, cleaning, raising the kids, and generally enabling his studies and supporting him through medical school.  The New York Court of Appeals (our highest Court) bought it and agreed that a medical license is distributable in a divorce.  See O’Brien v. O’Brien.

Thee O’Brien case opened the door in new York State for enhanced earnings claims.  Basically, if one spouse earns a degree or professional license during the course of the marriage, the other spouse has a claim to some portion of the enhanced earnings capacity that flows from that degree or license.  Doctors, lawyers, nurses, licensed massage therapists BEWARE!

So what is an enhanced earnings capacity and how does this O’Brien claim work?  Well, the degree or license must first be valued by an expert.  That expert will project out from the U.S. Government mortality tables what the owner’s lifetime working expectancy is, what the projected earnings are over that lifetime, and what the projected earnings would be for a person who had a similar education prior to the marriage, but not the advanced license or degree.  The difference in the figures is the projected enhanced earnings, which is then reduced to present dollar value  (there’s a lot more to it, and it really does take an expert to value, but this simplified version will suffice for now).

OK, so the degree has been reduced to present value… now what?  The spouse is not entitled to 100% of that degree (in most cases) but probably something less than %50 of the present value.  Either the parties to the divorce settle on a percentage, or the Court will hold a trial on the matter, and determine the appropriate percentage after hearing about all the contributions of the spouses toward the degree and considering all relevant circumstances.  In the Fourth Department (Western New York, where I practice), the percentage is usually somewhere between 10-20%.  Downstate, in the New York City area (generally the Second Department) there have been some recent cases where 0-15% have been awarded.  The trend seems to be moving to awarding smaller percentages lately.

So we have a present dollar value, and we know what percentage of that the spouse is entitled to, how do we go about distributing it?  Generally, the parties will try to work out a settlement of some sort; perhaps credits against other assets, or a payment plan.  If the parties cannot work out a settlement, the full, lump sum of the enhanced earnings is due and payable immediately upon rendering of the divorce decree.  Harsh, I know.  Or a windfall, if you’re on the receiving side.  But the Courts recognize that people generally don’t have tens of thousands of dollars to just hand over, from earnings they will not realize for perhaps another 30 years!  The Court will often make the enhanced earnings award payable over a number of years (with interest).

I understand, conceptually, the logic in making enhanced earnings distributable in divorce.  I am not, however, a proponent of the concept.  Granted, some spouses do make major contributions to the education of the other, and they should realize the fruits of their labors.  But all too often, it seems that both parties are working people, one is often holding down one or even two jobs and going to school at the same time, and the majority of the effort put into that enhanced earning is due to the efforts of the degree owner.  Perhaps that is why the current trend is a decrease in the awards?  Only time will tell, but enhanced earnings is definitely an interesting and much debated topic in New York matrimonial law.

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What About the House???

Nov 19

Posted by Charles Messina in Uncategorized, equitable distribution | No Comments

In the course of a Divorce, the one asset that often causes much consternation is the house.  Who gets it?  Does it have to be sold?  Can he buy me out?  The questions are many… but so are the solutions!

The biggest asset in any marriage is usually the house.  If the parties don’t own a house, but lease or rent, there is nothing for a Court to consider in equitable distribution and there is one less thing to fight over.  But houses come in all shapes and sizes; some are acquired before the marriage by one spouse or another; some are inherited; some are purchased during the marriage.   The issues to be determined, or settled, in a divorce are:

  1. Is the house a marital asset?  Meaning was it purchased during the marriage, or perhaps improved to some extent or transferred during the marriage.
  2. What portion of the house is a marital asset?  Houses often have mortgages attached to them.  The portion of the house that is a marital asset is really the equity in the house (the value of the house less the outstanding mortgage/home equity line of credit/ etc.) which was accrued during the marriage.
  3. Is there a separate property claim to the house?  Did one spouse buy the house before the marriage?  If so, there may be a separate property claim to funds expended in the purchase of the house before the parties were married.
  4. What are we going to do with the house?  Are the parties going to sell it and somehow split the proceeds (or shortfall, under the worst of circumstances)?  Will one party buy out the equity of the other and keep the house?  Maybe an arrangement can be reached where one party remains in the house until the children reach a certain age and then the house is sold and the proceeds distributed.

These are just a few of the questions that need to be answered before any decision can be reached, by a Court or by the parties themselves, as to what is going to happen to the house.  If the house is sold and the proceeds split, the parties, or the Court, must decide whether there will be an even split, or maybe more of the proceeds will go to one spouse than the other.  Will there be credits from one party to the other for things like mortgage payments that were made after the divorce was filed that the other spouse failed to contribute to, or tax bills or utility bills and carrying costs during the divorce?

The value of the house is often a sticking point with divorcing spouses.  One party will usually want to minimize the value, if he or she is seeking to buy out the other party’s interest, and the other party will seek to maximize the value of the house to increase the buyout.  If the house is sold to a third party, the issue takes care of itself and the sale price is the value.  Certainly, issues are often raise that one party wants to sell the house to his brother for $10.00 which the other party generally will not agree to, and the Courts do entertain issues like that when considering wasteful dissipation of assets.  On the other hand, the parties can often agree to have an independent appraisal of the house done and agree to use whatever figure the house appraises at.

There do arise circumstances where one party seeks to remain in the house until such time as children are grown, or finish high school, or whatever the case may be.  The parties can agree to such an arrangement with the proceeds of the sale to be distributed at a later date.  I have personally found that local Courts would rather not Order, after a trial in a contentious matter that cannot be settled, that one party may remain in the house for a period of time.  While it is within the Court’s power to do so, and an achievable result under the right circumstances I just don’t see it happen that often.

Perhaps the most difficult obstacle to overcome in trying to reach a settlement with regard to a house is financing.  The parties may agree on the sale price, credit to one side or the other, the buyout price, and all the associated issues.  But when it comes time for one party to actually buy out the other, and transfer title from joint names to sole ownership, our country’s economic downturn rears its ugly head.  if there is a 30 year mortgage with both parties on the note, the party being bought out will not want to remain liable for the mortgage for the remaining 20 years.  The party buying out the other will have to refinance and somehow remove his or her spouse from the mortgage obligation.  While they may have been earning a total of $100,000 per year as a married couple, they each only make $50,000 as singles.  The difference, together with a less than stellar credit score can make it extremely difficult, if not impossible, to refinance the house by one party alone.  Sometimes this hurdle can be overcome if a co-signer can be found for the new mortgage, but not everyone has a relative or friend willing to go out on that limb.  With luck, the strangle-hold that lenders currently have on credit will subside a bit with time and make things easier.  For now, difficulties refinancing are a fact of life that cannot be overlooked.

There can be no doubt that dealing with a house is one challenging aspect of a divorce.  One should always seek advice of a competent attorney to provide guidance on all the potential consequences of selling, or even contemplating a transfer of the marital residence.  The factors to consider are simply too complex for the average John and Jane Smith on the street to really grasp the far reaching issues and ramifications.

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