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.