What Is Equitable Distribution In a Divorce?

In Long Island, divorce courts divide spouses’ property in an equitable manner. Understanding how this works is critical to protecting your rights during divorce. A Long Island divorce lawyer can help you explore your options and make a difference in your case. At the Law Office of Laurence S. Margolin, we can develop a personalized legal strategy that will protect your interests at all stages of your divorce.

How Is the Marital Estate Divided In New York?

When either spouse files for divorce, they have wide discretion on working out the distribution of property through counsel and reach a settlement agreement. However, if the spouses cannot agree on how they want to divide the marital estate, and they need the Court to determine distribution after a trial, the Judge will decide which items of property are marital and separate, assign a value to the marital property, and divide the marital estate according to certain factors. The court uses the same process to divide marital debt as well.

What Are Marital Assets?

Marital property includes anything that either spouse acquired during their marriage and before divorce proceedings began. It includes but is not limited to:

• Real property, such as a house or condominium, or a cooperative apartment stock and proprietary lease.
• Personal property, such as vehicles, furniture, jewelry, art and memorabilia collections.
• Cash, bank accounts, investment accounts, cryptocurrency, stock and security accounts, royalties, whole life insurance.
• Pensions, retirement accounts, and other deferred compensation interests are commonly found in the marital estates subject to equitable distribution upon divorce.  Under a landmark 1984 Court of Appeals decision, Majauskas v Majauskas, 61 NY2d 481, 463 NE2d 15, 474 NYS2d 699 (1984), pension and deferred compensation interests, to the extent acquired from the date of marriage through the date the divorce was commenced, are marital property, subject to distribution upon dissolution of the marriage.
• Family businesses (this will not be addressed in this article).
• Professional licenses.  Under a landmark 1985 Court of Appeals decision, O’Brien v O’Brien, 66 NY2d 576, 589, 489 NE2d 743, 498 NYS2d 743 (1985), a medical license acquired during the marriage was marital property subject to equitable distribution. The value of the license was defined as the enhanced earning capacity that it conferred upon the license holder, i.e., the difference between what the holder of the license is expected to earn and what he or she would likely have earned without the license. Since the O’Brien decision, the doctrine has been expanded to include not only licenses, but degrees, both advanced and undergraduate, including, but not limited to, medical licenses, podiatry licenses, doctor’s assistant certificate, nursing home administrator licenses, law degree and licenses, accounting degrees, master’s degrees, guidance counseling licenses, teaching certificates, and occupational therapy licenses.

How Is Equitable Distribution Determined?

Step 1: Classification of Assets as Marital or Separate Property

As a general rule, only marital property is subject to equitable distribution. Separate property remains the property of the separate property owner following divorce.  To classify assets, we look at when the assets were acquired.

A. Assets acquired before marriage or property acquired by inheritance (bequest, devise, or descent) or by gift from a third party other than a spouse, are, as a general rule, separate property immune from distribution. Separate property is excluded from the equitable distribution process.  However, there are situations in which premarital assets or a portion of them can become marital property. Understanding how this works is critical to protecting your rights during divorce.

B. Assets acquired during marriage, between the date of marriage and date of commencement of the divorce action are, as a general rule, presumed to be marital property subject to equitable distribution.  The burden of proof falls on the party claiming separate property status to trace such assets to separate property sources.

Step 2: Fixing Asset Value

Fixing a value for each asset in the marital estate and for the estate as a whole is the second step in the equitable distribution process.

Step 3: Division Based Upon Equitable Principles and Distributive Factors

Dividing the marital assets between the parties based upon equitable principles and the distributive factors set forth in the statute is the third step in the equitable distribution process.  While the first two steps are constrained by a number of statutory strictures, the distributive step is one which rests largely upon judicial discretion.

What Is Considered Separate Property?

Assets may be separate property and not subject to property division in divorce, even though acquired during the marriage, if they were derived from separate property sources.  Under Domestic Relations Law 236(B)(1)(d) separate property is defined as:

1. property acquired before marriage. Premarital property is any asset that is titled to either spouse BEFORE the date of marriage. For example, real property, such as a house or condominium, or a cooperative apartment stock and proprietary lease, vehicles, furniture, art and other collections, bank accounts, stocks, bonds, cryptocurrency, and other investments, pensions, 401(k)s, mutual funds, IRAs.  The spouse will get a separate property credit for his or her separate property contribution to purchase the home or the value of the asset as of the date of marriage;
2. property acquired during the marriage by inheritance (bequest, devise, or descent);
3. gift from a third party other than a spouse.  Gifts exchanged between spouses during the marriage are generally considered marital property.  Property that a spouse obtains as a gift from a third party or inheritance belongs solely to that spouse, as long as the property is held solely in that spouse’s name;
4. personal injury compensation.  Divorce laws treat personal injury that is not related to loss of wages or earning capacity as separate, even if they are awarded during a marriage;
5. property acquired in exchange for separate property, even if the exchange occurs during marriage.  For example, property was purchased during the marriage using proceeds from one spouse’s sale of separate property or from funds transferred from an investment account established prior to the marriage;
6. the increase in value of separate property.  However, as set forth below, appreciation in separate property due to contributions or efforts of the non-titled spouse is considered marital property and includes any direct contributions to appreciation;
7. property described as separate property by written agreement of the parties.  See Prenuptial Agreement Section below.

How Can Separate Property Be Transmuted To Marital Property?

To remain separate, it must be maintained solely in the name of that spouse during the marriage.  Where separate property has been commingled with marital property in a bank or investment account, there is presumption that the commingled property constitutes marital property. This presumption can be overcome if it is established that the conversion was not intended or passed through a joint account for a short time solely for the purpose of convenience.  Another way to convert separate property to marital property is by an overt act that evidences an intent to change the nature of the property.  Changing title to a deed or bank or investment account from one spouse to a deed or joint account bearing the name of both parties’ converts the asset to marital property.

To illustrate, one spouse had a bank account prior to marriage.  These funds would become marital if the spouse deposited funds earned during the marriage into the former separate property bank account.

The same example applies to intangible assets like stocks. A spouse may own a certain amount of stock on the date of marriage. Should the spouse move the investments into a jointly owned account, or liquidate a portion of it and deposit the proceeds into a joint bank account or reinvests the funds into a new investment account, these funds will be deemed marital.

Here is an example with a vehicle.  A husband purchases an old vehicle of modest value before marriage.  At this point, he fully owns this premarital asset. After marriage, the wife and husband restore the vehicle, which greatly increases its value.  The court will probably consider the increase in value to be marital and divide it accordingly.

If one spouse owned a home prior to the marriage, the home is that spouse’s separate property.  However, if spouse 2 resides in spouse 1’s separate property home and the non-titled spouse makes financial contributions towards property, such as paying the mortgage, taxes, utilities, paying for repairs, renovations, etc., as well as direct nonfinancial contributions such as personally maintaining, making improvements to, or renovating a marital residence, that spouse would have a claim to a portion of the home’s appreciation and increased equity due to such contributions.  Based upon the contributions, the non-titled spouse will be entitled to a percentage of appreciation in value of the property as determined by the court or upon agreement of the parties.  The Court will take into account whose income was used to improve the property and whose time and efforts were expended to improve the property, which increased its value.

Does a Prenuptial Agreement Protect Assets Before Marriage?

A prenuptial agreement or a “prenup” signed before marriage allows spouses to decide for themselves how their assets will be treated in the event of a divorce. The prenup may contain a marital property agreement that stipulates ahead of time that no portion of a certain premarital asset will be considered marital. If the court upholds the prenuptial agreement, it will consider the asset to be separate property and therefore not subject to an equitable distribution.  The parties can agree that specified assets acquired prior to marriage will remain separate property even if there are circumstances that would have converted the asset to marital property, or would permit the other spouse to share in the appreciation of the asset, if there were no such agreement,

Are You Worried About the Division Of Your Premarital Assets? Contact Us For Help

The dynamics of premarital assets and divorce are complex, and the outcome of every case depends heavily on its unique circumstances. Whichever side of the divorce you are on, it is imperative that you retain a seasoned Long Island divorce lawyer. Attorney Laurence S. Margolin has over 35 years of experience helping clients protect their assets and navigate the challenges of separation and divorce. Call our office today to learn more about how we can help you.