MATRIMONIAL LAW OUTLINE Tippins What is this area of law all about? • Highly political o Legislatures (about 20 yrs ago) looked at this area of law in terms of constituent groups. Try to come to a decision on which lobby groups control ballot box. o This also affects the courts. Rules aren’t driven by logic. Courts shift to result-oriented jurisprudence. Decisions become inconsistent. • People Oriented-Heavy Client Contact o Not a lot of positive feedback from client o Difficult emotional process for client • Keep in mind what the role of an attorney is o Not a psychologist, not a social worker o You are there to interpret facts favorable to your client o You aren’t there to untangle client’s emotional problems-don’t become a sounding board. o Attorney must guide/control client in order to reach successful negotiations. o 4-way conferences w/ each party and attorneys are not effective. Fighting soon erupts and settlements are hard to get. • Intellectually Stimulating Area of Law o Statutes, Cases, pulls in many areas of law like corp., tax, procedural, evidence, pension, property, partnership, family, domestic relations law. Will also need to know accounting, valuation, actuary, and psychiatry/psychology [to cross examine psychiatrist must know a lot about this] Note: in NY, you go to Supreme Court for divorce. • Clients don’t come with issues… they come w/ problems and you have to be able to listen and draw distinctions. o Many of the problems are not legal problems. Need to practice self discipline… don’t become the client’s therapist. Develop a network w/in mental health community and make appropriate referrals. o Ex: Clients wants a divorce b/c wife left him for another man. Client wants engagement ring. He can’t get ring because he married her. Client gets engaged to Big Red. Big Red left him for another man. He wants ring back. Since he was still married to wife 1, the ring could not be an engagement ring. Since marriage was not an option when still married to W1 the ring was not in contemplation of marriage. It was a diamond ring. Since it was given as a gift, client can’t get it back.
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Ethics • Statement of Client’s Rights and Responsibilities: Client must sign this before seeing you. • It is common for parties to accuse their attorneys of messing up b/c of the high stress levels. Retainer Agreement: Must be in writing [an oral agreement to retain money from client is unethical]. Agreement must include: • Name/Address of parties entering into agreement • Specify nature of service to be rendered (Be as specific! Otherwise you could get wrapped into settling issues that you don’t know you are getting into, or ones that you are not being paid for.) o Shaw v. Mfg. Hanover-- In reviewing retainer agreement, ambiguity will be viewed in favor of client, against attorney. • Amount of advanced retained and what it’s intended to cover • Describe circumstances under which portion of retainer might be refunded • Must advice client that they have right to cancel agreement at any time for any reason • How attorney will be paid through the conclusion of the case. When retainer runs out, or is getting low, there are 2 alternatives: o 2 Basic Methods When retainer runs out, send bill every month Replenishment Method or (“Evergreen Method”)—pay retainer, when attorney’s hours eat up a certain % of that, client must “replenish” the retainer and the attorney stays “ever-greener”. • Set forth hourly rate of each person working on the case. o Spell out what you charge for. Be as specific as possible. • Any provision for a fee in addition to your hourly rate o Like minimum free provision o There is a critical distinction b/w a minimum fee and a non-refundable retainer: Nonrefundable Retainer-unethical and you can’t use it! • Retainer is $10K, you can never get this back, irrespective of what happens. The rational for making this illegal is clients have the right to discharge their attorney for whatever reason. Non-refundable retainer has a “chilling effect” on client. Minimum Fee-is permissible • Client comes in and wants attorney to negotiate a separation agreement. Attorney says hourly rate is $450/hr. and $20,000 is a minimum fee. If the attorney settles w/ only spending $10,000 client will not get the $10,000 back. • How is this okay? o b/c there are issues that go into consideration. If they are going to do business on your name, reputation, and expertise, that may not equate to more hours. o Here, you have done what you were retained to do and take the issue to conclusion. o IF: the attorney does not conclude the case, or the client wants out… the client gets back the money that hasn’t been used.
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o Ex-M retains you to get a divorce. You say my advanced retainer is $10,000 and it is also my minimum fee. So if I get you an adequate settlement, I keep the entire retainer even if I don’t bill that amount in hours. This is ok. o Ex-If I ask her for a $10,000 retainer and say it is nonrefundable for any reason that is not ok. In 1st scenario, action is taken to completion. In 2nd scenario it is not, so client should get back any $ you haven’t already billed for hours spent on the case. You can’t keep $ if you don’t complete action. Frequency of itemized billing o You must bill client no less frequently than 60 days (Rule). Practically you should do it every 30 days b/c the more billing, the more likely to collect. Client’s right to be provided with copies of correspondence and documents relating to case and their right to be kept appraised of the case. o This also reduces # of client phone calls. o Prof. recommends blizzarding client with paper (CC: the client on everything). Whether and under what circumstance an attorney might seek a security interest o L must get court’s approval and notify the other side, that way the court can have the other spouse pay if appropriate. o Ex: C gives $10K upfront. The money is used, but C has no more money to give. C doesn’t want to be dropped. L can work w/o pay until completion, but will hold a security against C’s home until it is paid. Under what circumstance attorney might seek to withdraw from case o State in retainer that L can withdraw if bills are not paid. Must advise client that should there be a fee dispute, they have a right to elect to have that dispute resolved in arbitration, instead of trial. Sometimes arbitration is mandatory.
Retainers generally: • Discipline attaches to violation of the agreement • Be specific, detailed, and comprehensive • Tell C of everything in retainer, so they are not surprised • Anything you are going to charge, put in the retainer (photocopy, mileage, phone calls, letters —apply minimum time… no matter how long it takes).
Contingent Fees: • Ethical opinion on Code of Responsibility says contingent fees are PROHIBITED. • Policy Reason: Don’t want lawyers encouraging people to divorce. Collection--Big problem Mat lawyers have to deal with • Security Interests o 10 yrs ago you would represent a financially disable spouse. She would pay $10,000 upfront, which would be used up. In the past the lawyer would agree to work until the divorce was settled for nothing, but client would have to give a note or other security interest. People complained.
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o Now you can take a security interest, but only with prior judicial permission AND only if your retainer agreement gave the client notice that you might take a security interest. o Courts can only grant a security interest when Made on notice to the other side. You have to put the other side on notice even if spouse has no right to property. Judge has ruled upon application for attorney’s fees. Matrimonial court has power to direct 1 spouse to pay other spouse’s legal fee. This is in place so that a grant of security interest is used only as a last resort o If property is marital property, lawyer can’t foreclose on the mortgage he/she owns so long as the spouse who consented to it primarily resides there. Withdrawal of Representation • Nonpayment is proper reason for you to seek withdrawal from a case • Consent to Change Attorney Form-- use if client wants to dump you as an attorney • Sometimes Client won’t let you out. 2 situations to consider: o There is no litigation pending-- you terminate representation and advise your client in writing you are withdrawing and taking no further action. You DO NOT need judicial permission o There IS litigation pending-you MUST get permission from court to withdraw. CPLR 321 required that you bring a motion to withdraw by an order to show cause (I want to withdraw). Support it with an affirmation/affidavit telling why relief should be granted. • When you want to withdraw because client put you in an unethical situation you say, Circumstances have arisen that makes it impossible for me to represent this client. Don’t provide details of the circumstances. Then write, I reserve the right, that if my client files an opposition to this motion, to submit a supporting affidavit giving the court details of circumstances. • In withdrawing you must safeguard client from prejudice Getting Paid You’ve done all the work. Judge signs settlement. You can’t refuse to file papers in order to get paid even though debt is legitimate. Can you sue your client for nonpayment? You can’t sue UNTIL you give him/her notice of their right to elect binding arbitration. Conflicts of Interest • Do not represent both spouses in the same case. o You can’t represent both parties at any stage of a marital problem. o Some couples might want 1 L to save money, but too bad… can’t do it! o L can’t get around this by saying that he represents H and advised W to get counsel, but she refuses and signed the agreement [but really attorney told the couple that he’d be committed to resolving the issue for both]… this is entirely unethical. • Representing spouse of an existing client o You can’t represent spouse of an EXISTING client
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o You represent husband with respect to his business, you can’t represent his wife who comes in and asks you to represent her in a divorce against him. Representing Spouse of Former Client o It depends on: How closely related the subject matter of the cases AND How remote in time. o Ex: You represented husband last year in DWI, wife comes in and wants a divorce because he’s a violent drunk. You can’t represent her because it is too close in time and too closely related. You may have privileged information about the husband’s behavior. o Ex: W comes in for divorce, 30 years ago you represented the couple in buying their starter home… this is likely okay. o Ex: last year you represented the H in a partnership agreement that concerns stocks and worth… this is NOT okay. o Advice: no matter how closely linked, just DON’T represent them. It is not worth it. Any connection that could possibly call into Q a conflict of interest is potential trouble. Don’t give legitimate reason for grievances. Paramours and Fellow Travelers o Ex: W1/H1, W2/H2 H1 is committing adultery with W2. Can you represent both? You can’t simultaneously represent W1 and H2 because there may be a conflict of interest. H2 may want to settle quietly and W1 may want to litigate fully and bring it out in public. You probably can’t represent H1 and W2 together. The Pro-Se Litigant o Representing yourself o You can transmit a separation agreement to the party representing himself/herself for their signature; can negotiate a settlement agreement w/ them; you cannot give them any advice except to GET A LAWYER! o Advice: don’t talk to someone representing themselves. Just see how good they are at trial. Although the rules don’t prohibit this… talking to them would just cause problems. They can later say you were trying to represent both. If you must be in contact (for deposition) do it at courthouse… for your own protection.
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Ground for Divorce • 49 states have some form of no-fault divorce-- if someone wants out of marriage they can get out even against other spouse’s will. (i.e. Irreconcilable Differences) • New York is NOT a no-fault state. NY is the only fault state. o NY is not on cutting age of change regarding domestic relations laws (NY is, oddly, very conservative in this regard). o From 1787-1967-- Only way out in NY was if your spouse committed adultery [last state to give this up]. The result of this was perjury and migration. People would go somewhere else to get divorce where residency was short, or commit perjury… people would stage an adulterous situation to get grounds for divorce. Other than that, Mexico. o 1966 – Divorce Reform Act of 1966; in effect starting 1-1-67, expanding grounds for divorce to 6 DRL § 170: 1. Cruel and Inhuman Treatment 2. Abandonment 3. Imprisonment 4. Adultery 5. Living apart pursuant a judgment of separation [“S/J”] a. had to wait 1 year before divorce b. some refer to this as no-fault, but they wouldn’t get the judgment if there hadn’t been fault in the first place 6. Living apart pursuant a separation agreement [“S/A”] – this is a no-fault ground – but it is not unilateral o Wife wants a divorce, husband has not done 1-4 [the “fault” grounds], she can only get out if she signs a separation agreement and lives apart for a year. o If a spouse can only get out in Ground 6, the other party has much higher bargaining power. Spouse can’t get out unless the other spouse signs agreement called, “Price of Freedom” o Last 2 grounds are called “conversion grounds” – requesting that the separation be converted into divorce o Why is NY a fault state? Attributed to strength of women’s lobby • Why have this policy of no no-fault? o b/c it operates in favor of the spouse who did nothing wrong, but H still wants to divorce her. W can hold out so H can’t get what he wants. Grounds for Divorce in NY • Ground 1: Cruel and Inhuman Treatment: DRL § 170(1)— cruel and inhuman treatment of the plaintiff by the defendant so as to endanger the plaintiff’s physical or mental well-being, so as to render continued cohabitation unsafe or improper • This ground is highly discretionary – relatively infrequent to see an appellate court reverse the trial court on this ground because so discretionary o Fault Ground—this requires a showing of continuous course of serious misconduct. o It requires a showing of a PATTERN of serious misconduct that harms π emotionally, mentally, or physically
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o Terminology is very subjective. Trial court has great discretion in determining of proof is sufficient. Whether or not the treatment rises to that of cruel and inhuman is a discretionary matter. o 2 cases decided by the same Court, 1 year apart that can’t be reconciled [no coherence – this happens somewhat frequently] o (1) Husband hit wife on face with a newspaper on 1 occasion and was noncommunicative. Court found ample support for divorce. o (2) Husband showed wife hit him on several occasions with chairs, lamps, etc. Court said evidence shows only a strained relationship and unpleasantness in the marriage – but it was not grounds for divorce. o Hessen v. Hessen: Hessen-Brady Standard (Court of Appeals Case) • H wanted divorce on cruel and inhuman ground • Serious misconduct would have had to have been alleged • Long-term marriages – higher standard of proof of misconduct required • What may be considered serious misconduct is a short-term marriage would be only a bump in the road for a long-term marriage • Defining Long-term= good rule of thumb, anything over 10 years can be considered “long-term” but it depends on the judge – no judgment from Court of Appeals [some have held even 5 years] o Domestic Violence – clear example of physical cruel and inhuman treatment – the more physical the misconduct is, the more likely that a divorce will be granted o Emotional or mental abuse – e.g., constantly berating spouse in presence of other people o 2 main things at play: • Conduct • Impact of that conduct • Evidence of this impact is key – e.g., treatment for psychological stuff, ulcers, etc. • The weaker each incident, the more you will need to show the cumulative effect • Ex: he hit me, and it hurt. The worse the conduct, the less evidence you may need of the adverse impact. • Ex: If you are talking about your classical domestic violence case, the instance will speak for itself. You won’t have to worry about bringing in a psychiatrist to tell us that the beating had an adverse effect on the C. • Ex: He called me names and talked badly about my family. Here, more evidence will be needed to show adverse effect (physical or mental). With this type of conduct need more evidence to show adverse effect. • Perhaps doctor can testify that an ulcer was caused by the stress of the abusive relationship. Or person is now on antidepressants or in therapy. • The less egregious the conduct, the more concerned you have to be w/ bringing in evidence of adverse effect on client. o Corroboration • NOT required to establish the element of cruel and unusual treatment. There is no statutory requirement that you have corroboration – but it will be hard to prove 7
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Most cases won’t have corroboration because these acts are done in the privacy of the home. • You can succeed w/o corroboration, but you need to be more credible then the other side. Often leading to he-said/ she-said ordeal. • If you have corroboration, • Bring in any Ws, medical reports, police reports… you can never have too much evidence. If it is not there, don’t manufacture it. • What if the corroboration Ws are the children? o Sometimes a parent will refuse to let children testify against their other parent. o Even if parent allows it, do you really want to bring the kid in? Try to avoid that. There will be negative stigma on the parent that allows this (your client). o If you call the children it better be worth it… they need to be very strong witnesses! o If you advise the C of the need to call the child as the W for the success of the case, but the parent doesn’t want to… get it in writing! That will protect you from malpractice when things don’t go your C’s way. o CPLR 3016(c) – you need to be specific as to when, where, witnesses – as to each incident o Defenses – once case is proved on the facts • ONLY defense is the 5-year statute of limitations. SoL runs when the act occurs. • Ex: if client separated 4 ½ years ago b/c of cruel and inhuman treatment, you better get moving! If SOL runs out, there are no grounds for divorce. • Even insanity it NOT a defense - Pajak v. Pajak (’82) [mens rea not important, the key is the adverse impact] •
Ground 2: Abandonment – π must prove that ∆ abandoned π for a continuous period of not less than one year with the intention not to return, and without the consent of π, and without justification o Falls into categories: • Physical Abandonment [refusal to cohabit] OR • Sexual Abandonment [refusal to have sexual relations for a year or more) • Can’t just be a sexless relationship – π is required to show repeated overtures and repeated rebuffs [“begging as foreplay”] • Constructive Abandonment o Physical Abandonment — • Elements • Not to return • Continuous for one year [no tacking] • Lack of consent – mutually desired and agreed upon is not abandonment
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Lesson here: If separation, make sure you get things in writing that you advise C to get a mutual separation b/c otherwise a year later the other spouse could try to get abandonment. • If abandoner is gone for a year, but comes back to get the kids on the weekends, that does NOT interfere w/ abandonment timeline. 1 year still runs. • IF the couple, although living apart, is trying to work things out… NO abandonment! • Ex: H beats up W, she leaves, he sues after a year for abandonment. No abandonment here! She had justification. P would need to show that there was no justification. • Ex: W won’t sleep w/ H for a year b/c she finds out he is cheating and doesn’t want a disease that he could have picked up. NO abandonment, she had justification. o Sexual Abandonment-- P must show that he/she repeatedly requested & D repeatedly refused for at least a year. Just showing that there was no sex b/w them is not good enough. Have to have asked and denied repeatedly for at least a year. • Ex: If on the 364 day the holding-out spouse finally says yes… no abandonment! • Can’t be a justified reason [e.g., medical] for the lack of sex; proof of philandering so that there may be risk of STD, etc. o Constructive Abandonment-- Husband is beating wife so she has to leave. He abandoned her even though she was the one who left because his behavior drove her out. • Need lack of consent. Make sure you document if your client leaves pursuant a separation agreement. • Lack of Justification-- Wife is justified to refuse sex if her spouse is cheating on her; Woman with a medical problem also has justification because of physical inability. • Defense: NO defenses, not even SoL, because continuing cause of action that reoccurs each day it accrues •
Ground 3: Imprisonment DRL § 170(3)-- D is imprisoned for a consecutive 3 yr period during the marriage before this ground accrues. o Cause of Action does not arise UNTIL D has been incarcerated for a 3 yr. consecutive period. o P has a 5-yr SOL to file for divorce. o Ex: Ms. Jones comes into your office, her H is sentenced to life w/o parole. She wants a divorce. NO cause of action yet. She has to wait until he has served 3 years. o Defense: SoL [continues to accrue every day – the 5 year mark begins on the date of release] o Does not count for those who marry already convicted felons
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Ground 4: Adultery DRL § 170(4)-- Single act is enough. o An act of sexual intercourse or deviate sexual intercourse by a married person during the marriage with someone other than his/her spouse o Sexual intercourse bears ordinary meaning o Deviant sexual intercourse--(Penal Law – 130.002 & 130.20(3)) • contact b/w penis and mouth, mouth and vulva, penis and anus, sexual conduct with an animal or a dead human body. o Defenses • (1) Procurement [Connivance]--Open marriage or you put another person up to having sex with your spouse. If an “open marriage” is established it is still adultery, but it can be used for a defense.] – in effect – consent [open marriage] • Cannot have someone seduce spouse so they commit adultery; H suspects W is cheating. He hires PI, PI watches, she turns down guy after guy. PI and W are both drinking. PI puts the moves on her and she commits adultery. Would adultery be a valid ground here? NO, PI is acting as an agent of H, can’t do it! • (2) Condemnation or Forgiveness--Express or Implied [once she has sex with her husband again, claim is over]. • Express-W finds our H has an affair, she forgives him “I forgive you” and tries to work things out. • Implied-W finds out but stays in marriage (lives with AND engaged in sex with), even if she is only staying to torture him – this constitutes forgiveness. If H commits a new act, W can brings grounds for adultery • If spouse commits adultery, and you forgive your spouse, you cannot then go cite adultery as ground for divorce later on. Each new act of adultery restarts c/a. Must forgive each time to lose your claim. • (3) Recrimination--Both commit actionable adultery. Both prove it in Court. NY says they must stay together. Based on “clean hands” principle. • It is not actionable if SoL has passed on the offense, so if one person’s adultery was outside the SoL, ok to divorce and the person with the actionable claim wins • (4) SoL Begins running from time of discovery. o CPLR § 4502: Competency as a witness [only applies to adultery] • A spouse is incompetent to testify to prove adultery through their own testimony EXCEPT to: o prove marriage exists o disprove adultery if accused o disprove a defense o you may not testify to establish the presence of the adultery – even if witnessed first hand way around it – if pleadings are framed properly – plead §170(1) cruel and inhuman as well – including the factual allegation of the adultery as cruel and inhuman, humiliating – that way the allegation is in both places in the pleading; judge may issue a limiting instruction to the jury – but the factual allegation will be in evidence 10
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Ex: W comes home early. She hears noises and she catches her husband cheating. She can’t testify to what she saw. On her behalf you bring ground of adultery and cruel & inhuman treatment. You place this act under C/A of cruel & inhuman treatment so that she can testify to it. ADULTERY IS A CRIME UNDER THE PENAL CODE – class B misdemeanor – even today, but not prosecuted for at least 30 years • Probably unconstitutional, invasion of the right to privacy • But chances are that the adulterer does not want to be the test case – if it’s your client, tell them that they can’t admit it because of potential prosecution • Verified pleadings – the statute say that you do not have to swear when denying adultery – however, depositions/ trial will come – o TAKE THE 5TH as to whether you had sexual relations only – other than that, it’s not acceptable o BUT, SoL on the crime of adultery is 2 years – so after that, he probably has to testify You have a state constitutional right to a jury trial on grounds. Everything else a judge will decide. Once that evidence is “in” then the jury will use it even if instructed to disregard it. Once jury knows he is a cheating jerk that will be enough, doesn’t matter to the jury what “grounds” it is applied to. Commission of act of adultery is a crime. It is a misdemeanor, carrying sentence up to 90 days [hasn’t been enforced since 1936). Tell your client to plead the 5th if he/she committed adultery. This goes ONLY to the question of did you have sexual intercourse or sexual deviant intercourse? 2 yr SOL for crime of adultery. If adultery happened b/w 3-5 yrs ago, D can’t please the 5th. All matrimonial proceedings must be verified, except adultery! Statute actually says that denying adultery does not need to be verified. Ex: H committed adultery in 2001, W finds out and starts an action today. H is on the stand. He takes the 5th. Can he do that? NO, b/c SOL is 2 years. 5th is highly unlikely now b/c it can only be used w/in the 2 years and court calendars are too full. After 2 years C can say whatever he wants w/o incriminating self. In civil proceeding, a trier of fact can draw an inference from someone taking the 5th. If he took the 5th you are allowed to infer that had he answered truthfully, it would have been unfavorable to his position. If your C is a lying, cheating, stealing, spouse beater… SETTTLE! Make the other side an offer they can’t refuse. This stuff only applies if they are fighting. If people are trying a case on grounds, then you know one of the parties are against the divorce [usually a money reason].
Ground 5-- Living Apart Pursuant a Judgment of Separation – DRL § 170(5) o Rarely Used o Not truly no fault ground because the judgment must be obtained on grounds of fault under DRL § 200 o One or more years apart following entry of judgment
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o Fault Ground. To get a separation judgment a party needs to prove fault (grounds 1-4) o And that the plaintiff has substantially performed his or her obligations pursuant to the judgment o 1st step--Sue spouse for separation. Once you get judgment, you are still married but can legally live separately. 2nd Step-After 1 yr you file for divorce based on group of separation judgment. o This is a way of getting court’s permission to live apart w/o risk of abandonment. o EITHER party can file for divorce on ground 5 after the 1 yr. separation. Even the party that was sued for separation based on fault can sue for divorce. D in separation action can prevail as P in the later divorce action. o Why do it? No real reason other than strategy [e.g., venue or equitable distribution] – used to be more important when adultery was the only ground o Separation judgment under § 200 is used for purely tactical/strategic purposed. • Ex: H [an MD] wants a divorce b/c W is crazy. H does not want to give up half his fortune. H sues for separation on C&I grounds b/c the Court doesn’t have jurisdiction to distribute property. This only lasts 1 yr. H get exclusive use of home and custody of kids. W never brought action for divorce. • Downsides – can’t remarry; the other side can file her own complaint; o Important--Court does not carry juris to distribute property when it grants a separation judgment. o Almost all of the forms of relief you can get in a divorce action you can get in a separation action. What the court cannot do in a separation action is: • Distribute marital property • Has no subject matter jurisdiction to award equitable distribution o Defenses: NO defenses, other than SoL. o Marital relationship is still in tact! Even under a separation, it is still adultery if they have sex w/ other people. Can’t write adultery in as being allowed… public policy won’t allow it. o Substantial Performance—if you are representing the party that wants to convert to divorce, show that your C is up to date w/ payments and has substantially performed obligations under the decree. • To get divorce have to have separation judgment, to have separation judgment have to have grounds of fault. • No equitable distribution b/c court doesn’t have jurisdiction • No dissolution or marriage, or distribution of assets b/c marital status is still intact. HYPO: H comes to L wanting a divorce b/c W is crazy. Problem for H is that it was a long marriage [so will need to show a higher standard—Hessin-Brady]. Equitable distribution issue here…likely all property will be divided equally. H wants to avoid this. Separation is the better option b/c not such a high standard, and assets can’t be touched in separation. W can bring divorce action in after a year and covert the separation into a divorce, but H says she won’t do that. It actually worked for the H. He gave her money, he keeps his property, and they are never actually divorced. After 5 year SOL runs, can’t get another judgment of separation, would have to proceed on separate grounds. •
Grounds 6: Living Apart Pursuant a Separation Agreement – DRL § 170(6) – 12
o Provides that π can get divorce on grounds of living apart for 1 or more years following execution of written separation agreement signed and acknowledged by the parties. o π must substantially perform his/her obligations under the K – and they must live apart for a year [after the agreement is signed] o Commonly utilized ground o True, Bilateral NO FAULT—To get separation agreement, need to have an agreement entered into by both H and W, agreeing to be separated. o No back-dating [criminal] – if the clients really want the immediate divorce, they will have to proceed under the fault grounds (if they can swear to the facts necessary) o It’s a contract that says/provides for: It is lawful for the parties to live apart as though they were unmarried (not abandonment). Does not mean that either party can go out and commit adultery. Once signed the parties CANNOT cohabitate. If they so, contract is no good. Custody of children Property Division Child Support Waiver of Estate of Right & Claims Spousal Maintenance Agreement should do everything so that there are no issues to be litigated at the end of the year. Common provision: in the event that either party shall seek a divorce they will request that this agreement be incorporated into the divorce judgment. Meaning, by entering into this comprehensive separation agreement today, they are writing their own comprehensive settlement of all issues. IF in a year they want to convert to a divorce, the do not have to re-hash these battles. P must SUBSTANTIALLY perform his/her obligations pursuant the agreement You need consent of both parties for this to work Must live apart for 1 yr from the date the parties sign the separation agreement Conversion-Converting contract into a judicial divorce decree Statutory Structure for getting a divorce in NY: • Prove spouse has committed one of the 4 statutory sins OR; • Get spouse to sign separation agreement o Bi-lateral No-Fault—What is its impact? Can only happen when both parties agree to sign “Price of Freedom”—When no fault is in the marriage but 1 party wants out, the other party has a HUGE bargaining chip. Exactly how much is YOUR freedom worth? Pay up – use leverage to get what you want out of it. This is NYS legislature’s fault… by mandating either grounds for divorce, or bilateral no-fault… hardball is the name of the game It may even be unethical to not use leverage here if it is there o Practical Limitation—any state that surrounds NY is a unilateral no-fault state, and if you push too hard and try to use your bargaining chip too aggressively, you may push that spouse across the state line. (Be tough, but don’t drive other spouse away b/c then lose your bargaining chip). He will take advantage of the Divisible Doctrine of NY (marriage goes w/ each spouse)
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Doctrine of Divisible Divorce: the marriage goes with where either spouse is domiciled – so if the spouse who wants the divorce wants out, become bona fide resident and satisfies the residency requirement – the action is brought in the new venue, the new venue does have in rem jx over the marriage, although the other party is living in new york • You can appear and probably lose, and in personam jx is then established once the NY party appears • Or you can not appear and default – if NY party defaults, all the new venue can do is grant the divorce, but it can’t touch the property or support rights o Full faith and credit will be given to divorce Vanderbuilt v. Vanderbuilt, Williams I and II If client moves to a no-fault state and becomes a resident, he/she can take advantage of DIVISBLE DIVORCE DOCTRINE: • Marital res (status) resides wherever either spouse resides thereby giving that state in rem juris to grant a divorce. NY will recognize validity of the no-fault state’s judgment. • Ex: H moved to VT for 6 mo. H serves W with a VT summons for divorce. W can appear in VT court and contest action or default in VT. If she defaults, VT grants the divorce. VT can’t grant equitable distribution, VT can ONLY dissolve marriage. VT CANNOT decide any personal rights b/c no in personam juris. • If you were W’s lawyer you would tell her to default if the economics will be better in NY, which they almost always are o If W were to answer, VT now has full in personam jurisdiction. • Default follows special proceedings… either party can commence a proceeding to § 236(b)(2) to determine equitable distribution and/ or maintenance after entry of foreign decree of divorce
Arguments AGAINST NY’s fault policy: Moving to no-fault states is not always a feasible option… • If primary care giver wants the divorce she can’t just hop over state lines to get the divorce. But can’t leave the kids if you want to have a shot at custody. • If you live and work in Syracuse can’t exactly commute to another state. • It doesn’t work if you have a job that requires you to be a resident of that state. • Fault makes it too hard • People are leaving the state to get the divorce, might as well give them the option here. • It isn’t fair that people in Syracuse can’t get divorced, but people in Albany can b/c they go to Massachusetts. • People are not staying married just b/c divorce laws are tough. The real effect is that people are unhappy, but they just can’t enter into a legally recognized marriage. • Escalation of unhappiness to… Arguments for why NY should remain a fault state: • Puts the innocent party in better position 14
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It is a K, it not should be easy to get out of. You got in by consent, you should get out by consent. Dumbest argument – the fault system preserves the family
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Equitable Distribution –DRL § 236(B) 3 basic systems: o Common law title system Very simple – divorce court didn’t have jx over property, other than to allow it to stay with the title holder Downside – could result in significant unfairness o Community property system CA, about 8 or 9 states Almost always a mandatory 50/50 division Co-management during coverture – during the marriage, if W buys and takes sole title to a house, she can not sell it without the H o Equitable distribution No co-management during marriage No rights arise until at the earliest commencement of the divorce action Not mandatory 50/50 distribution Philosophical theory – marriage is an economic partnership, and upon dissolution of that partnership, the partners should equitably share in the fruits of the partnership
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NY until July 19, 1980 operated under common law title system [we were 2nd to last next to LA]. Whosever name was on property (whoever had title) kept it o Advantage—simplicity o Disadvantage--could be unfair Ex: if all the money was in a bank in the H’s name only, then ALL the money was his. It didn’t matter how much the spouse contributed to that. This system was simple, but not always fair. Joint property was split 50/50 On July 19, 1980, NY switched to equitable distribution, NOT a community property state Until there is a divorce judgment distributing property, we are a title state. In NY, if you have property in your name, you can sell w/o spousal consent. Difference b/w Community Property System and Equitable Distribution System o Community Property-- you can’t sell property unless your spouse signs off, even if the property is only under 1 spouse’s name. Have “co-management during coveture.” No co-management during coveture in NY. Mandatory 50/50 split. In NY, no state mandate or presumption of 50/50. o Equitable Distribution—system for dividing property fairly based on a multitude of factors. Until a divorce action is started, we are still a common law state. Why? Grant of separation judgment leaves marriage in tact. NO DISSOLUTION, NO DISTRIBUTION. If not in divorce action, and the “thing” (house, account, etc.) is in just your name, you can do whatever you want w/ it w/o spouses consent.
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No 50/50 split. In NY, it rest upon the premise that marriage is at least in part an economic partnership, upon dissolution each partner should share equitably in fruits of partnership. Court distributes as a matter of discretion.
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What is Equitable Distribution? It is a 3 Step Process [and MUST be kept in order]: o Classification—NY divides every asset owned by either or both spouse into 2 types: (1) Marital property • subject to equitable distribution (2) Separate property [court will not touch – many exceptions] • generally, subject to exception, is immune from equitable distribution In effect, in “classification” we take an inventory of everything the marital estate has and separate everything into either marital property or separate property. If marital property it goes into the “estate pile.” Everything in the “estate pile” will have to be divided b/w the parties. Separate property stays out. o Valuation – every asset in the marital estate pile must be given a $ value. o Distribution – decide which party gets what. Unlike community property, this can be anything from 0 to 100%... it is highly discretionary, though not unfettered.
Stage 1: Classification • Primarily a legal Q • Mixed Q of fact and law • Reversible error that is found is usually found in the classification step • Classification: marital OR separate property o Marital—subject to equitable distribution o Separate—immune from equitable distribution • When determining if Marital Property look to: o Time of acquisition AND o Source of acquisition • Time of Acquisition [T/A] —when was the asset acquired? o Marital Property-- any assets acquired by either party [or by both parties] between the date of marriage (DOM) and date of commencement of qualified matrimonial action (DOC) OR the date of execution of a valid separation agreement which resolves the property issues irrespective of how title is held. under NY law, it does not matter the source of funds, lottery, hard work, etc. o Separation Judgment has NO effect on time of acquisition. o What is a qualifying matrimonial action? § 236(B)(5) Any party seeking matrimonial relief [divorce or annulment] Also includes execution of a valid separation agreement – because properties are authorized to opt out of the equitable distribution scheme o What is NOT a qualifying matrimonial action? Separation, b/c it doesn’t dissolve the marriage. It leaves the marriage intact. – the court does not have jx to award equitable distribution NO DISSOLUTION, NO DISTRIBUTION o Marital v. Separate Property Anything that is acquired b/w the DOM and DOC of matrimonial action (aside from separation) is presumed marital property.
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Anything that you acquire before DOM and after DOC of matrimonial action is separate property. anything acquired by either party after the date of the commencement is separate property • DOM is the date upon it was legally recognized – there is no common law marriage in NY • Marriage is an economic partnership [formal] – and until the formal commencement happens, marital assets keep building regardless of physical separation • If DRL § 200 Judgment of Separation – still no equitable distribution, DOC of separation under that statute still does not grant equitable distribution – must wait until DOC of qualifying matrimonial action • Anglin v. Anglin – the action, the date of which controls, must be the action within which the court had jx to award equitable distribution • McMahon v. McMahon – Justice Gish (NY County) - below Under § 236(b)(3) – parties can enter into agreement and opt out of this scheme • Can be prenuptial agreement, postnuptial agreement, etc., as long as it is properly structured o Co-Mingle—if you co-mingle separate property w/ marital property all of it is presumed to be martial property. The burden falls on the party that is claiming separate property status to show which property is martial and which is separate.
HYPO: A and B execute a separation agreement today. Anything acquired after separation agreement is separate property. HYPO: if someone comes in for “pre-divorce” counseling, and the H knows that the wife is in the midst of a big business deal and about to make a lot of money… it would be wise to advise the H to wait to bring the action until that money comes in… if he commences the action now, the money form the deal would be separate property of W, if he waits it will be marital property. HYPO: I represent W (P). During the marriage her H inherits $100K. Even though it was received during the marriage, it is separate property… by source. I am going to show that H on date b/w DOM and DOC deposited $100K. Even though the money is his fairly, I will just show that he had $100K during the marriage. I won’t bring up where the money came from and hope the other side forgets. The money will be presumed marital property unless H’s side shows otherwise. Implications from the DOM-------DOC of divorce action timeline: • Remember we are just talking about classification here, not distribution HYPO: Suppose the couple separates 2 years before the DOC. What if during that time the husband acquires money? It is martial property. Separation does not matter w/ regards to classification (it may in step 3: distribution). HYPO: Timeline: DOM, then DOC of separation, then DOJ (date of judgment of separation action), then DOC. Now what? DOC for separation and DOJ are irrelevant for purposes of classification. Statute says property is properly classified at the DOC of the matrimonial action, it refers to the
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commencement of the matrimonial action in which the court determines equitable distribution. It is the commencement date of the divorce that controls classification. HYPO: Timeline: DOM, then DOC of divorce action #1, it is then dismissed. Later, DOC of divorce #2 is begun. Which commencement date controls classification? #2 controls. Equitable distribution is not made during #1 b/c the action is discontinued/dismissed, and therefore ceases to exist.; No divorce was granted in the first action – therefore, second action commencement is the proper qualifying date to use McMahon v. McMahon case: Wife starts divorce action. No complaint was ever served or demanded (no pleading ever served). Somehow, it still went before a J, and they had several conferences on the case. Trial date was set. H’s business when public b/w DOC of divorce, but before pleading. His net worth increased by $32 million dollars due to IPO. W wants her share and sends him Notice of Dissolution. H says it is separate property and moves to declare the notice a nullity. Court says it is marital property. Lesson: exchange pleadings! Until the pleadings have been exchanged under CPLR 3217, π has an absolute right [w/o permission of other side or court] has a right to discontinue the action. J is not saying wife will get any of the $32 million, just that it is marital property. Emphasis is that it is a stage 1 question – the court’s discretion does not come in until stage 3 HYPO: H wants divorce, but has no grounds. He goes to VT. He commences a divorce action in Vt. Wife still in NY. She defaults, then the action goes to judgment. A special proceeding is commenced [can get equitable distribution following a foreign judgment of divorce]. Sometime b/w commencement of VT action, and the commencement of the special proceeding H makes a lot of money. Which commencement date do we use to control classification? The second date…the special proceeding commencement date. Why? Same logic as the Anglin decision – the action that any court had jx to do equitable distribution was the one that controls Source of Acquisition— • Reminder: title does not affect this… it is “marital property” if the thing of value is acquired b/w DOM and DOC of action to dissolve marriage. • Exceptions—these are separate property [immune from equitable distribution], regardless if gotten while married: o (1) Inheritance—you inherit property from a will - SEPARATE o (2) Gift from a 3rd party (Intra-spousal gift is marital property) – may be a problem to discern because no paper trail – more litigation Wedding gifts are marital property – irrespective of from whom they came. Gifts given to a couple as a couple are marital assets…gifts to benefit both, not just one party – marital property Weddings rings are marital property. Engagement ring is separate property b/c in contemplation of marriage • falls under NY Civil Rights Law – once the marriage is made, then the condition subsequent has been satisfied and the gift is made [if no marriage, the condition was not met] – irrevocable once the gift is complete Lottery winnings during marriage – marital property. o (3) Property received as compensation for personal injury 20
Even though loss of consortium claims are derivative of the marriage, those awards are also separate property Money that husband gets from PI claim is separate property o Permutations to Rule include: Disability—often personal injury actions have a derivate action. Spouse has action for lack of sex (b/c spouse is injured). Jury says husband gets $100K for injury, wife gets $10K for consortium. The spouse’s portion is separate property. This makes no sense, but that is the way it is! The consortium claim is a derivative cause of action. The wife’s recovery of loss of consortium is her separate property. • Rule of thumb: It is considered that 10% of the total amount awarded is the consortium, and 90% is the injury. If court does not allocate b/w injury and consortium in the settlement, then matrimonial court will have to do it… usually following the 90/10 ratio. – widely seen as rule of thumb although not a rule of law Disability payments/disability benefits: Person is injured and can’t work. They get disability from their employer. To the extent that the disability payment represents compensation it is separate property… but it is not necessarily all related to the injury. You have to look at the terms of the plan itself. You need to have an expert who is conversant and familiar w/ the plans, b/c often “disability” is deferred compensation… if deferred pension… marital property. Now, you have a hybrid asset-partly marital, partly separate property. Someone has to prove which part relates to the injury, and which part relates to the deferred compensation. • Employer-maintained policy: Disability funds generally represent compensation for injury, as well as deferred compensation for the services he rendered to that employer – so it represents a hybrid benefit – the deferred compensation is marital property, the injury part is separate – expert testimony is required to differentiate between the two o Marital court must allocate which part of compensation is part of injury • Private Disability Insurance: held to be separate property o Arguments against this – (1) premiums were paid with marital property- still separate property; (2) hypo – wife on disability keeps her funds separate, but these benefits are substitution for income – which would be marital property- ct.- good points but for legislature= still separate property Which party bears the burden of proof? • There is a presumption of marital property, so whoever is trying to prove that the check is separate must prove it… here, this is the injured party who wants to maintain that the injury $$ is separate property (4) Exchanges – property acquired in exchange for separate property is separate property
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o Hypo – wife buys car with pre-marital funds (Separate) , car crashed, insurance company pays, she buys stock with that money – the stock is STILL separate funds – the series of exchanges must be considered separately (5) Appreciation of Separate Property – statute says that separate property includes any increase in value of separate property, except to the extent that the increase in value was due in part to the effort or contribution of the other [non-titled] spouse o W is titled spouse (owns the asset) – hypo, rare coins owned by W in safe deposit box, at time of divorce, increase in value is $90k – the statute says that this is her separate property unless H can somehow prove that he contributed to that increase in value o Another hypo – H starts small business before marriage, during marriage, wife starts to work there and helps it grow substantially – this falls under the exception as the increase in value was due in part to the effort of the non-titled spouse o Another hypo – H starts business before marriage and continues to work there alone and with no direct influence from the wife; wife runs marriage, rears children, etc., would non-economic contributions be taken into consideration when evaluating the increase in value – for the first 6 years [until Price in 1986], was highly controversial o Download Price v. Price, Ct of App 69 N.Y.2d. o Also Hartog v. Hartog, Ct of App Kaye v. Kaye – med mal action – W injured, H came out of the closet – notwithstanding, H still got 10% HYPO: W is injured during marriage. Disability policy starts paying in money. All of this money goes into an account. DOC is brought. H wants his portion of the money. She says no, disability. Essentially the disability is a substitute for her salary (which if it were her salary it would be marital property), additionally the disability comes from insurance which was paid for by marital property. Pretty good argument for marital property, so which is it? SEPARATE property, legislature decided this in statute. Court does not agree w/ it, but says it is the legislature’s job to fix it. HYPO: W starts divorce action. They are separated for 19 years. H wins $23million in the lotto. Is this marital property? YES b/c no divorce action was brought yet. However, she could still get non b/c of distribution analysis. •
Property acquired in exchange for separate property is also separate property. Ex: W has $10,000 of separate property. W takes $ out to buy work of art. The art is her separate property b/c it was acquired with her separate property Ex: H was given car as a gift. Car blows up and he uses insurance $ to buy a new car. New car is separate property. The party claiming separate property has burden to prove if it is separate property b/c presumption is that anything acquired during the marriage is a marital asset.
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Separate Property includes increase in value of separate property during the marriage and prior to commencement of the divorce, EXCEPT to the extent that the increase in value was due in part to the effort or contribution of the other (non-title) spouse. Ex: $10,000 in bank increases to $11,000. $1000 increase is separate property b/c increase was passive. Ex: H owns a coin before marriage worth $500. Now worth $5000. Increase is separate property b/c W made no contribution to increase. Ex: H owns hotdog stand. H sells hotdogs. After marriage, W helps with business. Hotdog stand is now chain of restaurants. This falls under exception. Wife can get some of the increase value b/c it was b/c of her efforts too that the business grew. Ex: H owns a hotdog stand. H runs hotdog stand. W does not help run business but she stayed at home to take care of the kids. Where does this leave W? Must do an Appreciation of Value Analysis. • Originally Court broke both way, in 1986 Ct. of App. settled issue in Price v. Price: Court adopted the liberal philosophy. Court said that even though wife did not contribute directly to business, she contributed to marriage as a spouse, wife, and mother. Those contributions are as important as economic contributions. So the remedial legislation is to be interpreted and applied liberally. “Marital Property” is the key term, which should be construed broadly. Separate property designation is an exception to marital property, therefore it should be narrowly construed. Because the phrase in question is an exception to the exception, it should be broadly construed – therefore, contributions and efforts, being broadly construed, should be interpreted to include services or contributions as homemaker, wage earner, etc... because this is consistent with the remedial spirit of the equitable distribution law because it maximizes the pool of marital property that the court has the discretion to distribute [result-based jurisprudence] • This is not to say that every increase in separate property that occurs during the marriage will necessarily be marital property. But what is the criteria to be applied? It depends upon the nature of the asset. Every increase in property is not marital, it depends on the nature of the asset. Some assets increase in value b/c of market forces. 3 examples: vacant land, works of art, and mutual funds. Active/Passive Distinction-If asset in question increases in value but not as a result of any effort by either spouse (but is of the market forces or third parties), then it is passive and the increase in considered separate property. If the increase in value occurred by some effort by either spouse, it is active and falls in the language of the exception (become marital property). Mental Checklist from Price v. Price: • Is there separate property? If no, stop. If yes, continue. • Did it increase in value during the marriage [DOM to DOA]? If no, stop. If yes, continue.
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• Did non-title spouse directly contribute? If yes, non-title spouse has a claim. If no, continue. • Were there any direct contributions by the titled spouse? Is yes, continue. If no, stop no claim because increase is passive. • Did the non-title spouse contribute indirectly or non-economically as spouse, homemaker, parent, wage-earner? If yes, the non-title spouse has a Price v. Price claim because the increase in value falls under exception clause and becomes marital prop. o Non-title spouse has a claim under Price if there were non-economic contributions AND the increase of value of the separate property increased as a result of nontitled spouses contributions (nexis b/w them). o Non-title spouse can also contribute directly… don’t even need Price. o If neither H nor W do anything to bring about the value increase of the separate property… no nexis. o Her efforts get piggybacked onto his. His direct contribution is the nexus between the spouse’s indirect efforts and the increase in value of the assets. o Non-title spouse has burden of proving all the elements above. o “Son-of-a-bitch rule”—court figures out the bad guy and then ignores the law to punish that party. This presents inconsistent rules. Must Show: Increase in value (so must prove 2 dates) o Valuation Date—Baseline date [where value started]. Will either be: Date of marriage OR Date of acquisition of the separate property [whichever is later] Ex: if the asset in Q is the wife’s law practice, but the practice was established before the marriage… here the date of valuation is the DOM. H must prove the value at the DOM, and show it increased to DOC (valuation date). Ex: if the asset was given after the marriage, use the date of acquisition. What if title spouse does something that increases the value if the assets but it is minimal? In other words, the title spouse’s contribution was not the sole reason for the increase. o Hartog v. Hartog, Ct of App. 1995-- Mr. H was a diamond business owner. He owned and operated 1 business that fell under Price rule – his separate property, the increase was marital. In business 2, he owned 25% interest, the other 75% was owned by his brother who ran the business. Mr. H held certain titles, was carried on his tax return as an employee and occasionally consulted with his brother on business. W says business #2 went up in value and she did all the non-direct efforts, and he had direct, thus she formed a nexis, and to follow Price. The value increased, and W held position as homemaker parent spouse – but was H’s effort sufficient for the claim? Issue: if the title spouse makes some direct effort, but not much, does the rule from Price still get triggered? Is there a minimal amount of effort?
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Trial Court: follow Price. Appellate Court says the nexis was too minimal to trigger Price. Court of Appeals says to follow Price. Holding: even though his efforts were minimal, that was enough [any scintilla of effort suffices]. Therefore, 25% of the increase in business was attributable to his efforts and therefore marital property. Issue 2-- Are we dealing with classification as all or nothing or a proportional classification? Ct App says proportional classification. Marital property ONLY includes the % of increase in value due to the spouse’s efforts. If business increases in value by $1million dollars but H only owns 5% of business, only $50,000 can be part of marital assets to begin with. Trial Ct must decide what % of appreciation is connected to spousal effort. Ct placed this burden on title spouse b/c it would be unfair to place in non-title spouse. Title spouse must prove what % of increase is passive. If he fails to prove it, entire increase is swept into marital estate subject to equitable distribution. • Burden: titled-spouse needs to show why else besides from spouse’s contributions the value went up… market, other workers, and brother’s efforts. Show there are other reasons for the business’s success. Questions the Court of Appeals Addresses: • In analyzing a title-spouse’s direct efforts, can they ever be too minimal to trigger the Price analysis? NO, if there is ANY effort by the titlespouse (no matter how small) that is sufficient to trigger a continuation of the analysis. General Rule: any time a court has a burden to do anything it immediately will pass it along to one of us!! So, if the court has the job of calculating the calibration, then one of the parties should do it. Permutations: 1) Couple gets married. H owned a vacant piece of land. Vacant land increases in value to $100,000. Couple placed a house on land to increase value to $300,000. At DOC land is worth $500,000. Market forces and inflation were operating on land and improved property. You need a professional appraiser to project how much vacant land would have been worth had it stayed vacant. You could determine part that was separate property and part that was marital property. 2) W owns a coin collection prior to marriage. It is worth $10,000. She exchanges coins for different coins that increase in value. Is this separate property? Was her investment decision a contribution that increased the value of her asset? Courts have said this is effort triggering Price analysis.
Transmutation Doctrine • Any property acquired by either party is marital property irrespective of the manner in which title is held. • If you buy a house during marriage it is w/ money made presumably during the marriage. If you put your name only on the deed, it is still marital property. • The courts have said that if you own separate property, and during the marriage you put that separate property into joint name w/ your spouse, that will transmute your separate property into marital property. 25
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Rationale: at the time title spouse puts into joint name she conveys 50% interest to her spouse. Spousal gifts are marital prop. Important Note: When it comes to stage 3 Distribution, the party who conveyed the property is entitled to a credit (origination credit/separate property credit). How much is credit? Value of asset on date it was converted from separate to marital prop. Ex: After marriage, W inherits $100K, n that date during the marriage, she gets the check payable to her. This is separate property. She initially puts it into an account in her name only. During this time the money appreciates to $120K. Later, she puts the money into joint name w/ her husband. Once she does this, it is immediately converted into marital property (transmutted). It then appreciates to $220K. What is the proper classification of the $220K? Every penny of it is marital property. o Rationale: when you make a joint account there is a statutory presumption that an undivided ½ interest is created in the account. The day W transferred the money, she gave H an undivided ½ interest in it. That is an inter-spousal gift [marital property]. o Convenience Defense—if the separate property owner can prove to the court’s satisfaction that they did not intend to make a gift or confirm a benefit on the non-titled spouse, but to set up the joint account strictly for convenience, that rebuts the presumption of the donor intent and thereby refutes the transmutation. Ex: dad wants to buy house for daughter, but if there is a divorce, he doesn’t want H to get it… what does he do? He could put the house entirely in her name, but H won’t like that. Give it jointly, but then if later a dispute say you did so out of convenience [Convenience Defense] and had no intent to give it to H. Can you prospectively transmute? o H was benefit of estate and received inheritance. He got $100,000 as 1st Distribution that he placed in joint account. He got $200,000 as 2nd Distribution that he placed in joint account. He got $150,000 as 3rd Distribution that he placed in his sole account. W says that b/c he placed portion of $ in joint account, any $ received is transmuted. Ct says NO, transmutation only occurs on assets put into joint account. No way to know donee’s intent if $ is not placed in joint account. W puts money $125K in joint account, has problems w/ marriage so moves the money into a separate account. Is this okay? NO, transmutation only works in 1 direction, cannot “untransmute.” The Credit: Ex: W has marital property that appreciates. The Credit Doctrine says that when you are dealing w/ a transmuted property, when the court gets to Stage 3 [distribution] it is suppose to give back a credit as to the value [dollar for dollar] of the separate property asset as of the date of transmutation. Ex: Have $220K marital property, subtract $120K b/c that is how much was there when transmutted. Then the $100K is distributed at the court’s discretion. Ex: W inherits $100K, buys home w/ the money and puts it in the joint name of her and her husband. At time of divorce house is worth $180K. She gets the $100K credit and the remaining $80K is distributed at court’s discretion in stage 3. o If the value of the home decreases by $100K, H will get nothing, b/c her credit exceeds the value of the property. W is out the $20K, no access to credit to recover it from. o Say W inherits $200K. She buys 2 homes, $100K each. Both in joint name. House B is worth $200 at date of valuation. That leaves $100K to be divided b/w H and W. She
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is still short $20K on house A from above. She wants her $20K back from house B b/c there are sufficient funds there to cover it. Is that possible? NO, it is an asset by asset formulation. • With transmutation it is all transmutted… if you have $100K in bank at time of marriage, then change to joint and it is worth $300K, the marital property is $300K. Stage 2: Valuation • Court must value each asset in the marital estate – it is court’s burden to do so, and will fall to whomever has burden of proof [here, the party who is seeking the equitable distribution of the particular asset – i.e., the non-titled spouse] • Court can’t blindly distribute. Court can’t say: we don’t care what it is worth, we’ll divide it 50/50. • It is reversible error to fail to value the marital estate. • The non-title spouse has burden of proving value b/c he/she is the party seeking equitable distribution of that asset…. Failure to prove value can constitute a waiver of the distribution o Ex: W is a lawyer and has a law practice that she established during the marriage (therefore marital property) and H wants a piece of it, it is the H’s burden to prove value. If H fails to prove value he has waived his equitable distribution claim. H’s L needs to hire an accountant to do the valuation of the practice. If C doesn’t want to pay for accountant, get that in writing! He will likely lose w/o accountant, so cover your ass. Get in writing what you advise the C needs to be done, and why, and the consequence for not doing it. If ∆ is the one who wants the equitable distribution, the valuation expert will not be called in π’s case in chief – it will be reserved for rebuttal – there is no duty to prove valuation for the adversary • Consequence of failure to value: o Waiver of claim to equitable distribution of that asset OR o Remand case for further development [makes no sense b/c in any other situation you don’t get a second change b/c you blew it the first time!] • Pension: to the extent that they are accrued during the marriage, that portion so accrued is marital property. • Value is an incomplete question - Value is dynamic so the valuation date is very IMPORTANT • Statute says: the court will promptly fix a valuation date for each asset in the marital estate. • Each asset will have its own valuation date. • 236(b)(4)(b) - Court has discretion in affixing valuation dates… but the earliest date that the court may use is the date of commencement of the action. The latest date that court may employ is the date of trial. Any date selected outside these parameters is reversible error. • Are there guideposts as to where along the spectrum the valuation date should be placed? o General Guideposts: Active – Passive distinction These are NOT rules, they are guides to what the court could follow. If the asset in Q is one whose value changes primarily through passive market forces, the courts will generally set the valuation date as close to the DOT as possible. 27
• Ex: RE is passive… fluctuation is not caused by one of them… both should suffer or benefit depending on how the value went. If the asset is active in nature where its change in value is driven by the active effort of the titled spouse, then typically the valuation date will be fixed as of the DOC of the action. • Ex: if W has law practice, DOC practice is worth $250K, 2 years later at DOT the value is now $400K b/c she was busting her hump. DOC starts separate property. H shouldn’t benefit from W’s hard work after DOC. • But suppose she ran the practice into the ground by time of trial… it is only worth $50K. Here, H shouldn’t be damaged by that. • Remember, these are just guideposts. If firm goes under on its own, could revalue after the occurrence at the lower number even if an “active asset.” This is discretionary. • Door doesn’t swing both ways. If value goes up… not usually revalued at the higher number… doesn’t seem fair, but that is the way it is. [the exception would be where there is continued support in the shared asset, etc. indicative of the non-titled spouse’s contribution] Determining Value: • HYPO: Massage parlor in old-school times square – cash business; PI assigned to calculate value • Value is the Market Value-- Price at which the asset would change hands in an arms length transaction between a ready, willing and able buyer and a ready, willing and able seller, each being fully possessed of all relevant information. [IRS definition] • Earnings-based business – more difficult • What is best evidence of value? An actual sale between an informed seller and buyer. For many things you can look in the paper. • What about assets you don’t have an actual sale or transaction for? You need to use an expert witness (forensic experts determine value as of valuation date by trying to replicate/create a hypothetical sale). • For purposes of valuation – need to create a fiction, in effect saying that this is what it would have sold for Variation of Capitalization of Earnings Method: • Not every value would be established this way. Sometimes value can be established by the RE value itself [what value realtors give it]. • Use this to figure out value in situations like: We buy H’s practice which includes tangible items like desk, copier, etc., but also buy to receive future earnings of that practice. How do we figure out what the future earnings are? HYPO: Let’s suppose H has a practice. It earns $300,000/yr after expenses and before taxes. Investors look at 1) effort and 2) risk when determining how much to pay for the business. If I (as an
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investor) requested a rate of return of 100%, how much will I pay for H’s business? $300,000 b/c you’ll get $300,000 back in 1 yr. If you accept a 10% rate of return, you’d be willing to pay $3 million for it. If you want a 25% rate of return, you’d pay $1.2 million for it. Capitalization rate – rate of return [for our purposes] •
This is called Capitalization of Earnings Method o Example below based on $300,000 AAE yearly earnings Cap Rate (subjective determination) Multiple Amount Invest 100% 1 $300,000 33.3% 3 $900,000 25% 4 $1.2 million 10% 10 $3 million Another example – based on an AAE of $500,000.00 Applying a cap rate of 25% - making it $2 million A multiple is the reciprocal, so the multiple for 25% is 4 •
•
How do we get the # that represents the average annual earnings of the business? o We don’t know what the business will do next year, even though we don’t know if it will still be around. The evaluator looks to past earnings to establish. o Look at balance sheet: assets – liability = net worth; and o P & L Statement or Income Statement – this does not deal with assets and liabilities, it is for income – expenses = profit Average Annual Earnings (AAE): Projection of what will be earned in the future. Typically look to past to project future—generally last 5 years. SIMPLE AVERAGE 2002 2001 2000 1999 1998
$500,000 $400,000 $300,000 $200,000 $100,000 ------------$1.5million/5=AAE=$300,000
WEIGHTED AVERAGE (Preferred in the Law) 2002 $500,000 x5 2001 $400,000 x4 2000 $300,000 x3 1999 $200,000 x2 1998 $100,000 x1
$2.5 million $1.6 million $900,000 $400,000 $100,000 ---------------$5.5 million/15 = $366,666=AAE based on Weighted Average Here there is a pattern of growth so next year should be closer to 2002 than 1998. (this calculation will not be required on exam)
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• • • •
•
• • •
NONRECURRENT/ UNREPRESENTATIVE YEAR 2002 $500,000 2001 $400,000 2000 $2 million 1999 $200,000 1998 $100,000 If you have an unrepresentative year not likely to reoccur, you should not include it. 5 yrs is only a rule of thumb, not a rule of law. “Brass Ring Years” are not expected to be replicated. Where do we get this base information of pre-tax net earnings? o Profit and Loss Statement/Income Statement Gross sales income minus cost of goods sold=pre-operating income Pre-operating income status: Payroll, travel and entertainment, etc. This gives you the ‘net income number.’ They then adjust the income statement (“normalize” the income statement). – average annual adjustment earnings – this contains subjective judgment calls by forensic accountants or other hired experts Why do this? • b/c this “other stuff” is not real business stuff. The evaluator looks at the specifics behind these numbers… payroll, travel, etc. If there is something not right, then the evaluator deducts it form the total number. • By taking out some of these numbers it increases the bottom line, thus increasing the value of the business. • This is fairly subjective… thought and judgment are required… logically, this means that there will be argument about the value – especially regarding the cap rate that ought to be used for a particular business [difference of a few points in the cap rate can be significant] o CAN’T: send expert into H’s law office to look at his cases and add up the addendum clause numbers, then add a few zeros to figure out what the value of the practice is. Valuators normalize or adjust the earnings o Most of these businesses are small o For ex., an owner may pay himself $300,000 even though a manager doing the same job would only be paid $50,000. o An evaluator goes line by line to determine necessary expenses-- this is the process of adjustment. You also get tangible assets when you buy a business. What a buyer would offer for a business depends on projected future earning AND Tangible Assets. Appellate courts are deferential to the trial courts on what figure is chosen as a finding of fact – as long as the figure is within the range of the experts’ testimony [regardless of the implications that this has in expert wars]
************WILL BE ON EXAM [numbers will be provided – need to know formula & apply] Use EXCESS EARNINGS METHOD to determine what a buyer would pay 30
• • • •
There is less risk w/ the tangible items of the practice (desk, copier, books, etc.) so a different valuation system is used… Excess Earnings Method. In deciding what you are willing to invest, ultimately the capitalization rate will depend on your assessment of risk Revenue ruling 68.609—the excess earnings over rate of return on net tangible assets Capitalization of Excess Earnings Above Tangible Assets – you have to impute a reasonable rate of return Example: Facts Given: Business with Average Annualized Earnings (AAE) = $10,000 [after earnings pre-tax] Net Tangible Assets (N/T/A)= $30,000 Rate of Return % (ROR) = 10% (what you get when you liquidate tangible assets) Capitalization Rate of 25% with a multiple of 4 To Determine Total Business Value-- Computation #1 on Exam: AAE $10,000 N/T/A $30,000 ROR on N/T/A x10% - $3,000 ----------Excess earning over & above a $7,000 reasonable ROR on net tangible assets Capitalization Rate=25% Multiple (100/25)
x4 ------------$28,000 [represents the value of excess earnings]
Amount Willing Invest Based Earnings/Value of Business’s Goodwill N/T/A + $30,000 ----------------Total Business Value $58,000 • • •
No public market for sale of a closely held business. They are less marketable, so law reflects a discount. Marketability Discount. 25% appears most frequently as a marketability discount. o Take $58,000-$14,500 (Marketability discount)=$43,500 as Total Business Value This is a method of last resort if there is no better method to be used, but this is what is most often used… implying that there is no better method. Discounting o We have to recognize that we are talking about a business that is not publicly traded and thus does not have it’s value listed in the paper that can be bought/sold daily. o Lack of Marketability Discount A prospected buyer gets a discount, b/c it can not be readily bought/sold. The number usually used is 25% of the value and subtract that from the value. • Ex: value is $520K, 25% of that is $136, subtract $136K from $520K and get $384K. • This is applied after you apply the other formula.
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Another source of discount is if it is already in a K: • If the agreement predates marital discord and if it is reasonable, then it is entitled to substantial weight, but it is not dispositive. Hypo: If a partner leaves she only gets the capital she put in. She’s getting a divorce. How do you value her share of business? • Burn v. Burns (Ct. App.)-The buy/sell agmt is not dispositive. It will be given great consideration. Other spouse is entitled to get necessary disclosure for his evaluator to make the necessary computations. • Amodo-If agmt predates marital discord, they are entitled to subjective weight but it’s not dispositive. • Ex: AAE=$400,000. Note: if there is tangible asset you must go through the steps above [rate of return of tangible assets]. For our purposes here, we will assume there are no tangible assets… everything is rented. W has a practice that generates $400,000. She is 45. She has been in this specialty for 20 years. She might walk in tomorrow and say this sole practitioner stuff sucks and I’m going to work as an associate somewhere else. In her location and b/c of her experience, she can go command a certain reasonable compensation. There are sources that will say what someone like her can command. o She can go somewhere else and get $100,000 as a salary employee. That means of the $400,000 she is bringing in, $100,000 of it is b/c of her law degree and experience… not the practice itself. So take the $100K out. $300K is not the excess earnings. On a cap of 50% her practice has a value of $600,000. Example: assume AAE of $600,000.00 in a law practice that W owns, wife rents EVERYTHING and has no tangible assets; W is 45 and has been practicing for 20 years. Assuming she decides to leave her own practice and join a firm as a senior associate [a non-management employee] – and she could make $200k – the $200k figure is reasonable compensation (based on demographic/ survey data); This would make $200k of the $600k can not be attributed to her practice as an enterprise $600k - $200k = Excess Earnings of $400k Assume a 50% Cap Rate – this translates into a multiple of 2 $400k x 2 = $800k This $800k is the goodwill value of her practice … once you get to the goodwill value/ total business value/ total practice value, marketability discounts must also be taken [most frequent is 25% for lack of marketability] … consider too the minority interest discount – spouse owns less than 51%, making him a minority shareholder
Buy/Sell Agreement OR Shareholders’ Agreement – deal worked out that neither can sell shares to anyone other than back to the corporation at a pre-determined price within the agreement itself. (1) is this agreement binding on the non-partnered spouse? NO. A K limiting marketability is not dispositive in the equitable distribution setting – it IS entitled to substantial weight if it was executed prior to the onset of marital discord, and if it is reasonable. It will not stop the process.
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Enhanced Earning Capacity Theory Working Spouse/Student Spouse Syndrome • O’Brien (Ct App. 1985) Loretta has a BA and was getting a certificate of teaching. Michael got a BA. During their marriage, Michael goes to school to become a doctor. They both move to Guadalajara, MX so he can get his degree. She contributed 76% of earnings as tutor. They move back and he gets his MD, then files for divorce. They’ve been married 9 yrs but don’t have much. All her $ went to his education. Issue: Is license marital property subject to equitable distribution? Earlier cases said no b/c a license is not property because can’t sell it. o At trial, Loretta’s expert said value of license=value to holder of license=enhanced earning capacity (EEC) it confers on the owner. EEC-Differential between the present value in what the husband was likely to earn with his MD and what was likely to earn with his BA. The Court said this EEC was marital property because it was something of value. o Marital Property is a noun, and by 236(b) the legislature by intention created this new species of property, unknown by common law…anything of value attained during the marriage is a marital property; a medical degree, though intangible, is a thing of value. It is marital property. When you get married in law school, 1/3 or 2/3 the value of license is discounted from marital property. The number for Base line earnings (BLE) and Top line earnings (TLE) come from databases. o If you have your license for a while, the actual history will be used to project your TLE. o If judgment is rendered, but the husband becomes permanently disabled, he can’t get judgment modified. Equitable distribution of property is final and non-modifiable. • Problems w/ this method: o Why do we assume that he’d never make more then the “average bachelor degree” holder? Who is to say he’d be the average surgeon? o Problem also with using the baseline – if he is moving toward a medical degree, he likely has higher intellect or drive than the average BA holder o This brings large sums of separate property that is to be earned after cessation of the marriage into the divorce – not yet resolved by the courts [prof. doubts it ever will be] o If you had record of his actual earnings you could use that instead of average earnings projected for the profession. o This method produces very large numbers… sometimes unrealistically high numbers that cannot feasibly be paid anytime soon… and does not adjust later for changes in circumstances [non-modifiable – the court does not have jx to modify] • Suppose he commenced divorce action the day before he got his medical degree… it doesn’t matter, the focus is on when the effort was expended… it is not a bring line test. • Note: unless the effort put in increases earning potential… it doesn’t matter. If you send a doctor back to school and get his PHD in history he will learn much less as a teacher than as a doctor. In this case it won’t matter that you supported him through school. • Filing for bankruptcy is the out – erases the debt of the divorce [but if this is going to be the answer, a bankruptcy lawyer should be involved early since things can happen]
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Merger Doctrine • Marcus v. Marcus (2nd Dep’t 1987) – no longer good law: Dr. Marcus became a psychiatrist during marriage and practiced for 20 yrs, during which time tangible assets were acquired and both enjoyed the increased income. His license had been used and merged into his business. It had been used to increase assets. Where the license has matured into a mature practice (usually 5-7 years), Court held that the license and its value merges into value of practice. License need not be separately valued. Ct. valued PRACTICE, not license under excess earnings method. Merger Doctrine Closed Lid on O’Brien Pandora’s Box. • Without merger, we are going to value the practice at the date of commencement. We have the practice as of the DOC based on the excess earning potential. We’ve taken care of things as of the DOC… NOW, the residual enhanced earning capacity is left (which is what the spouse makes from DOC to retirement). o Ask: before we value for equitable distribution purposes, have we already distributed any of the residual? Likely, some portion of the residual is already in the value of the practice. •
Example: AAE=$300,000 Capitalization 50% Multiple=2 To Determine Value of Practice: AAE Reasonable Compensation (what he would have earned without practice)
--------------$150,000 x2 --------------$300,000
Excess Earnings Capitalization Multiple Value of Practice •
$300,000 -$150,000
Problem with Merger Doctrine: Grunfeld/McSparron (Ct App. 1996) o Title spouse walks away with residual enhanced earning capacity (REEC-what he earns from age 45-65). o Ct. of App. abolished Merger Doctrine, but realized problem with duplicative awards. Either duplication b/w assets or duplication b/w assets and spousal maintenance. When you divorce after 20 yrs, value of practice is measured at point of commencement of divorce action BUT evaluation must also value REEC to extent it is not included in value of practice. 1) Value practice using Excess Earning Doctrine 2) Value REEC using O’Brien but don’t include value of practice = Difference between present value reasonable compensation level and the present baseline. The earning above reasonable compensation line are taken into account in value of business as future earnings.
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1) Value Practice at DOC=$300,000; ½ is distributed to wife = $150,000(///// in chart above) 2) Add ½ REEC not accounted for in value of practice=$100,000 (----- in the chart above). 3) Wife gets $250,000 •
Wife now says she wants spousal maintenance. If Court directs husband to pay maintenance, from what $ does he have to pay it? It comes from his future earnings but it is confined to baseline earnings, what he would have earned with only a BA b/c everything else above that lines has been accounted for in the distributed assets above. o Coveture Fraction (C/L): Handles situation where H and W marry after H completes 1 1/2 years of law school. How do you put a value on that? W will get ½ of the value of income from DOC to DOR (date of retirement). Wife gets only $50,000 from REEC not included in value of practice (1/2 difference between R/C and C/L line). C/L is % of degree husband had before marriage. For maintenance, Ct. can now go up to coveture line. If there was a business H owned b/c of his license, you would add the $50,000 to ½ the value of the business in order to determine the amount the wife gets. This issue is not dealt with in child support
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Stage 3 Distribution: • Final stage of the equitable distribution process • Court has the greatest amount of discretion here out of the 3 stages • 236(b)(5) • It is not a mandatory equal division; it is not a presumption of equal division. • NY is an equitable distribution state, not a community property states. Although there is a mindset of 50/50 unless you have a good reason, there is no presumption of 50/50. Case law and statute do NOT have an assumption of 50/50, but 50/50 is an unwritten law that most judges tend toward. o Goal is fairness and equity, not mathematical precision. • Lower courts can’t do much about classification because they are locked into Ct. App. methodology. But at distribution state, Ct. will fix the inequities to make a fair outcome. • Ghandi v. Ghandi (3rd Dept)-Mr. G. was chartered accountant in India. Couples moved to NY. Mr. G wants to be a CPA. He takes necessary exams and classes. Wife says she wants part of his CPA. Ct. said to succeed on enhanced earning claim, non-title spouse has burden of proving he/she made a significant contribution directly in acquisition of the license. Non-title spouse must show that b/c spouse undertook X, I have to undertake XYZ things I would not normally have to do. • Brough v. Brough (3rd Dep’t)-Builds on Ghandi. Spouses are married with kids. Both spouses work. Wife goes back to get teaching degree. H had to work 3 jobs for 3 yrs to make it happen. Ct. said H made a sig. contribution, so H got 10%. Even in face of direct and significant contribution by non-title spouse, we must not loose sight of the fact that most of the effort comes from student-spouse. Her brain power and effort. Best argument to keep distribution % low for enhanced earning capacity. • 2 Prongs that court uses to get away w/ only paying 10% to supporting H: o Must show significant direct contribution AND title spouse is the one that made significant contribution • There are a list of 13 distribution factors the court must consider. In a written decision the court must set forth factors it considered and reason for its decision. This is a REQUIREMENT that CANNOT be waived by either party or counsel. • Distribution Factors o Assets parties have at time of marriage and time of divorce: It should look at before and after marriage to measure the estate that was put together over the course of the marriage. o Age and health of parties and duration of marriage: gets a lot of play in decision. Longer marriage greater likelihood of 50/50 mindset. o Need of custodial parent to own/occupy marital home Stability for the kids is key. Spare the kids the adjustment of moving and making new friends. Ex: 2 kids 8 & 10, mom is custodial parent. All have lived in home since kids were born. High value placed on not uprooting kids. Exclusive Use & Occupancy of Marital Residence: This is a possesory award, exclusive right to occupy home until youngest child reaches age of 18. At that time the house is sold and proceeds divided. This award lays out who is 36
o
o
o
o
o
o
o
responsible for what in regards to house. This is a commonly used device when you don’t have liquidity in estate to facilitate buy-out. The loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution: Ex: if 2 people are married and one dies, the surviving spouse has rights… even if the decedent wrote a will cutting out the other spouse (“right of election”)… you do not have this in a divorce. – this is intrinsic in divorces and not of great import Rights to a pension plan are LOST with a divorce. Any award of maintenance Look at standard of living trying to meet. What income can he/she stand to receive from distribution. Direct or indirect contributions made by a spouse as a wage earner, spouse, parent, or homemaker This reflects the legislative policy that not only are financial contributions recognized, but so are non-economic contributions. There is no presumption that non-economic contributions equal economic contributions… but the longer the marriage is, that is usually what is followed. Ruban—not all homemakers are equal. “Homemaker” wife spent most of her time at the country club, so she doesn’t get much. Liquid or non-liquid character of assets: Ex: the assets—a home worth $100K, a pension worth $100K. Wife gets house, husband gets pension. Problem: W can liquidate the house now, H can’t touch his pension for years. Court says: this is equal, but not equitable. Probable future and financial circumstances of each party: This is a need driven factor. Doesn’t make much sense for equitable partnership theory, but it’s here anyway. Just b/c you need more, you get more… this doesn’t seem right. Desirability of retaining business interest intact Courts loathe to have one spouse sell a business, use distributive award instead We don’t want to kill the goose that lays the golden eggs. If a practice is bringing in all the money that will pay for maintenance, we don’t want her to be forced to liquidate it. Tax consequences if any: Ct must consider tax consequences unless you waive it by not presenting evidence to Ct on what those taxes would be. Most divorce transfers are non-taxable events – burden of proving any tax consequences goes to the party who wants to receive the benefit – and must be done through expert testimony Ex: You have 2 houses in the martial estate, each worth $100K. You decide to give house A to H, and house B to W. House A has a basis of $20K, so if you sold it you’d be paying a capital gains tax on $80K. House B has a basis of $90K, so you’d only have to pay $10K in taxes. Therefore, these homes are not
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•
•
worth the same. The party who wants the court to consider tax consequences has the burden of proof of proving what those tax consequences are. o Wasteful Dissipation of marital property If H wasted $100K at track, there will be an offset award to innocent party. The $100K will be viewed as marital property. It is wasteful dissipation to unreasonably refuse to file a joint tax return because it increases tax liability. o Fraudulent transfer or encumbrance of property made in contemplation of divorce without fair value. When you get caught that “lost” money will be recouped to the innocent spouse. o Any other factor that the Court may deem just and proper. This is here because it has to do with marital fault. Should there be an impact on equitable distribution b/c fault? Legislature did not want to decide, left it for judges to decide. Courts have not done much. Court has said marital fault is not a factor in equitable distribution unless it arises to level of egregious misconduct. Egregious Misconduct--conduct that shocks the conscience of the Court. Very little rises to this level (stabbing your wife, raping your minor step-daughter, hiring a terrorist to murder you wife-- all rise to egregious conduct level). Ordinary, mundane marital misconduct is NOT to be considered… only egregious misconduct is to be considered. Written Decision Required: court MUST write a written decision that considers these factors: [this is a non-waivable requirement] o Those relevant to the case o Makes clear the reason for its decision. Why require written decision? o b/c judge has a lot of discretion… make him justify it in writing. Also if waivable, J might put parties on the spot so he doesn’t have to write opinion. Also, need written decision to get appellate review.
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Pensions • Many times in middle class couples, the pensions are the most valuable asset in the estate. • Pensions are a form of deferred compensation—as part of your compensation package, in addition to getting your salary, money is being put into a pension fund, so there will be money there for you when you retire [with no promise as to the ultimate value]. • Majauskas v. Majauskas (Ct. App. 1984)-A deferred comp. plan (pension) is marital property to extent that it is acquired during the marriage and prior to commencement of divorce action. • Argument for Pensions are NOT marital property: o Not part of salary; it is a contingent interest; it is not tangible; it cannot be transferred; it may never come to be; it is a gift from employer… TO BAD… Majauskas says it is marital property! • Different Types of Plans/Pension Terms: o Contributory v. Noncontributory Contributory-- Each pay period, employee AND employer make contribution into plan Noncontributory-- All $ is put together into a plan on behalf of employee is paid by employer. None of your gross salary is deducted to go into the pension… employer covers it. o Vested v. Nonvested Vested-- Even if you leave employment, you don’t lose interest in pension plan. There may be a rule that your pension does not vest until you have been there X amount of years. If you leave before that number of years, then you lose all that was contributed under your account. Nonvested-- Have not reached vested point yet o Matured v. Non-matured Matured-- Only thing you have to do to get $ is retire. Most pensions have minimum retirement ages. Non-matured-- You haven’t reached maturity age/retirement age Pay-out status-- means your interest has matured, you’ve retired and your plan is paying out benefits. o Defined Contribution Plan v. Defined Benefit Plan Defined Contribution Plan-- Employer says they will fund X% of your salary into pension plan, BUT employer will not say that when you retire at a certain age you are guaranteed to a certain amount. It is going to depend how much is in there when you are at that age and will depend on the market. Defined Benefit Plan-- [more complicated]. Employer will pay X per month when you retire (you are given a formula not a dollar amt., formula is used to define your monthly benefits). This is very complicated and must be done yearly by an actuary. o Use Coverture Fraction: Numerator: # of years of participation in the plan while married [b/w DOM and DOC of action] marriage to commencement Denominator: # of years of participation in the plan from DOE into the plan until DOC… entry to commencement
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Ex: date of employment 1980; date of marriage 1985; DOC 1990; Numerator= 5; Denominator= 10. Assume the value at DOC is $100K… what does that tell us about what the wife will get? It tells us nothing about what she will get [that is a stage 3 Q], but it tells us that $50K is in the martial estate. On stage 3, if there is a 50/50 division, the wife will get $25K. Assume a DOM in 1990, DOE 1995, DOC 2005 – 100% of the pension interest is marital property o Determining Value of Pension Plan Computation Problems on Exam First formula is used to determine non-title spouse’s share of pension in the Lump Sum Method-- Give spouse $ at time of divorce. This is not only method, but Courts prefer it for its finality. % of Pension = # of Years in Plan While married up to DOC that is marital ------------------------------------------------------property Total Years in Pension Plan (DOE-DOC) DOC=Date of Commencement of Divorce Action DOE=Date of Entry into Pension Plan Value of Pension that is Marital Property at DOC= Market Value of Pension at DOC x % Pension that is marital property Example: Assume H starts work and pension plan on same day they get married. % of Pension that is marital prop.= 10 yrs/10yrs=100% Ex: H enters into the pension and works for 5 years in the plan and then gets married. After 5 years of marriage a divorce action is started, at that time the pension is worth $200,000. The court is going to do a 50/50 split. What does wife get? o Numerator is 5 [the years married] o Denominator is 10 o Therefore, ½ of the money in the pension fund is marital property… then they will likely split that… W gets $50K. Second Formula used to Determine Non-Title Spouse’s Share of Pension is Deferred Award. Majouski said you can use a deferred award, at such time when pension is mature, the non-title spouse will receive her share. If doing a “deferred award” still work w/ coverture fraction: o Numerator stays the same… still # of years in the plan from DOM until DOC (here, 5) o Denominator is the total number of years in the plan from date of entry to date of retirement. Thus this is the X factor. o 5/X. That is the fraction that will be applied to the monthly benefit. o We will say 5/X x monthly benefit x 50% = W’s share Suppose he then works another 10 years before retiring. o 1st 5 years and last 10 years are separate property, the 5 in the middle is marital property. Plug in the 20 for X’s spot b/c that is the total number of years in the plan. Thus it would look like: 5/20 x $4000 (monthly benefit) x 50% = $500/mo. W gets $500/mo.
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o Once retirement occurs we have the #s to work through If there was enough money in the marital estate then we wouldn’t have to go through all this. Because the money wasn’t there we had to use this approach. There is likelihood that when we do it this second way the wife will not remove the same amount as she would had we used the other method. • H has burden to prove value of pension. If non-title spouse seeks deferred award, she does NOT have to prove present valuation. • Pay-out o Preferred way o When you talk about a deferred award, think about security. How do you secure the award? Require title spouse to provide life insurance so that in event he dies, she gets ins. $ as a substitute. Restrict Choice of Pay-out option: • Maximum Allowance Option: On the date of retirement H goes to pension option to sign out. This option, give him the maximum payout while he is alive. But if he dies, the pension stops paying. Which means, if W outlives him, she is screwed. Benefits stop once you die. • Joint and Survivor Annuity Option: You’ll get monthly payments, but they’ll be less then the maximum… if you die, W will still receive payments until she dies. • Can Cts restrict choice of title spouse? o Yes can restrict option to protect the equitable distribution to the non-titled spouse, BUT the Ct can’t change the pay-out selection if you have retired and are already getting benefits. Problems: • NOTE: Pensions are to be valued at the DOC of the action. The cause to value it after that would bring in separate property. Whatever contributions that are made to the pension after DOC are separate property. • Couple is married when pension begins. At DOC it is worth $200,000. 2 years after postcommencement. Assume during the 1st year, the employer makes a contribution of $20,000 [separate property]; in 2nd year employer makes contribution of $30,000 [separate property]. Does that mean that as of the date of trial the total value is $250,000? o NO, b/c that is affected by investment performance. Therefore, it is appreciating passively. That passive appreciation represents marital property. Most of it is marital property that is earning interest. o Assume that we have passive appreciation as of the date of trial of $10,000… so that the balance in the account is $260,000. What is the marital part? Part of the appreciation is operating on the $50,000 that accrued post-commencement of the action. If the investment goes bad, the loss is shared too. o These are not tax exempt, but rather tax deferred. He will have to pay the taxes at the end when he takes the money. The pension must abide by certain IRS standards. These taxes are important to everyone.
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ERISA (Employment Retirement Income Security Act) was passed by Congress and it did 2 things: Pension Plans can’t be alienated from worker Worker can’t assign pension plan to anyone o Federal statute specifically declaring that preemption of state law is intended. ERISA overrides state law intending to get around this. o ERISA set up: anit-alienation and anti-assignment provisions, which in effect said these pension interests are immune from creditors. They put the “ERISA lock” on pension moneys to lock out creditors. o ERISA was not intended to lock out non-titled spouse in equitable distribution, but that is the effect it had. o Most of the people being damaged were wives. Congress in the 1980’s enacted: REA (Retirement Equity Act of 1984) was passed by Congress. This unlocked anti-alienation and anti-assignment locks (opens the ERISA lock on these benefits). • Key was QDRO (Qualified Domestic Relations Order). Congress was balancing the interest of non-titled spouses and pension administrators. – Internal Revenue Code § 414(p) • The balance struck by saying: non-title spouse, you can get there, but you must follow certain rules… o Name/Address of Parties of participants and alternate payee • Participant- titled spouse • Alternate payee- non titled spouse o Must be an Order, Judgment, or Decree for Property Division/maintenance/child support on behalf of spouse, former spouse, child or other dependant pursuant to a state domestic relations law. (must be a DRO—Domestic Relations Order) o The order, judgment, or decree can incorporate an agreement but an agreement ALONE cannot become a QDRO b/c it is not a DRO. o Must set forth what plan is to pay to non-title spouse by stating amount or setting forth a formula/method which amt can be determined (formulas discussed earlier)- number of payments and time period o Must be for the benefit of a spouse, former spouse, child, or other dependent- rules out loan sharks o Must be made pursuant to state domestic relations law • Things that order, judgment, decree may not do: (order won’t qualify) o Require plan to pay any benefit which the plan is not required to pay o Require plan to pay a form of benefit not required by the plan itself. Can’t propose pay-out option that plan does not provide o Require plan to make any payment to an alternative payee which the plan is already required to pay to another alternate payee under a previously qualified order 42
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Ex: H has the pension. In divorce #1 he says in the settlement: W gets 100% of whatever monthly benefit it is. That goes into DRO. W #1’s L enters the divorce judgment in county clerk’s office and forgets to send it to the plan administrator. Now, years later, H gets divorced from W #2. He says W #2 gets 100% of pension benefits when he retires. L sends to plan administrator. W #2 is qualified b/c has a QDRO. H retires, W #2 gets the benefits b/c #2 qualified 1st and speaks for 100% of the benefits. • Have to send to plan administrator who qualifies the DRO as a QDRO • Lesson: develop an effective close-out system in your office. Otherwise, if you are W #1’s L then you’re in trouble… malpractice. Saving grace will be 3 year SOL on malpractice in such case. • If H had promised 50% to each W, then everything would have worked out okay. o ERISA does NOT apply to fire fighters, police, etc.
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Spousal Maintenance—DRL 236(B)(6) • Used to be called alimony • Taxable to receiver; Tax deductible to payer • Award of ongoing future support to be paid from one spouse to another. Designed to meet the reasonable need of the spouse who can’t meet his/her own reasonable needs. • Gender neutral • Touchstone is the standard of living pre-divorce. • Payments can be for either: o A definite period of time; or o Indefinite duration • If no specific time limit is given (non-durational award), then the Q is what if any event will terminate that obligation? • The following are terminating events: o Death of either party o The remarriage of the recipient spouse (remarriage of the payer spouse does NOT terminate the obligation to pay maintenance). • Another possible method for modifying maintenance: o Maintenance can be terminated if wife co-habits w/ another man AND holds herself out as being married to him. [this statute was passed decades ago – not really applicable now since living in sin isn’t really taboo] • Most maintenance determinations are discretionary. Ct decides how long maintenance should be. It is very subjective. • Rule of Thumb: o The shorter the marriage, the younger the people, the fewer the life changes in deference to the marriage… the shorter the maintenance is likely to be (or maybe no maintenance at all). o The longer the marriage, the greater the career sacrifices, the older the parties, the more feeble, the greater the need… the greater the likelihood of a longer term maintenance period. o This is a very gray area of law. • What is the standard that we are trying to hit? o Pre-separation standard of living o Direct the party that does not have the money to pay to the other so they can enjoy the same standard of living that they enjoyed before they were separated. Problem: aside from the VERY wealthy, people spend all of their income. It is not possible to distribute and both maintain the same standard of living. Sometimes just doesn’t work on a practical level. • How does this work (when it does)? o W is looking for maintenance. She proves that for her to maintain pre-separation standard of living it will cost $100K/yr. What do you do? Subtract her salary from standard of living. She makes $40K, so she can contribute that amount to the standard of living. Shortfall reduced to $60K. Look at the income and property of each party. What is the equitable distribution that wife is getting? Suppose she is getting equitable distribution of
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$1million, and can get 5% return on investment. We have now reduced the gap down to $10K. Does she have any other property that is income reduction? If so, reduce gap appropriately. If anything left, look at H… what can he contribute? If you are defending against the maintenance claim you are trying to eliminate the need for spousal maintenance at every opportunity. Show the W has assets and can maintain the standard of living on her own. Other Maintenance Factors that are Considered [nearly same as equitable distribution]: o Duration of marriage o Age and health of the parties o Present and future earning capacity of both parties, including that which is subject to equitable distribution o Ability of party seeking maintenance to become self-supporting and if applicable the period of time and training necessary therefore. o Reduced or lost lifetime earning capacity of party seeking maintenance as a result of having forgone/delayed education/training/employment or other career opportunities Sacrifices made in careers and the extent to which lifetime earning capacity is reduced o Presence of children in the homes of the parties, agreements regarding child care, etc. o Tax consequences to each party. The person paying the maintenance gets a tax deduction. The person receiving it has to claim it as income and has to pay taxes on it. o Contributions and services of the parties… contributions as parent, spouse, homemaker, wage earner. o 240 of Dom Rel—when a person receiving maintenance cohabits with someone else who supports them, maintenance may be reduced or eliminated o Wasteful dissipation of marital property Here you can compensate the receiver for wasteful dissipation of marital property at the hands of the other spouse. If maintenance, it is non-dischargable in bankruptcy Dicey area of the law! o Any transfer of encumbrance made in contemplation of the matrimonial litigation. o Any other factor that the court deems just or proper. Who’s fault? Any marital misconduct? Where in equitable distribution only egregious misconduct could be considered, but in maintenance ordinary, mundane marital fault may be considered. Modification: Equitable distribution is NON modifiable, but maintenance IS modifiable upon a showing of substantial change in circumstances. Court is required: to do a written decision, cannot be waived [just as w/ equitable distribution] Retroactivity [maintenance AND child support]: An award of maintenance is retroactive back to the date when application therefore was first made. o Ex: assume there is 24 months b/w DOC and DOJ. In the summons for commencement W asks for maintenance, but does not get maintenance of $1,000/mo. until judgment is made 24 months later. Since retro active, W gets $24,000.
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o If you forget to ask for maintenance or child support at the DOC, that does not get the retro-active clock ticking. So remember to put it in the summons of notice at DOC! o If the other spouse commences the divorce action, and the spouse that wants maintenance has to answer… Verified Answer: [w/ or w/o counterclaim]—at the “wherefore” clause where you put the relief you are seeking, you put the money that you are seeking, so that the retroactivity goes back to the date of the answer. A lot of times it does not occur to the side representing the W (who is the D) to put in a “wherefore” clause into the notice of appearance. Make sure you get these money requests in, in a formal way, at the earliest possible time! What about when people can’t wait until DOJ to get the money? o Pendente Lite Motion (P/L): “During the pendency of the motion.” It is an application for relief. Ask for temporary custody, maintenance, etc… P/L is retroactive to the date it was filed. Asks for relief during the action. 1. Ex: 20 months from DOC to DOJ. At 5 months a P/L if filed and H is told to pay W $500/mo. H does so for 15 months. At DOJ, H is told he must pay $1000 a month in maintenance support. H is told he must pay $20,000 in retroactive maintenance. $7,500 is credited for P/L paid. H only owes $12,500 for retroactive maintenance. (Works same for child support) 2. Example: P/L is $2000/mo. H pays $30,000. At judgment, Ct find H should pay W $1000/mo for maintenance. W does not have to give any $ back to H. H is out of luck. 3. If H pays P/L voluntarily, he gets credit, it does NOT have to be by an order of the Ct. 4. P/L by order is income to the recipient and deduction to payor. Voluntary P/L has no tax implications.
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Child Support—DRL 240(1-b) • •
Courts use to look at reasonable need of child based on standard of living established by parents (Carter v. Carter). State was not imposing a state-sponsored standard of living, instead looking to each family and the standard of living that they have set. This is no longer the case. Now, the standard is: money should be paid to support the children to meet their reasonable needs. o In 1989, Child Support Standards Act (CSSA) determined child support on parental income. Law stopped caring about the individual standard of living that a family adopts. Instead it imposes a state-wide standard of living based on % or income. o Congress said to states: beef up your enforcement or we won’t give you as much money to support your roles. o If you don’t pay support, they’ll take: Your driver’s license Your hunting license Your fishing license They’ll take whatever they can get o FEDS give guidelines for determining child support, it is rebuttable up to $80k o 3 Step Methodology: Step 1: Determine combined parental income (CPI). • Essentially this is asking: what is the combined income? Step 2: Determine Child Support % • 17% for 1 child • 25% for 2 • 29% for 3 • 31% for 4 • at least 35% For 5 or more kids • Ex: 2 kids. Support will be 25%. Multiply that by combined income… $15,000. Assume mother is going to be the custodial parent, dad is going to be the non-custodial parent. The $15,000 is the 1st element of the Basic Child Support Obligation. Step 3: Pro-Rate the BCSO among the parents in proportion to their respected incomes. • Ex: combined income is $60K, to find out what dad will pay… 40/60. So 2/3 of the total combined income is his salary, so he pays 2/3 of the $15K… $10,000. • It seems stupid to have this 3rd step… you could just multiply the % by the non-custodial parents salary… but people said both incomes need to be considered… this is political crap… but we still keep the 3-step process. o Ex: Mother - $40K Father - $40K CPI= $80K
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We have 2 kids. Basic Child Support Obligation (BCSO) = 25% of $80K = $20,000 Mother- CP (custodial parent) Father-NCP (non-custodial parent)-- Pays $10K/yr in child support. Since 50% of CPI comes from F, 50% of BCSO has to come from F, this is pro-rating. Short-cut-non-custodial parent pay 25% of what he earns for child support. There are Add-Ons to BCSO o Child Care—an add-on in 2 situations: Court shall award child care where the custodial parent is working or is engaged in education or training that the court concludes will reasonably lead to a livelihood. If in the case, child care is mandatory. • Things to consider: o Is it a reasonable amount of child care? You can’t expect people to contribute to $3000/mo for child care when the people are making $80,000/yr! Custodial parent is not working or getting education/training but he/she is seeking employment. o Here, child care allowance is a discretionary add-on. % of contribution is discretionary. o It is NOT a mandatory pro-ration o Health care—that are not reimbursed by insurance Mandatory add-on Issue: Is healthcare reasonable? Heavy burden to prove it is unreasonable Reasonable health care expenses are not reimbursed by insurance are pro-rated. Health insurance premiums are NOT pro-rated. It is not discretionary, but it is fact determined to make sure it is really a health expense. o Educational Expense—for college OR private school Discretionary add-on Prior to 1989, the courts had come up w/ the following: college expenses are NOT a part of child support unless it was agreed upon or under special circumstances. Unless the parties agreed about paying for college, then we are NOT going to require the non-custodial parent to pay for college absent special circumstances: • Child’s academic aptitude… is this a kid that one might expect to go to college? • Was the child reared in an environment that led him or her to go to college? • The financial abilities of the parties… was there enough money? • Were the parents college educated? If parents didn’t go to college, then the kids were going to college at the expense of the parents. 48
TODAY: This view is gone… now education is seen as a discretionary addon, only money matters now. Another thing to consider: What college? o Private or state? o Since everything is cut off at 21 in NYS, when the kid turns 21, unless otherwise agreed upon, payment stops for college. o The college thing can be dealt w/ when that time approaches, but can decide on it earlier if parents want to. To get the total amount owed: When you take the 3-step procedure to determining child support in addition to the “add-ons” you get the total amount of child support owed. This is a rebuttable presumption w/ respect to combine parental income up to $80K, w/ respect to any combine parental income in access of $80K, the court has the discretion to determine any additional child support either by using the percentages or enumerated statutory factors, or a combination of both. o What are the factors? They are also the basis for a deviation OR variance. Ex: if couple makes UNDER $80K, the statute says the formula is a rebuttable presumption that this produces the amount of child support [however this is rebuttable] The standard of rebuttal is that the result is unjust OR inappropriate. The finding of unjust or inappropriate has to be based on finding that one or more of the factors above, and the court must render a written decision analyzing the factors, and explaining the reasons for the deviation. There is rarely a rebuttal or reversal of the presumption. o Factors to consider for rebuttal: Financial Resources of parents and child [it is rare that someone will pay less child support b/c the kid has a trust fund) Any special needs/aptitudes of child Standard of living that the child would have enjoyed has the marriage not been dissolved. (applies to out of wed-lock cases too) Tax consequences to party. There are none, child support is non-taxable. Non-monetary contribution by a parent… has virtually no practical impact. Educational needs of either parent. If M is the custodial parent and wants to back to school to be teacher. She has to quit working for 2 years. Her income will eventually go up, but for the next 2 years D will have to pay more. Court can make D do this b/c the rational is that if he pays more now, she will make more down the road, which will mean that he will have to contribute less later. This arises, and is not granted when, non-custodial parent wants to go back to school and not pay child support during that time… court says no to this! Determination that gross income of one parent is substantially less than the other. Needs of the children of the non-custodial parents for whom the non-custodial parent is providing support. First in time, first in line. • Ex: M, D, 2 kids (kid 1 and kid 2). D is the non-custodial parent and ordered to pay $1000/mo. He marries another woman and has 2 more
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kids. D goes back to court to modify the payment to kid 1 and 2 b/c he now has 2 more kids to support. NOPE! Not going to get the modification. You can’t reduce your obligation to children you had earlier b/c you went out and had more kids. • The rare exception: the total resources of D and new mom must be less then what is available in the home of children 1 and 2. But it is highly unlikely that some child’s support will diminish b/c of other relationships that produce more children. Extraordinary Expenses of non-custodial parent. Parent incurs expenses in exercise of visitation or extended visitation if custodial parent expenses are reduced as a result. • Ex: this means: D pays $100/wk in child support, but 2 days every other week I have the kids… so on those days I’m only paying $50 bucks… court says NOPE! It doesn’t work like that. Mom is still paying the same rent, mortgage, etc. • Where this usually comes in is w/ a geographic relocation. Mom moves to Florida. Dad is in NY, so now his visitation has to be refigured b/c the kids are so far away. Any other factor Court deems just and proper These are the factors… court can use their discretion to say any one, or all of them. If unfairness would occur by using the formula, then the court can take into account these factors. It rarely happens.
Computing Income under CSSA: There are 4 categories of income. Income under CSSA= 1) actual income + 2) discretionary imputed income + 3) mandatory income 4) - statutory deduction • Actual Income o Gross Income as reported or as should have been reported on the most frequently filed income tax return. Court not bound by an individual’s reported income because people lie. Also Includes: • Net investment income if not already included on tax return o Ex: suppose that one of the parents has a portfolio that is not taxed, and does not show up as income… that is taken into consideration • Voluntarily deferred income. Contribution required are not included. If you voluntarily contribute to a plan it counts. o Ex: pension plan of the employer is a contributory plan. Money from your salary goes into it. That does not get considered for CSSA purposes b/c it is not voluntary. • Included by the statute: o Worker’s compensation benefits o Disability benefits o Unemployment benefits o Social security benefits o Veterans benefits 50
o Pension and Retirement benefits o Fellowships & Stipends o Annuity payments • Discretionary Imputed Income: Income Court pretends you have o Non-Income Producing Assets: non-custodial parent owns valuable painting worth $100K. Ct could say if you sold painting and invested $ you would make $7000 on interest. $7000 is included as income. o Meals, lodging, memberships, auto, or other perks: provided by an employer to the extent those perks constitute personal expenditures or confer economic benefits on employee. Ex: Employee is given car by employer that he can also use for personal reasons. Ct says if car were leased how much would it cost? That amt could be added into income. These items are subject to various litigation issues. Ex: You work for a firm that encourages you to wine and dine clients. Suppose you do this frequently… potentially you have imputed income here. B/c the law firm is paying for your dinner too; it is decreasing your expenditure for eating. Tricky part is trying to calculate this. o Money, goods, or services provided by relatives or friends: this aiming at the daddies who work for their daddies and are noncustodial parents that pay child support. The purpose is to make it so that daddy doesn’t have to pay as much in child support b/c granddad not “paying” son a lot in wage, but really giving him a lot as a “gift.” The court imputes this “gift” as part of the father’s income. • Mandatory Income o The court shall impute income to an individual consistent with their past earning capacity where it finds that the individual has voluntarily reduced his/her actual earnings for the purpose of reducing or avoiding their child support obligation. o The Court shall impute income based upon any depreciation deduction taken on the tax return which is in excess of the depreciation deduction that would’ve resulted has the deduction been computed in accordance with the straight line method of depreciation computation. o Entertainment and travel allowances deducted from business income to the extent that those allowances reduce personal expenditures (refers to self-employment). THE ABOVE THINGS ARE ADDED, THE BOTTOM ONE IS SUBTRACTED • Statutory Deductions—subtract statutory deductions o Unreimbursed employee business expenses except to the extent that those expenses reduce personal expenses Ex: you work for a company. You have expenses while on the road (hotel, meals, etc.) Your employer gives you an allowance ($20/day for meals)…. But you spend $30. When you spend more then your employer gives you for business expenses, then it is allowed to be subtracted from your income if it reduces your personal expenses. (Ex: meals—yes, saves you money; hotel—no, you are still paying mortgage even if you stay at hotel).
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o Alimony or Maintenance actually paid to a spouse who is NOT a party to the instant action pursuant to a court order or validly executed written agreement o Alimony or maintenance actually paid or to be paid to spouse who is a party to the instant proceeding pursuant to a Cr order or validly executed written agreement. provided that the order for the agreement. provides a specific adjustment in the amount of child support at such time as the alimony or maintenance terminates Ex: H and W want divorce. H is ordered to pay maintenance to W. Rule says that amount is deducted from child support, but when the maintenance terminates there must be a provision for how child support will continue. To require this is absurd b/c when the maintenance terminates, it is likely that the child support will no longer be the same b/c the numbers will have changed since then and the child support will have been adjusted accordingly along the way. o Child support actually paid pursuant to a Ct order or written agmt on behalf of a child for whom the parent has a legal duty of support to, who is not a subject of the present proceeding. Ex: H is paying child support to a prior marriage. It will get deducted from income, thus the amount owed to the first children will diminish the amount the later children get. o Public Assistance—also deducted [not includable income] o Social Security Income o NY City or Yonkers Income Tax—deducted b/c have an income tax paid to the locality o FICA (Federal income tax and NY state tax are not deductible) o Note: Federal income tax AND state income tax are NOT DEDUCTED. This is a gross income statute [calculated pre federal and state taxes]. o CPI over $80K, the Ct will determine additional child support based on factors in paragraph F or the formula. o Cases have said that over $80K, the Ct should make its decision for child support based on actual support of children. o In 1995, Ct App, Casano v. Casano, Ct said we’re in a new era. We look to income sharing not needs. Under $80K the formula method is a rebuttable presumption so it applied unless it is unjust. Over $80K, the formula is a rebuttable presumption so it applies unless it is unjust. So Ct. App. rendered $80K number meaningless. o Fortunately, 4th Dept. treats Ct. App. as consideration. Went back to the pre-Casano law. Other 3 dep’t fell in line. Over $80K Ct can use factors or formula but it must explain its reason for choice. o Now there is no meaningful #. $80K has become relatively meaningless. Child Support in NY: o Must pay until child is 21 o Joint Custody— Does CSSA apply to joint custody?
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o Does not necessarily mean 50/50 o Parents usually have joint decision making, but not joint time-share. A lot of things are called joint custody, but are not literally so. The one w/ “less time” is non-custodial. o Court of Appeals said: figure out who has the kid 50% of the time or more… that person is the custodial parent. o If a pure 50/50 split…. Whoever has the higher income is the non-custodial parent. This pretty much allows us to pick the deeper pockets. This is absurd, but it is the law in the 3rd Dep’t. o Does CSSA apply to split custody? o Ct has held it does apply. Example-Father is custodial parent of 2 kids and mother is custodial parent to 1 kid. Father is non-custodial to 1, so 17% applies. Mother is noncustodial to 2 so 25% applies. Dad owes mom 8%. o Step Parent liability o A step-parent is liable to pay child support only where the step child is in danger of becoming a public charge o Divorce severs stepchild, step-parent relationship Child Custody and Visitation • Super high stress! Fighting over the welfare and future of your child is seriously hard. • Standard: o Court is to determine custody based on best interest of child, statute does not define “best interest.” o Neither parent has prima facie right to custody, no presumptive right of either parent to prevail. [years ago there was a “tender years” presumption that kids in their “tender years” go to mom unless she is proven to be unfit… that is no longer the standard]. o The present standard implicates: Socio-moral value judgment There are no absolutes in custody… best interest is determined by the totality of the circumstances. o Only one statutory factor mention-- domestic violence o Factors to consider in deciding “best interest of the child”— Age-- Parent may be too young or old Health-- Parent may have an illness or physical impairment that would limit ability to parent Mental and Emotional Stability—the condition must have impact on parenting. Obsessive compulsive disorder does NOT per se effect parenting rights. Alcohol and Drug Abuse—big difference b/w someone who is using now and suffering from impairment then someone who has rehabbed and is clean. Look at the facts and conditions of the situation. Show the nexus. Marital Misconduct-- is IRRELEVANT absent some demonstration of a nexus, like having sex in front of kids with a man not her husband. Must show there was an impact on kids Moral character—one parent is a thief… get expert testimony to show that this behavior is picked up by children. Ex: homosexuality… does being gay reflect
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poor moral character? Debatable… but remember there must be a nexus b/w that parent’s sexuality an the development of the children. Financial—fairly weak. Just b/c 1 parent makes more money then the other, it doesn’t mean the other parent won’t get the kids. Plus, child support payments will equal this out. Child’s preference-- is to be considered but it’s NEVER DISPOSITIVE. NO age at which it become dispositive. Older child is, the more weight their opinion carries. Judges also look at maturity of child. • Lincoln Hearing: court calls the child into chambers. It is just the J and the child (and sometimes Law Guardian) to try to get a sense of the child and what their preference may be. And also whether one of the parents put the kids up to it. The parents shouldn’t mess w/ their kid’s head… don’t let your client do it! Religious Considerations—this does not mean that a court is going to make some sort of qualitative choice… but if the child has been raised in a certain faith and 1 parent will continue that, and the other will not, it may be in the kid’s interest that the child’s religious interest be considered. Factor de Jure—the willingness of a parent to foster a relationship b/w the child and the non-custodial parent. [parental alienation] Good advice to client in a custody dispute is to get them to deal w/ their anger and emotions toward the other party so it doesn’t affect the custody case. An unwillingness to let other parent foster relationship w/ their child almost raises the presumption that unwilling parent is unfit. BUT be careful if C goes to therapy b/c other side can subpoena doctor’s notes. • False allegations of abuse [usually sexual] against the other parent – after investigation, if proved unfounded, strong presumption against parent making allegations as presumably unfit Nature & Quality of Home Environment—may send social worker to inspect home just to make sure everything is okay. Make sure home is at least adequate. Separation of Siblings—courts do not like to separate siblings. Not a universal rule, but do like to keep kids together so not too destabilizing. Kids can be separated if 1 child doesn’t get along w/ 1 parent. Abuse or Neglect of the Child—This is the single factor that is dispositive – opposition to this would have to be extremely powerful. Parental rights can be terminated over this. Problems w/ this one: hard to prove, kids lie. Remember, you represent a parent, not the kids. Stability of location, environment, school—stability is positive in child’s life. It is frowned up to introduce kids to significant others during custody dispute. Primary care giver-- if children did well under your primary care, it will weigh in your favor. Parent who leaves during separation will loose custody of their child because it establishes other parent as primary care giver. Hard to establish these days… willingness of a parent to foster a relationship b/w the child and the non-custodial parent is more important. Domestic Violence-- ONLY factor mandated by statute that MUST be considered. It does not matter if children viewed the abuse because it has an
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effect on child rearing. Does not mean abuser won’t get custody, but it the abuse must be considered. • this often acts against the victim for failure to shield the children from witnessing the abuse from a significant other post break-up Ability of parents to foster the intellectual and emotional well-being of the children—some people are just more able and motivated to do that than others. Educational games, interaction, homework help, museums v. TV Availability of parents—parent has a job that she works 90+ hours a week and travels 3 times a week. The other parent works 38 hours a week for the State. All other things being equal, one parent is more available than the other… that would cut in their favor during a custody hearing. Religion – sole custodial parent will make determination of religious rearing unless there is a previous agreement that has been consistently practiced; it comes into play when there is a particular religious practice that comes into conflict with the health, safety or welfare of the child [i.e., no health care] Racial Consideration is IRRELEVANT
Visitation • Non-custodial parent will have visitation w/ the children absent a really good reason not to. The law assumes that it is in the best interest of child to have a meaningful relationship w/ both parents. • Law places high premium on the relationship between child and biological parent. The other parent will have reasonable visitation with child UNLESS there is an enormous factor against it. Even really lousy parents get visitation even when the child does not want it. [incarceration does not automatically get rid of visitation rights, particularly when imprisonment is short] • Supervised Visitation/Restriction on Visitation: There may be supervised visitation under certain circumstances where the absence of supervision might bring some harm to the children (like 1 parent poisoning child’s mind against other parent) • Interference with visitation: A custodial parent who messes with non-custodial parent’s visitation can loose custody. • Joint/Shared Custody: Don’t designate parents as custodial and non-custodial. Most often visitation is put in place by agreement of parents and they define what joint custody means. Ct won’t grant joint custody of the relationship between the parents is too bitter b/c joint custody requires joint decision making. o 2 aspects to custody legal decision making physical time-sharing. o In joint custody both parents must agree on legal decision-making. (In noncustodial/custodial relationship, custodial parent makes all legal decisions). Timesharing is anything the parents agree to in joint custody. o Braiman v. Braiman – joint custody should not be granted in an acrimonious custody battle o Most joint custody arrangements arise out of mutual agreement • Relocation: 55
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o A custodial parent cannot unilaterally decide to move. If other parent objects, the court will determine if the custodial parent can move. Have to make a best interest showing. This is very hard. Courts want children and parents to have meaningful relationships. Best interest standard is ambiguous. Procedural Aspects o Law Guardian-- A 3rd lawyer is involved appointed by the Court to represent child’s interest. If you represent the parent you cannot talk to the child w/o the presence of the child’s law guardian. o Mental Health Professionals Ct has power to direct parties to be evaluated by a mental health professional. Health Professional will assess: • Parenting Capacity • Needs of Child • Resulting Fit Whether Court directs evaluation is discretionary When a serious question is raised to fitness of parent, it has been considered an abuse of discretion to deny the evaluation. If party refuses to submit, it could be a basis for Court to deny custody or visitation until party submits The evaluation makes recommendations in respect to ultimate issue of best interest. There is significant dissent in mental health community as to whether this is ethical because there is insufficient data to make such recommendations. The Court should NOT delegate decision-making power to the mental health provider. Doing so is a reversible error. Judge MUST make ultimate best interest decision. Mental Health Experts are appointed by the Court. One party CANNOT compel the other party to submit to their expert UNLESS they can show there is a fundamental flaw in the evaluation process/report of Court appointed expert. This is rare. You have the right to confront Court appointed expert. Report must be made available to each party. Either party has right to cross-examination UNLESS they waive it. DON’T waive it. Biggest problem with psyc. evaluations is that Court overly relies on them and they may not be accurate. Opinions should be based on scientific and psychological discipline… shouldn’t say “in my opinion child should go with mom.” Know the mental health literature so you can effectively cross.
ON TEST: REVIEW • Majoskis • Excess Earnings • CSSA (know the % per child) 56
Excess Earnings: HYPO: Grocery store. Couple makes $600,000 per year. To make that $600K there is $1 million in tangible assets making up the business. Theory is, if they liquidate it, then they’d have $1million to invest. Assume they could get a return rate of 10% if they invested. If so, they could get $100K/yr from the invested money. Deduct the reasonable rate of return from the net income. 600,000-100,000=500,000 [excess earnings] x 25% (4)= 2,000,000 (GW) + 1,000,000 = 3,000,000 to get the total business value Pension: HYPO: DOM…….. separate….. DOC [non-titled spouse has to prove value of pension] Value of pension will be taken from DOC. Although it will be altered in distribution if it seems unfair. This J gave W 50% from DOM to DOS, and then gave 0% from DOS to DOC. Majoskis on LUMP SUM DOE (entry into plan)……………..DOM……………………..……DOC…………DOR 5 yrs. 15 yrs. Value at DOC= 100,000 Numerator= 15 Denominator= 20 (total # of years in plan) 15/20 converts to ¾ x 100,000 H and W each get $37,500 Majoskis on DEFERRED AWARD [same #s as above] Numerator= 15 Denominator= x (don’t know until he retires) 15/x x MB (monthly benefit--- we don’t know ) x 50% (distribution)… now we wait. H works another 10 years to the DOR… now we can figure out the denominator… 30 yrs. Now we know MB is $5000. It looks like: ½ x 5000 x 50 = $1250 (W award). Transmutation: HYPO: Title spouse inherits. DOM………………….W inherits $100K…………………DOC (separate property) Say, W invests the money and earns another $50K. She buys a house w/ the winnings for $120K and puts the name in both. It is all then classified as marital property.
One hour exam 75 T/F Few MC Qs A few computational questions Closed book – completely No trick questions
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