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May 2005
Interest on a Distributive Award
By Bari Brandes Corbin
Although banks and financial institutions are currently
paying interest on savings at about 4% per year, the statutory rate of
interest on judgments is 9% per year, except where otherwise provided by
statute. Civil Practice Law and Rules (CPLR)
§
5004. In today's economy, with financial institutions paying low interest
rates, the 9% statutory rate on the payment of a distributive award is a
good investment for the recipient spouse, if he or she can get it, and an
incentive for the obligor spouse to pay the award promptly.
It is common for a judgment of dissolution not to
provide for the accrual of statutory interest on payments of a distributive
award. If interest is awarded on such payments, it usually starts to run
from the date of entry of the judgment, not from the date of the decision
awarding the payments.
The first time you attend a settlement conference on a
new case, do not forget to ask for interest on the pay-out of the property
settlement. It appears that the reason many attorneys fail to obtain
interest payments for their clients is that the trial of an equitable case
is so complex and overwhelming, with so many important issues, that asking
for interest (perceived as a relatively minor issue) gets lost in the
shuffle. Another reason may be that matrimonial attorneys are conditioned to
make a motion for a money judgment, pursuant to Domestic Relations Law (DRL)
§ 244, whenever there are
arrears of any payments due pursuant to a judgment or order granted in a
matrimonial action or family court proceeding. When such motions are made,
the award of interest is discretionary with the court, unless the default
was willful.
The four Appellate Divisions have not expressed
unanimity on this issue; the Fourth Department (see Povosky v. Povosky,
124 AD2d 1068, 508 NYS2d 722 (4th Dept.,1986); Markel v. Markel 197
A.D.2d 934, 602 N.Y.S.2d 477 (4th Dept.,1993)) and the Second Department (Miklos
v. Miklos, 9 A.D.3d 397, 780 N.Y.S.2d 622 (2d Dept., 2004)) have
clearly established that interest should be awarded on such payments. The
First Department appears to agree with them, but the Third Department has
not yet spoken on the matter.
Pre-Decision Interest
The authority of the Supreme Court to award interest on
sums of money awarded in a matrimonial action, including a distributive
award, is governed by the provisions of the CPLR. Whether to award interest
for the period up to the date of the court's decision and the rate and date
from which it is to be computed is discretionary with the trial court. (CPLR
§ 5001 provides that the
court shall award pre-decision interest only upon a sum awarded because of a
breach of performance of a contract, or because of an act or omission
depriving or otherwise interfering with title to, or possession or enjoyment
of, property, except that in an action of an equitable nature, interest and
the rate and date from which it shall be computed shall be in the court's
discretion.) Prejudgment interest has been awarded where the misconduct of
one party rises to the level of depriving the other of the use of marital
property. See Grunfeld v. Grunfeld, 94 N.Y.2d 696, 707 (failure to
make timely payments); see also Arany v. Arany, 282 A.D.2d 389
(diversion to personal use of over $500,000 from corporation); Maharam
v. Maharam, 245 A.D.2d 94 (egregious economic misconduct prevented the
court from making an equitable determination).
The Second Department, in holding that a plaintiff was
entitled to prejudgment interest on the distributive award, stated that such
interest is not a penalty. Rather, it is simply the cost of having the use
of another person's money for a specified period. It is intended to
indemnify successful plaintiffs for the nonpayment of what is due to them,
and it is not meant to punish defendants for delaying the final resolution
of the litigation. Since marital assets in that case were valued as of the
date of commencement of the action, the plaintiff was entitled to interest
from that date. Selinger v. Selinger, 232 A.D.2d 471 (2d
Dept.1996).
In another Second Department case, the trial court
awarded the plaintiff a distributive award in the sum of $300,000, directed
him to pay the distributive award either in one lump sum or in equal
installments over 3 years, awarded prejudgment interest on the distributive
award at the rate of 9% from the date of commencement of the action, and
awarded post-judgment interest on the distributive award at the statutory
rate of 9% from the date of entry of the judgment of divorce until final
payment. The Second Department held that the trial court properly awarded
the plaintiff prejudgment interest on the distributive award, noting that an
award of prejudgment interest on a distributive award is within the sound
discretion of the trial court. See Trivedi v. Trivedi, 222 A.D.2d
499; Largiader v. Largiader, 151 A.D.2d 724. In Lipsky v.
Lipsky, 276 A.D.2d 753 (2d Dept. 2000), the Second Department found the
trial court providently exercised its discretion in providing for interest
on the distributive award, especially where, as here, the defendant, in
failing to provide certain financial documents, caused his medical practice
to be substantially undervalued. It also held that under the facts of the
case, it was a provident exercise of discretion for the trial court to award
post-judgment interest at the statutory rate of 9% on the distributive award
from the date of entry of the judgment of divorce to the date of final
payment.
Post-Decision Interest
While an award of pre-decision interest is
discretionary with the court, the CPLR requires interest to be awarded, upon
the total sum awarded, from the date of the decision to the date the
judgment is entered.
CPLR
§
5003 also requires every money judgment to bear interest from the date of
its entry: "Every order directing the payment of money which has been
docketed as a judgment shall bear interest from the date of such docketing
to the date that it is satisfied." CPLR 5004 requires that a judgment bear
interest from date it is docketed. While a cursory reading of the statutes
seems to require that 9% interest should be awarded on payments of a
distributive award from the date of the decision, in actual practice
interest is usually not awarded until a money judgment for arrears of the
distributive award is entered upon motion made pursuant to DRL
§ 244.
Post-Judgment Interest
Almost 20 years ago, in Povosky v. Povosky, supra,
the Fourth Department held that CPLR 5002 requires interest to be paid on
the distributive award from the date of the decision. The wife, in her
appeal, contended that she was entitled to interest on the amounts awarded
to her and that she should be entitled to a judgment incorporating those
awards. The Appellate Division held that CPLR 5001 provides that the court
may, in its discretion, fix the date from which interest is computed. Since
the wife's share of the savings and investment plan was to be computed as of
Sept. 1, 1981, the appellate court held that she should receive interest at
the legal rate from that date to the date of the court's decision. It also
held that the wife was entitled to a judgment for the amounts awarded by the
court in its decision dated Nov. 4, 1983 and to interest on those awards
from the date of that decision until the entry of the judgment (see
CPLR 5002). In addition, in Markel v. Markel, supra, the Fourth
Department, citing Povosky, held that the lower court erred in
failing to order post-judgment interest at the statutory rate on the
distributive award. (See also CPLR 5003, 5004).
Until its decision in Haymes v. Haymes, 298
A.D.2d 117 (1st Dept. 2002), the First Department had never held that an
award of post-decision interest was mandatory. In Haymes the Appellate
Division modified the award on the law, to award plaintiff interest on the
distributive award post judgment. It held that Supreme Court did not
improvidently exercise its discretion in declining to award prejudgment
interest because the equitable distribution of the marital estate is not a
breach of contract, nor is it tantamount to "interfering with title to, or
possession or enjoyment of, property." The only language in CPLR 5001 that
the First Department found remotely pertinent to a matrimonial proceeding is
the general principle that the award of interest is entrusted to the sound
discretion of the court "in an action of an equitable nature." It noted that
plaintiff had provided no authority to suggest that in enacting CPLR 5001
the legislature intended it to be applicable to matrimonial actions.
However, the court did hold that the plaintiff was entitled to interest from
the date of the decision to the entry of judgment, citing CPLR 5002, and
modified accordingly.
In Gober v. Gober, 4 A.D.3d 175 (1st Dept.,
2004), the First Department noted that the trial court held that plaintiff
should receive a distributive cash award exceeding $13 million, to be paid
out over a period of 7 years, and it modified the judgment to award interest
on that sum. Citing Maharam v. Maharam, supra, it held that until
defendant has made full payment, he is availing himself of plaintiff's
money, for which he should be compelled to pay interest inasmuch as the
distributive award is not a future award but a current one.
In Gold v Gold, 276 A.D.2d 590 (2d Dept.
2000), the Second Department held that the defendant was entitled to
interest on the distributive award from the date of the decision until the
entry of judgment, and from the entry of judgment to the date of payment.
The court stated that this right is unaffected by the direction of the
Supreme Court that the judgment be paid in installments. In Miklos v.
Miklos, supra, the Second Department held that while Supreme
Court providently exercised its discretion in denying pre-judgment interest
on the plaintiff's distributive award, the plaintiff was entitled to
interest on the distributive award from the date of entry of the judgment of
divorce to the date of final payment.
Bari Brandes Corbin,
a member of this newsletter's Board of Editors, maintains her offices for
the practice of law in Laurel Hollow, NY. She is Vice-President of Joel R.
Brandes Consulting Services Inc., Jersey City, NJ, and Ft. Lauderdale, FL (www.
brandeslaw.com), and an editor of its Web sites, "New York Divorce and
Family Law," at www.nysdivorce.com,
and "Florida Divorce and Family Law," at
www.flsdivorce.com. She is a co-author of Law and the Family New York,
Second Edition, Revised, Volumes 5 & 6 (Thomson-West).
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