In Fields v Fields, __NY3d ___, 6/11/2010 NYLJ 36, (col. 3) the Court of Appeals, in an opinion by Judge Graffeo, observed that, although the manner in which marital property is distributed falls within the discretion of the trial court, 'the initial determination of whether a particular asset is marital or separate property is a question of law, subject to plenary review on appeal' (DeJesus v. DeJesus, 90 NY2d 643, 647 [1997])." Here, the Court concluded that the value of the husband's one-half interest in the parties' residence, a Manhattan townhouse that the husband purchased during the marriage and where the parties had lived for nearly thirty years, was marital property and affirmed the order of the Appellate Division.
At the outset Judge Graffeo set forth the applicable principals of law that applied to this case. She pointed out that Domestic Relations Law §236 defines 'marital property' as 'all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held, and the definition of marital property includes a 'wide range' of tangible and intangible interests. She indicated that "it is telling that the Legislature chose to initially categorize all property, of whatever nature, acquired after parties marry as marital property." The Equitable Distribution Law 'recognizes that spouses have an equitable claim to things of value arising out of the marital relationship and classifies them as subject to distribution by focusing on the marital status of the parties at the time of acquisition. This marital property designation is in keeping with the fundamental purpose of the Equitable Distribution Law, the recognition of marriage as an economic partnership, in which 'both parties contribute as spouse, parent, wage earner or homemaker. The Legislature did provide for several exceptions to this general classification. Section 236 specifies that marital property does not include 'separate property' and the statute sets forth four categories of property that constitute separate property: '(1) property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse; (2) compensation for personal injuries; (3) property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse; (4) property described as separate property by written agreement of the parties pursuant to subdivision three of this part'. When the Legislature enacted Domestic Relations Law §236, it sought 'to recognize the direct and indirect contributions of each spouse. Hence, the Court has stressed that marital property should be 'construed broadly in order to give effect to the ' economic partnership' concept of the marriage relationship'. By contrast, separate property, denoted as an exception to marital property, should be construed 'narrowly'. The structure of section 236 therefore creates a statutory presumption that 'all property, unless clearly separate, is deemed marital property' and the burden rests with the titled spouse to rebut that presumption.
The Husband and the wife, who were 60 and 69 years old, respectively, were married in 1970 and had a son who was born in 1973. In 1978, the parties decided to purchase a home on the Upper West Side of Manhattan, selecting a five-story townhouse with ten apartments and a basement. The Wife agreed to the acquisition of the townhouse only if the husband consented to certain preconditions because she believed that working outside the home and caring for their son, together with maintaining the townhouse, would be too burdensome. Because of the wife's reticence, the husband decided to purchase the townhouse with his mother's assistance. The husband paid $130,000 for the townhouse, making a $30,000 down payment. The down payment came from funds the husband received from his grandparents--half in lieu of a bequest and half on loan, which his mother agreed to repay. The balance of the purchase price was paid through two mortgages held jointly by the husband and his mother. The Husband took title solely in his name but later conveyed a one-half interest in the building to his mother. From 1982 to 2001, the husband and his mother managed the townhouse as a formal partnership. They deposited rent proceeds into a partnership bank account and made mortgage payments from that account. But the partnership bank account was not used exclusively for the building's income and expenses; the husband acknowledged that he commingled marital funds in the account.
In September 1978, husband and the Wife moved into the townhouse, initially residing in apartment 2. In 1979, the couple converted the basement into an apartment where they lived together for five months until the wife became ill and moved into apartment 3. In 1983, after apartment 3 was burglarized, the wife relocated to apartment 2. The husband remained in the basement apartment and the couple shared occasional meals until 1997. The husband paid rent to the partnership for the basement apartment until 2002; he used his income from employment to make rental payments. The Wife also paid rent using her wages while she was living in apartment 3. The husband 's mother and stepfather resided in the building as well and paid rent for three apartments that they combined into a single residence. The remaining apartments were leased to various tenants. and the Wife were continuously employed outside of the home, although they each took periods of parental leave to care for their son. The couple shared child care expenses and responsibilities as parents.
The Husband commenced this divorce action in February 2005 and Supreme Court referred the matter to a Special Referee. After a hearing on issues of equitable distribution, the Referee found that both parties contributed to the long-term marriage, their son's upbringing and the townhouse. Included in his findings, the Special Referee determined that wife decorated the basement apartment, purchasing a carpet, a Formica counter top, couches, a linen closet, bathroom cabinets, a chandelier, curtains, and rugs. She installed a door in the basement apartment, wallpapered the bathroom and paid for flooring and a mirror for the foyer outside the apartment. The Wife also helped with the townhouse's day-to-day maintenance. She cleaned the basement apartment and purchased the vacuum used to clean the lobby. The wife cleaned the mailbox vestibule, swept the interior and exterior steps, periodically cleaned the sidewalk, raked and bagged leaves in the backyard and planted a garden. She also cleaned lobby windows and washed the curtains, polished the lobby mirror and, during times when the husband was away, disposed of the townhouses refuse. The Referee recommended that the husband 's one-half interest in the townhouse be classified as marital property, less the $30,000 down payment, which the Referee deemed as the husband 's separate property because those funds had been received from the husband 's grandparents. He also found that the husband 's one-half interest in the partnership bank account was marital property. The Referee awarded the Wife 35 percent of the value of all marital assets because he concluded that the Wife had made direct and indirect contributions to the townhouse, including services as a spouse and mother. Supreme Court confirmed the Referee's Report and directed entry of a judgment of divorce.
The Appellate Division, with two Justices dissenting, affirmed (65 AD3d 297 [1st Dept 2009]). The court held that the husband 's interest in the townhouse, less the $30,000 down payment, was properly categorized as marital property subject to equitable distribution. The majority emphasized that the husband purchased the townhouse during the parties' marriage, that the couple continuously lived in the townhouse and raised their son in the home, and that the Wife made direct and indirect contributions to the upkeep of the townhouse. Rejecting the husband 's assertion that his interest in the townhouse should be viewed as separate property, the court explained that '[t]he fact that the marital residence can also be used to generate income... does not therefore reclassify marital property into separate property' (id. at 304).
The husband argued in the Court of Appeals that his one-half interest in the townhouse was separate property because he owned and managed the building with his mother and because the Wife did not contribute to its purchase or its appreciation in value. The Court of Appeals disagreed and concluded that the value of the husband 's one-half interest in the townhouse was marital property subject to equitable distribution.
Judge Graffeo wrote that this case involved the application of the well-settled statutory presumption that all property acquired by either spouse during the marriage, unless clearly separate, is deemed marital property (see DeJesus, 90 NY2d at 652). Here, the husband purchased the townhouse in 1978, approximately eight years into the marriage, and therefore, on the date of acquisition, the presumption of marital property arose. Even where one spouse contributed monies derived from separate property toward the acquisition of the marital residence, this has not precluded its classification as marital property where the other spouse made economic or other contributions to the residence and the marriage; the contributing spouse generally has received a credit for that contribution.
Here, the property was purchased eight years into the parties' marriage with the intent that it would be used as the marital residence where the parties would live and raise their son. In fact, that is precisely what occurred, the parties resided in the home with their son and other family members for nearly 30 years. Thus, the statutory presumption that a residence acquired during the marriage is marital property clearly applied in this case.
Once the statutory presumption was triggered, the burden shifted to the husband to rebut that presumption (DeJesus, 90 NY2d at 652). The Husband relied on the fact that he used monies derived from separate property, the $30,000 down payment, to acquire the townhouse. But the townhouse was not 'acquired in exchange for' the $30,000 down payment (Domestic Relations Law § 236 [B] [1] [d] [3]). Instead, the husband 's $30,000 separate property contribution covered only a fraction of the purchase price. While the down payment facilitated the acquisition, the use of a 'separate property' down payment does not, in and of itself, establish the property's character as separate property.
The remaining $100,000 of the purchase price was paid through two mortgages and, despite the husband 's claim that he made mortgage payments solely from rental proceeds, he failed to substantiate that allegation. The husband testified that he commingled marital assets in the partnership bank account from which mortgage payments were made. Specifically, he acknowledged that he would sometimes deposit his paychecks, which were marital property, into the account. Funds from other sources of marital income were also placed into the account, such as the husband 's earnings from his tax preparation and video businesses and wife's paychecks. The fact that the husband would later transfer funds or give cash to the Wife does not alter the commingled nature of the funds. Finally, both the husband and the Wife paid rent to the partnership using income from their outside endeavors, which was a partial source of the mortgage payments. The Court found that the therefore failed to establish that the mortgages, which were used to pay the majority of the townhouse's purchase price, were paid using monies derived exclusively from separate property, much less that all of the expenses associated with the property were covered by segregated funds.
Judge Graffeo noted that there is no single template that directs how courts are to distribute a marital asset that was acquired, in part or in whole, with separate property funds. In these situations, courts have usually given the spouse who made the separate property contribution a credit for such payment before determining how to equitably distribute the remaining value of the asset. In distributing any appreciation in value, courts may consider any of the factors listed in Domestic Relations Law §236 (B) (5) (d) or any other relevant considerations, including the respective contributions of each spouse and the effect of market forces.
In this case, the courts below properly considered the spectrum and quantity of contributions made by each spouse to the management and maintenance of the townhouse and the extent to which market factors enhanced the value of the property. Under these circumstances, the Court declined to disturb the determination below that the husband failed to rebut the statutory presumption that his interest in the townhouse is marital property subject to equitable distribution and that the Wife was entitled to 35 percent of the husband 's interest in that asset.
In reaching this conclusion, the Court emphasized that the husband purchased the townhouse eight years into the 35-year marriage and that the family maintained their living arrangement since 1978. It is not for the courts to dictate what type of lifestyle a 'normal' marriage should reflect or how married couples should structure their marital relationships. That the husband and the Wife in this case maintained separate apartments in the building did not change the character of the property from marital to separate, especially since they both made economic and noneconomic contributions to their marriage and the upbringing of their son. Many married couples sleep in different bedrooms for a variety of reasons and such arrangements do not affect the 'marital property' status of their homes if they divorce. The fact that the husband took title to his one-half interest in the townhouse in his name alone is irrelevant under the statute's express language, nor does the fact that the husband acquired title with his mother interfere with the marital character of his interest in the property. That portions of the townhouse were used as an income-generating business does not transform the building into separate property. The Wife's lack of an initial monetary investment and involvement in the management activities pertaining to the townhouse do not preclude a holding that the husband 's interest in the building is marital property. These were factors properly considered by the trial court in determining the extent of wife's distributive award (see Domestic Relations Law §236 [B] [5] [d]).
Judge Graffeo pointed out that the dissent failed to recognize the statutory presumption that property acquired during a marriage is marital property; instead, the dissent begins with the assumption that the building was separate property at the time of its acquisition. The majority did not view the husband 's interest in the townhouse as property 'acquired in exchange for' his separate property contribution toward the down payment. Under the dissent's analysis, any time a married couple purchases a marital residence using 'separate' funds contributed by one spouse towards the down payment, the entirety of the marital home would be classified as separate property. This approach is not consistent with relevant precedent, does not heed Domestic Relations Law's statutory presumption in favor of marital property and is contrary to the very purpose underlying the statute in recognition of an 'economic partnership.'
The husband also claimed that his one-half interest in the partnership bank account was separate property because the account was created solely to manage funds relating to the townhouse. But, he commingled marital assets in the partnership bank account and he could not sufficiently delineate any of the funds in the account as separate property . Thus, the husband's interest in the partnership bank account was marital property that should be allocated between the parties.
The husband also challenged the trial court's distribution of the marital property, arguing that the court abused its discretion by awarding the Wife 35 percent of the value of the marital assets. The Court of Appeals disagreed. In recognizing marriage as an economic partnership, Domestic Relations Law §236 mandates that the equitable distribution of marital assets be based on the circumstances of the particular case and directs the courts to consider a number of statutory factors. (Domestic Relations Law 236 [B] [5] [d]). Absent an abuse of discretion, this Court may not disturb the trial court's distributive award. Here, Supreme Court issued a comprehensive decision addressing all relevant factors, including that the husband and the Wife were married for 35 years; that both maintained employment and made economic and noneconomic contributions to the marriage, their son and the townhouse; that they had equal parenting responsibilities; that the Wife did not invest in the purchase of the townhouse; and that the couple maintained separate units in the building for approximately 28 years. In light of these considerations, particularly the length of the marriage, the age of the parties and wife's contributions to the marriage, the Court could not conclude that Supreme Court abused its discretion in awarding the Wife 35 percent of the value of the husband 's half interest in the townhouse and other marital assets.
Judge Smith dissented in an opinion in which Judge Read concurred.
|
