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Goldman v. Goldman

         New York State Court of Appeals

                       
            2 No. 68
            Debra Goldman,
            Respondent,
            v.
            Scott Goldman,
            Appellant,
            Phyllis Gelman,
            Intervenor-Respondent.
            Alden H. Wolfe, for appellant.
            Lindsay Nicely Feinberg, for intervenor-respondent .
            SMITH, J.:
            At issue on this appeal is whether a mortgage taken on one spouse's
            interest in a tenancy by the entirety while a divorce action was
            pending survived after entry of a judgment of divorce and award of
            the property to the other spouse. We hold that it did.
            On October 24, 1985, plaintiff Debra Goldman and her husband
            defendant Scott Goldman acquired a house as tenants by the entirety.
            In December 1990, plaintiff commenced an action for divorce. After
            commencement of the action, but before entry of judgment, plaintiff
            gave her attorney, Phyllis Gelman, a $50,000 mortgage on the marital
            property as security for Gelman's legal services, without
            defendant's knowledge or consent. Gelman duly recorded the mortgage
            on August 13, 1991.
            The Goldmans were ultimately divorced by a judgment entered in
            October 1994, which awarded defendant exclusive title to the marital
            home. Although defendant had learned of Gelman's mortgage shortly
            after it was recorded in 1991, he failed to notify the trial court
            of its existence while the divorce action was pending, and the court
            made no special provision for it when equitably distributing the
            marital property.
            Defendant subsequently moved to discharge Gelman's mortgage on the
            property, and Gelman moved for leave to intervene and in opposition
            to defendant's motion to discharge her mortgage. Supreme Court
            granted defendant's motion to discharge Gelman's mortgage ,
            concluding that the mortgage interest had been extinguished by the
            judgment of divorce. The court also granted Gelman's motion for
            leave to intervene and stayed the discharge of the mortgage pending
            appeal. The Appellate Division reversed, over the dissent of two
            Justices. Defendant now appeals to this Court as of right. We
            affirm.
            A tenancy by the entirety is a form of real property ownership
            available only to parties married at the time of the conveyance
            (Kahn v Kahn, 43 NY2d 203, 207). As tenants by the entirety, both
            spouses enjoy an equal right to possession of and profits yielded by
            the property (Neilitz v Neilitz, 307 NY 882). Additionally, "each
            tenant may sell, mortgage or otherwise encumber his or her rights in
            the property subject to the continuing rights of the other "
            (V.R.W., Inc. v Klein, 68 NY2d, supra, at 565). Once the legal
            relationship between husband and wife is judicially altered through
            divorce, annulment or legal separation, the tenancy by the entirety
            converts to a tenancy in common (Kahn v Kahn, 43 NY2d, supra, at 207
            ).
            Although plaintiff here conveyed the mortgage after filing for
            divorce, she nevertheless continued to hold an interest in the
            property as a tenant by the entirety until the final divorce decree
            (id., at 207). Thus, plaintiff was legally entitled to mortgage her
            interest in the tenancy during the pending divorce action. In turn,
            Gelman acquired a contingent interest in all the rights plaintiff
            possessed at the time of conveyance (V.R.W., Inc., v Klein, 68 NY2d,
            supra, at 566; Kline v Pane, 1 NY2d 15, 19). Once the trial court
            rendered a final judgment of divorce and plaintiff's interest in the
            premises transmuted into a tenancy in common, Gelman retained an
            interest in the tenancy in common (V.R.W., Inc. v Klein, supra, at
            566). Accordingly , while the distributive award divested plaintiff
            of her interest in the property, Gelman's bundle of rights, acquired
            before the final judgment of divorce, was not impaired.
            We reject defendant 's argument that reinstating Gelman's mortgage
            is inequitable and would frustrate the distributive award of the
            trial court. Defendant concedes that he knew of the mortgage shortly
            after it was recorded in 1991 but failed to call it to the trial
            court's attention. Had defendant done so, the trial court could have
            considered the mortgage in fashioning an equitable distribution
            award. However , the trial court is not authorized under the
            Domestic Relations Law to defeat the secured interest of a third
            party mortgagee in marital property conveyed before a final judgment
            of divorce (see , Domestic Relations Law § 234; Kahn v Kahn, 43
            NY2d, supra, at 210 [" section 234 was intended only as a procedural
            device to permit a court in a marital action to determine questions
            of possession and title * * * and was not intended to alter existing
            substantive property law principles"]; see also, Stewart v Stewart,
            118 AD2d 455, 458).
            Finally , we note that 22 NYCRR 1400.5, effective November 1993, now
            requires attorneys to seek court approval and to notify the other
            spouse before obtaining a security interest in marital property
            (Procedure for Attorneys in Domestic Relations Matters [22 NYCRR]
            1400.5).
            Accordingly, the order of the Appellate Division should be affirmed,
            with costs.
            * * * * *
            Order affirmed , with costs. Opinion by Judge Smith. Chief Judge
            Kaye and Judges Bellacosa, Levine, Ciparick, Wesley and Rosenblatt
            concur.
            Decided June 13, 2000