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LAW AND THE FAMILY

'Hartog' and 'Price': The 'Price' Is Right

By Joel R. Brandes and Carole L. Weidman

New York Law Journal (p. 3, col. 1)
June 27, 1995

         IT IS TIME WE LAWYERS took a good, hard look at the 1985 Court 
     of Appeals decision in Price v. Price.*1 This infinitely manipulable 
     case has brought many clients to the crossroads of settlement only 
     to find themselves with high-pitched emotion leading to less than 
     rational decisions. One need not be a defender of pointless laws to 
     understand the wisdom behind Price.
         First, a bit of background. Domestic Relations Law 
     Sec.236(B)(1)(d)(3) excludes from the definition of marital property 
     ``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.''
         The first controversy over the meaning of this language came 
     about in Jolis v. Jolis*2 where the husband's stock in the family 
     diamond business, most of which had been given to him during 
     marriage by his father, and its appreciation, were held to be the 
     husband's separate property. The stock greatly increased in value as 
     the business prospered, being worth some $3.5 million at the time of 
     the trial. Supreme Court held that the wife's contributions and 
     services since 1939, which would be an important factor in 
     allocating material property and setting maintenance, were not 
     ``contributions'' under the statute and that, in any event, the 
     appreciation resulted from inflation and market conditions.
         The trial court insisted that if the appreciation were regarded 
     as marital property the wife must establish a direct correlation 
     between her efforts and the appreciation. Said another way, the 
     wife's 40 years of contribution and services as a mother of four 
     children, homemaker, companion and entertainer of the husband's 
     friends and business associates were insufficient to serve as a 
     basis for her sharing the appreciation in the value of the stock 
     during the marriage. The First Department affirmed the trial court's 
     decision and agreed with the distinction between direct and indirect 
     spousal contributions to appreciated value of separate property.
     
     An Economic Partnership
     
         In 1985, in Price v. Price, the Court of Appeals established a 
     far more just standard, setting the groundwork for all that would 
     follow. The court rejected the distinction made in Jolis between 
     direct and indirect contributions by a spouse to the appreciation in 
     value of a spouse's separately owned property during the marriage 
     and also liberally construed the statute to require only that a 
     relationship must be established between the ``product of the 
     marital partnership'' and the appreciation in value of the separate 
     property. It construed the definition of marital property liberally, 
     to achieve equity in the distribution of assets produced by the 
     marital partnership.*3
         The Court of Appeals noted that equitable distribution was based 
     on the premise that a marriage is an economic partnership to which 
     both parties contribute as spouse, parent, wage earner or homemaker 
     and that the EDL reflected an awareness that the success of the 
     partnership depended, in part, on a wide range of nonremunerated 
     services to the joint enterprise. The Court held that under the 
     Equitable Distribution Law (EDL) an increase in the value of the 
     separate property of one spouse, occurring during the marriage and 
     prior to the commencement of matrimonial proceedings, which is due 
     in part to the indirect contributions or efforts of the other spouse 
     as homemaker and parent, should be considered marital property. It 
     did caution, however, that:
     Whether assistance of a nontitled spouse, when indirect, can be said 
     to have contributed ``in part'' to the appreciation of an asset 
     depends primarily upon the nature of the asset and whether its 
     appreciation was due in some measure to the time and efforts of the 
     titled spouse. If such efforts  . . . were aided and the time 
     devoted to the enterprise made possible, at least in part, by the 
     indirect contributions of the nontitled spouse, the appreciation 
     should, to the extent it was produced by the efforts of the titled 
     spouse, be considered a product of the marital partnership and hence 
     marital property. * * * As a general rule, however, where the 
     appreciation is not due, in any part, to the efforts of the titled 
     spouse but to the efforts of others or to unrelated factors 
     including inflation or other market forces, as in the case of a 
     mutual fund, an investment in unimproved land, or in a work of art, 
     the appreciation remains separate property, and the nontitled spouse 
     has no claim to a share of the appreciation.
         The Price Court held that the nontitled spouse must demonstrate 
     that (1) the property appreciated in value during the marriage, in 
     part, because of efforts or contributions of the titled spouse in 
     time, money or energy; and (2) he or she contributed, in part, to 
     such appreciation as a homemaker or parent by giving the titled 
     spouse the time to devote to the enterprise. Where an asset 
     appreciates passively during the marriage solely as a result of the 
     efforts of others or market forces, the nontitled spouse is not 
     entitled to share in the appreciation, since it was not the efforts 
     of the titled spouse that contributed to the increase in value of 
     the asset.
         Price, however, left unresolved nearly as many issues as it 
     solved. Most notably, whether in determining if the nontitled spouse 
     contributed to the appreciation of separate property, he or she is 
     required to establish a substantial, almost quantifiable, connection 
     between the titled spouses' efforts and the appreciated value of the 
     property. In its most recent follow up to Price, the Court of 
     Appeals in Hartog v. Hartog*4 ruled ``no'' to this question.
     
     Involvement in `Separate Property'
     
         In Hartog v. Hartog, the key issue was whether the husband's 
     limited involvement during the marriage in ``separate property'' 
     businesses that appreciated in value, qualified as active 
     participation, within the meaning of Price, so as to transmute the 
     appreciation into marital property subject to equitable 
     distribution. The parties weremarried in 1968. The wife was a 
     homemaker from 1969 until May 1980. From 1980 through 1985, she 
     worked full time at an advertising firm. In 1990, she started a song 
     writing business, from which she earned nothing. During the 
     marriage, she was a traditional homemaker, serving in roles of 
     spouse, parent, housekeeper and hostess. When the parties divorced, 
     she was 51 years old and he was 61. Two children were born of the 
     marriage, both emancipated at the time of divorce.
         When they married, the husband was 38 and worked in a family 
     jewelry business, F. Staal. He was also a shareholder and director 
     of another family business, Hartog Trading Co. (Trading). He owned 
     50 percent of the stock in F. Staal and Trading, and 25 percent of 
     the stock of Hartog Foods International Inc. (Foods), a spin-off 
     company of Trading. He was director of Trading throughout the 
     marriage and was its secretary/treasurer from 1969. He was a 
     director and secretary of Foods from the time of its incorporation 
     in 1969.
         The husband's brother or others, however, had primary 
     responsibility for the day-to-day management and operation of 
     Trading and Foods. F. Staal, Trading and Foods, each deducted a 
     salary for the husband as a business expense, and he participated in 
     their respective profit-sharing plans. The corporate tax returns of 
     Trading and Foods listed him as a part-time employee, and the 
     corporate minutes note his presence at meetings and his power to 
     sign checks. Testimony at trial indicated that the husband and his 
     brother conferred at times regarding business matters concerning 
     Trading and Foods. The husband was recently diagnosed with prostate 
     cancer.
     
     Marital Property
     
         Supreme Court granted the wife a divorce and distributed the 
     marital property. She ultimately opted to sell both residences, 
     resulting in a distributive award of $1.7 million. The trial court 
     found the following to be marital property: (1) 100 percent of the 
     increased value of the husband's 50 percent share in F. Staal 
     ($412,000); (2) 25 percent of the appreciation of the husband's 50 
     percent share of Trading ($575,000); and (3) 25 percent of the 
     appreciation of the husband's 25 percent share of Foods ($686,875).
         The court also declared the husband's annual bonus to be marital 
     property. It awarded the wife maintenance in the amount of $2,816.66 
     per month until her death. It also ordered the husband to maintain a 
     $1 million life insurance policy for his wife's benefit and provided 
     that in the event the policy was not in effect on his death, the 
     amount of the insurance would constitute a pro rata lien against his 
     estate.
         The Appellate Division modified and affirmed the judgment. It 
     deleted that portion of the distributive award to the wife that 
     represented her portion of the appreciated value of Trading and 
     Foods, $630,937.50, which is half of 25 percent (the increased value 
     of the husband's interest in Trading and Foods, the separate asset). 
     It also deleted the share awarded the wife in the husband's bonus 
     ($59,998); a portion of the tax liability attributed to the husband 
     resulting from the sale of marital assets; and an award of $197,585, 
     representing half of the husband's brokerage account [not in issue]. 
     It limited the award of spousal maintenance of $650 per week to five 
     years, and deleted the provisions directing the husband to maintain 
     life insurance and establishing a conditional lien.
         In the Court of Appeals the wife argued that because the husband 
     had some active involvement in Trading and in Foods, the 
     appreciation in value of those businesses, at least to some degree, 
     was marital property subject to equitable distribution. She claimed 
     that the Appellate Division imposed a substantial nexus requirement 
     of a significant connection between the titled spouse's activity and 
     the appreciation of the operating business assets and that this (1) 
     is contrary to legislative intent, to construe the term ``marital 
     property'' broadly; and, (2) is contrary to the Court's holding and 
     rationale in Price v. Price that a titled spouse's ``active'' 
     contribution to the separate asset during the marriage transforms at 
     least some portion of the appreciated value into marital property.
         The husband countered by arguing that his activities amounted to 
     ``paper participation'' only, and that this type of pro forma 
     involvement had no actual impact on the appreciation in the value of 
     the businesses. He asserted that absent some concrete showing by the 
     wife of how his involvement actually benefited the businesses' 
     value, the appreciation in those businesses remained separate 
     property in its entirety.
     
     Letter and Spirit
     
         The Court of Appeals held that requiring a non-titled spouse to 
     show a substantial, almost quantifiable, connection between the 
     titled spouse's efforts and the appreciated value of the asset would 
     be contrary to the letter and spirit of DRL Sec.Sec.236(B)(1)(c), 
     (B)(1)(d)(3), (B)(5)(c) and (B)(5)(d)(6). DRL Sec.236(B)(1)(d)(3) 
     expressly provides that appreciation in separate property remains 
     separate property, ``except to the extent that such appreciation is 
     due in part to the contributions or efforts of the other spouse.''
         It reasoned that DRL Sec.236(B)(5)(d)(6) explicitly recognizes 
     that indirect contributions of the non-titled spouse (e.g., services 
     as spouse, parent and homemaker and contributions to the other 
     party's career or career potential) are equally relevant to direct 
     contributions in equitable disposition calculations. Thus, to the 
     extent that the appreciated value of separate property is at all 
     aided or facilitated'' by the non-titled spouse's direct or indirect 
     efforts, that part of the appreciation is marital property subject 
     to equitable distribution.
         Consequently, while some connection between the titled spouse's 
     effort and the appreciation must be discernible from the evidence, 
     neither the statutory language nor its legislative history justifies 
     the Appellate Division's and the husband's exacting causation 
     prerequisite. The Court of Appeals also held that requiring such a 
     connection was inconsistent with the legislative intent in enacting 
     the EDL, to treat marriage in one respect as an economic partnership 
     and, in so doing, to recognize the direct and indirect contributions 
     of each spouse, including homemakers, and that such a result was at 
     odds with Price.
         The Court of Appeals in Hartog recognized that it was time for 
     it to realistically handle the problem faced when the titled spouse 
     has only limited, yet active, involvement in a separate asset of a 
     non-passive character where it may be difficult, if not impossible, 
     to link limited, specific efforts to quantifiable, tangible results 
     and to prove a direct causal link between the activity and the 
     resulting appreciation.
         The Court rejected the causation requirement urged by the 
     husband. Instead it gave effect to the Legislature's intent that a 
     non-titled spouse be permitted to share in the ``indirect'' fruits 
     of his or her labor, even if the connection between the titled 
     spouse's activity and the appreciation is not established with 
     mathematical, causative or analytical precision. It noted that its 
     holding in Price supported the analysis it adopted and `` . . . 
     inevitable implication of Price was a rejection of the ``all or 
     nothing'' approach that would be interposed by adopting a 
     particularized causative nexus requirement.'' It concluded:
      . . . that where an asset, like an ongoing business, is, by its 
     very nature, non-passive and sufficient facts exist from which the 
     factfinder may conclude that the titled spouse engaged in active 
     efforts with respect to that asset, even to a small degree, then the 
     appreciation in that asset is, to a proportionate degree, marital 
     property. By considering the extent and significance of the titled 
     spouse's efforts in relation to the active efforts of others and any 
     additional passive or active factors, the factfinder must then 
     determine what percentage of the total appreciation constitutes 
     marital property subject to equitable distribution  . . .
     
     Limited, but Active
     
         Applying these principles the Court concluded that the Appellate 
     Division should not have deemed the total amount of the appreciation 
     in Trading and Foods to be the husband's separate property. The 
     trial court's findings demonstrated that the husband engaged in 
     limited, active involvement in the two companies. His activities 
     consisted of attendance at board meetings; holding officers' 
     positions within the close corporations; being listed as a salaried 
     employee; discussing and conferring on business matters; signing 
     checks on occasion; and participating in the companies' 
     profitsharing plans. These efforts constituted an ``active'' 
     involvement and management role.
         The Court held that through the husband's attendance at board 
     meetings and business discussions with family members, particularly 
     during times of crisis, a reasonable finder of fact could determine 
     that this active involvement contributed to the appreciated value of 
     the businesses. The Court reinstated the Supreme Court's 
     determination that 25 percent of the appreciated value of the 
     husband's interests in Trading and in Foods was marital property.
         The Court of Appeals also held that the Legislature intended 
     that the predivorce standard of living be a mandatory factor for the 
     courts consideration in determining the amount and duration of the 
     maintenance award and that the Appellate Division erred in failing 
     to consider the wife's pre-divorce standard of living. It pointed 
     out that DRL Sec.236, as amended in 1986, directs that when the 
     court is considering an award of maintenance, it must ``hav[e] 
     regard for the standard of living of the parties established during 
     the marriage.''
         The purpose of the amendment was to ``require[] the court to 
     consider the marital standard of living'' in making maintenance 
     awards. Generally the lower courts' failure to analyze each of the 
     statutory maintenance factors in DRL Sec.Sec.236 (B)(6)(a)(1)-(11) 
     will not alone warrant appellate alteration of the award, because it 
     suffices for a court to set forth the factors it did consider and 
     the reasons for its decision. However, the pre-divorce standard of 
     living has been placed by the Legislature in a markedly distinct 
     category, rendering the general rule inapplicable.
         The Court held that the Appellate Division's assertion of the 
     wife's ability to become self-supporting with respect to some 
     standard of living in no way obviated the need for the court to 
     consider the pre-divorce standard of living; and did not create a 
     per se bar to lifetime maintenance. Correspondingly, a pre-divorce 
     ``high life'' standard of living guarantees no per se entitlement to 
     an award of lifetime maintenance. ``The lower courts must consider 
     the payee spouse's reasonable needs and pre-divorce standard of 
     living in the context of the other enumerated statutory factors, and 
     then, in their discretion, fashion a fair and equitable maintenance 
     award accordingly  . . . .''
         Because this is what Supreme Court did, and the Appellate 
     Division's alteration of that award for the reason it advanced was 
     not warranted, the Court modified and reinstated the trial court's 
     determination awarding lifetime maintenance in the amount of $2,816 
     per month.*5
         It would seem that what best serves the objectives and purposes 
     of the EDL, as well as the underlying public policy, is to give 
     broad and liberal interpretation to the statutory definition of 
     ``marital property'' and narrowly construe the exemptions from 
     equitable distribution, which are designated as ``separate 
     property.'' When in doubt, one should side in favor of the marital 
     property category.
     
     notes
     
         (1) 1985, 2d Dept., 113 AD2d 299, 496 NYS2d 455, later 
     proceeding 2d Dept.) 115 AD2d 530, 496 NYS2d 464, later proceeding 
     (2d Dept.) 115 AD2d 531, 496 NYS2d 689 and ctfd uqes ans, affd 69 
     NY2d 8, 511 NYS2d 219, 503 NE2d 684.
         (2) 111 Misc2d 965, 446 NYS2d 138, affd (1st Dept.) 98 AD2d 692, 
     470 NYS2d 584.
         (3) 1986, 69 NY2d 8, 511 NYS2d 219, 503 NE2d 684.
         (4) 85 NY2d 36, NYS2d (1995).
         (5) The Court of Appeals also held: (1) that the husband's 
     bonus, earned during the course of the marriage but paid after 
     commencement of marital dissolution proceedings was marital property 
     subject to equitable distribution, noting that the Appellate 
     Divisions rationale failed to heed its precedents and the generous 
     reading that the Legislature intended to be accorded the term 
     marital property in this respect; (2) that, while under DRL 
     Sec.236(B)(8)(a), the courts have the general authority to ``order a 
     party to purchase, maintain or assign a policy of insurance on the 
     life of either spouse'' as a means to secure maintenance and child 
     support payments, so that dependent spouses and children will be 
     adequately protected, the trial court erred by ordering the husband 
     to obtain a life insurance policy. Because of his serious illness, 
     the husband was uncontestedly uninsurable, and the proof at trial 
     established the lack of any extant life insurance available when the 
     relief was directed in the judgment; (3) that the courts have no 
     inherent authority to order a lien on a spouse's estate in lieu of 
     insurance. There is no statutory authority or suggestion in the 
     legislative history that the courts were meant to exercise such 
     broad-reaching power to create a lien on an estate for a payor 
     spouse's failure to maintain life insurance; and (4) that the 
     Appellate Division acted properly in considering the tax 
     consequences to the husband and reducing plaintiff-wife's 
     distributive award by her equitable share of the tax liability. 
     Given the non-liquid nature of the assets, the Appellate Division 
     did not abuse its discretion in making the wife responsible for an 
     equitable share of the tax consequences.
----------------
Joel R. Brandes and Carole L. Weidman have law offices in New York City 
and Garden City. They co-authored, with the late Doris Jonas Freed and 
Henry H. Foster, Law and the Family, New York (Lawyers' Co-Operative 
Publishing Co., Rochester, N.Y.) and co-author the annual supplements.
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