The New York Legislature is considering the viability and merit of continuing the long-standing approach of equitably dividing the enhanced earning capacity of a license between divorcing spouses pursuant to its Domestic Relations Law, O’Brien v. O’Brien, 66 N.Y.2d 576 (1985). This article offers some thoughts on whether New York’s Domestic Relations Law should continue to provide to the non-licensed spouse a share in the value of a license acquired during the marriage for the non-licensed spouse’s contributions as a distributive award of property or by some new form of maintenance.
It addresses several questions. First, is there a significant difference in evaluating and distributing the enhanced earning capacity generated by a license recognized as an asset under DRL Sec. 236(B)(5) and evaluating and distributing the enhanced earning capacity of a “career” or” career potential” not generated from an asset? Second, if the current concept of evaluating and sharing the enhanced earning capacity generated by a license between divorcing spouses by a distributive award is to be eliminated, how best does the Legislature craft new language to appropriately provide for that property award to the contributing non-licensed spouse?
Third, some foreign jurisdictions differ from New York State’s equitable distribution property approach and award rehabilitative or reimbursement maintenance to the contributing non-licensed spouse. If this approach were to be now adopted in New York, what factors would the Legislature craft to measure the award? What would be the guidelines and parameters for the courts to follow when reimbursing the non-licensed spouse for his or her direct and indirect contributions to the acquisition of that enhanced earning capacity?
Would not a special classification of maintenance have to be created so it was not modifiable, dischargeable in bankruptcy, taxable to the recipient and not tax-deductible by the payer as normal maintenance in order to achieve an equitable result if the distributive award of property were eliminated? How then would the rehabilitative maintenance factors and process to evaluate the non-licensed spouse’s contributions be materially different?
The filed briefs and oral arguments before the Court of Appeals in O’Brien satisfied pivotal points raised by the judges and were instrumental in leading to its decision. For example:
a) The license was in fact an asset by all standard and accepted definitions of property and should be the place and point of beginning when balancing the equities between the divorcing spouses as opined by Judge Richard Simons.
b) The methodology used to evaluate the enhanced earning capacity of the license had already been established by accepted standards, likened to the evaluation of one’s working life in a wrongful death action.
c) Judge Fritz Alexander concluded that while the holding in O’Brien would have to apply to all licenses, including a driver’s or hairdresser’s license, their evaluation would prove to be too miniscule to be worth pursuing. That has held true over the past 28 years.
d) The possibility to double count the value of the license and other assets acquired during the marriage concerned Judge Judith Kaye. It was resolved as outlined in Loretta O’Brien’s briefs by suggesting the concept of a Merger Doctrine; (“Valuing Professional Licenses, Before, During and After Merger Into the Career”).1 That is, there comes a time when the license holder achieves his or her station in life, whether as a salaried employee or non-salaried enterprise. The value of the enhanced earning capacity of the license holder’s career has been achieved and the separate value of the license has now merged and been subsumed into the traditional assets acquired.
e) A distributive award of property does not relegate the license holder to a life of involuntary servitude in a line of work they may no longer wish to pursue or be able to perform. The property award is a share in the asset for the non-licensed spouse’s contribution. The distributive award obligation is sacrosanct, regardless of any potential change in lifestyle by the licensed spouse because the license holder leaves the marriage with that enhanced earning ability whether it is used or not. Otherwise, the license holder could feign a change in one’s career path or health to avoid the obligation. But a remedy exists to the license holder if there is an inability or hardship which renders it difficult to satisfy the obligation. It is found in yet a new concept, the Modifiable Distributable Award.
f) The Modifiable Distributable Award provides a remedy to the license holder by application for a temporary suspension or reduction of the obligation based on a substantial change in circumstances. In this way, the distributive award is preserved and further litigation greatly reduced.
g ) Under New York’s Equitable Distribution Statute, which sounds in property, a maintenance award is neither appropriate nor authorized as a method of payment for a distributive award, (O’Brien supra at page 587). Moreover, such an approach is all but illusory. Maintenance is modifiable, tax-deductible to the payer and taxable to the recipient, all of which lends itself to more litigation and mischief.
An interest in a profession or professional career generated from a license is marital property within the meaning of DRL §236(B)(1)(c) and subject to equitable distribution, DRL Sec. 236 (B)( 5). The contributions of one spouse to the acquisition of the other spouse’s license or licensed career is compensable through the vehicle of a distributive award, DRL §236 (B)(5)(d)(6)(9)(e).
When the New York Legislature adopted its Equitable Distribution Divorce Legislation in 1980, it was in the vanguard. New York Legislatures sought to remedy wrongs that existed, in particular when a non-titled spouse did not share in an asset held solely in the name of the other spouse. This led to inequities visited upon the non-titled spouse. Over the past 32 years, we have seen a sense of fairness develop between divorcing spouses when dividing martial assets, regardless of gender. This progress should not be cavalierly set aside, especially when it comes to equitably dividing the value of the enhanced earnings generated from an asset accumulated during the marriage just because it happens to be a license or degree.
The equitable division of the enhanced earning capacity of a license or degree acquired during the marriage as established in O’Brien should remain law so long as it is interpreted in conjunction with the Merger Doctrine. This avoids double counting the enhanced earning capacity of the license and the traditional assets acquired during the marriage which is possible without applying merger.
To prevent double counting, the author in one case he was litigating hastened to present and apply the concept of merger during a trial before Justice Sondra Miller (Parlow v. Parlow, 548 NYS2d 373, 145 Misc.2d 850 (Sup. Ct. Westchester Co. 1989)). In this case of first impression, the court found a teacher’s license had merged into his teaching career and the license no longer had separate value.
Justice Miller astutely addressed the distinction of valuing an asset like a license and a career in the last paragraph of her decision wherein she wrote, “It is clear that there will be cases where inequities result from the valuation of established careers at zero, as where the careered spouse has substantially greater earning capacity than the non- (or lesser) careered spouse, and the marital assets are limited or nonexistent. In such cases an award of maintenance would be the remedy more consistent with the statute and less fraught with speculation than efforts to convolute or distort the concept of marital property by valuing established careers as though they were newly acquired licenses.”
This rationale recognized early on the distinction between a distributive award from valuing the enhanced earning capacity of an asset (license) under New York’s property statute as opposed to trying to evaluate and distribute the enhanced earning capacity of a “career or career potential” not generated from an asset.
Merger Doctrine Concept
At some point in time, the value of the enhanced earning capacity of the license expressed at the time of trial is ultimately absorbed into the traditional assets thereafter acquired by the parties. The inherent character of the asset remains but has changed form, just as water changes to a liquid, vapor or solid state yet retains its original properties. The separate value of the license holder’s chosen good faith career path, whether as a salaried employee or in a non-salaried enterprise, has merged into the assets that the career path has generated.
As a guide to measuring the overall value of marital property subject to distribution utilizing merger, the trial court can compare the, 1) value of the enhanced earning capacity of the license fixed at the time of trial to the, 2) combined value of after-acquired assets, plus 3) the license holder’s actual career expressed in salary or chosen enterprise. If the combined value of the latter totally exceeds the value of the license, there’s been a complete merger and vice versa. If the combined value of the latter does not exceed the value of the license, it’s a partial merger. In that event, the total value of all marital property subject to distribution is the reduced value of the license by the combined value of the after-acquired property and the current career. The court, as in all cases, will weigh all factors to decide when the license holder has in good faith reached his or her chosen career path to complete the merger of the license into the career and after acquired property.
DRL Section 236(B)(5)(d)(6) provides that “any equitable claim to, interest in, direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wager and homemaker, and to the career or career potential of the other party” are factors to be considered in determining the respective rights of the parties in their marital property. O’Brien established the enhanced earning capacity of a license acquired during the marriage was property and as such the value of that asset was to be equitably divided between the contributing spouses pursuant to this section.
However, O’Brien does not advocate that the enhanced earning capacity of all careers or career potentials are property subject to equitable distribution.
To preserve this distinction, the Legislature might amend DRL §236(B)(5)(d)(6) to provide that a distributive award of property to the non-titled spouse for his or her contributions to the enhanced earning capacity of a career or career potential of the other shall read: “….to the enhanced earning capacity of a career or career potential of the other party generated by a license, degree or other recognized asset.”
Awards to a spouse for contributions to the enhanced earning capacity of a career or career potential of the other party not generated from an asset subject to equitable distribution may be achieved by the Legislature creating an entirely new category of Reimbursement Maintenance, and adding, ” …for contributions to the enhanced earning capacity of the career or career potential of the other party not generated by an asset” for these situations.
When enhanced earning capacity flows from the license, equitable results are achieved by applying both (O’Brien and Parlow) together.
This approach would continue the O’Brien holding as intended.
Albert J. Emanuelli is a retired Supreme Court justice. As a practitioner, he represented Loretta O’Brien, a party in ‘O’Brien v. O’Brien’ discussed in this article.
1. A.J. Emanuelli, “Sequel to ‘O’Brien’,” Family Law Review, Family Law Section, New York State Bar Association, Vol. 19, No. 2, (June 1987).