Alton L. Abramowitz
Alton L. Abramowitz ()

When Crosby, Stills, Nash and Young, famously sang “Our house is a very, very fine house with two cats in the yard, life used to be so hard, Now everything is easy cause of you…,” they clearly were not contemplating life as a divorcing couple and all of the angst that goes with having to surrender a lifestyle with a home at its center. Some of the most emotionally taxing questions for couples enduring a divorce to answer are: Who gets the home? Should the home be sold? How much is it worth? How do we quantify any separate property claims? And, more particularly, where one spouse claims that the marital residence is his or her premarital property, and therefore, separate property, what extent, if at all, should the other spouse share in the value of that residence or the appreciation/increase in value of that residence over the course of the marriage, regardless of the marriage’s length?

In many parts of New York State, residential real estate has increased in value far beyond the owners’ dreams, sometimes in very short periods of time. It is not unusual for newspapers to report astronomical gains when New York City real estate is sold; reported sales for $20 million or more seem like a weekly occurrence in The New York Times. Anecdotally, many of us hear tales that more modestly priced homes can experience significant increases in value over the course of 10 or 20 years, sometimes making a $50,000 suburban residence worth $100,000 at the time of divorce just 10 years later or a $250,000 Manhattan residence worth nearly $2 million some 20 years later.

Thus, the battle over how to distribute the “profits” due to that appreciation, as well as the underlying initial investment at the time of purchase of a marital residence, can become one of the most difficult and important financial issues confronting the attorneys for a divorcing couple, oftentimes bringing to the forefront anger that has built up for many years over real and imagined slights, all revolving around the questions of: “Whose house is it?” or “What contributions did my spouse make?”

Balancing Factors

Two statutes primarily address issues surrounding the real estate interests of divorcing couples. Domestic Relations Law (DRL) §234 provides the courts with the authority to determine title to real property, as well as to determine possession and occupancy of “property, having regard to the circumstances of the case and of the respective parties.” Similarly, the Equitable Distribution Law (DRL §236B[5]) contains the guiding principles for the distribution of property upon the dissolution of a marriage, including a broad array of directives and factors, such as “Separate property shall remain such”; “the need of a custodial parent to occupy or own the marital residence and to use or own its household effects;” “any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of…marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker….”

Balancing these factors in order to achieve equity with respect to the distribution of a marital residence can be tricky for courts, particularly when there are no hard-and-fast rules for doing so, and more particularly when even a slight change in which factor a court is emphasizing could lead to a different result in any given case. Rendering such an analysis more difficult, from a practitioner’s point of view, is the relative lack of detailed explanation provided by courts for the specific percentage distribution made with respect to a residence owned by one party prior to the marriage that then served as the parties’ marital residence, as demonstrated by the following discussion of some of the significant cases addressing marital residence distributions over the past decade.

In 2005, the Appellate Division, First Department, in Hale v. Hale, 16 AD3d 231, affirmed a trial court decision awarding the wife a share in the appreciation in value of a Connecticut condominium which (the decision implied, but did not expressly state) was the husband’s separate property. In doing so, the First Department found that it was not an abuse of discretion to award the wife a share because “the record contains evidence that the wife played some role in the upkeep and maintenance of the condo…”

The Hale appellate decision also recalculated the amount owed by the wife to the husband for his share of their New York City marital property residence by ensuring that the mortgage principal reduction achieved by payments made during the marriage were taken into account before deducting the husband’s separate property credit and then dividing the remaining equity in equal shares—i.e., 50 percent to each party. No explanation was given for the percentages awarded.

In 2006, the Second Department in Massimi v. Massimi, 35 AD3d 400, was required to address, among other issues, the trial court’s determination that the wife was not entitled to any portion of the value of the “marital abode,” claimed by the husband to be his separate property. Upon doing so, the Second Department modified the determination of the trial court by awarding the wife a share in the appreciation of the marital residence, finding that the husband had failed to sustain his burden of proving that the residence was entirely his separate property by having commingled separate funds with marital funds and by failing “to trace the source of funds with sufficient particularity to rebut the presumption that they were marital property.”

The court then went on to hold that the wife was “entitled to recoup her equitable share of the marital funds used to reduce the indebtedness and pay for improvements to the marital abode” and that she was also “entitled to an equitable share of the appreciation in value of the marital residence due to the evidence of indirect nonfinancial contributions to the household.” The court did not reveal what percentage of the appreciation it had awarded the wife, but simply fixed the award at $260,000.

A little more than a year later, the Second Department again weighed in on this issue in a brief, one-paragraph decision, affirming the trial court’s award of 50 percent of the value of the marital residence, holding “Although the residence was the separate property of the [wife], the [husband] established that the subsequent appreciation of the value of the marital residence was attributable to their joint efforts and, therefore, he was entitled to the award by the trial court.” Here, the husband received 50 percent of the appreciation, without explanation as to how the court arrived at that percentage. Michelini v. Michelini, 47 AD3d 902 (2008).

Soon after the decision of its Brooklyn neighbor in Michelini, the Appellate Division, First Department, returned to the issue in Lee v. Lee, 48 AD3d 377 (2008). In modifying the decision of the Special Referee, which had denied the wife any share in the appreciation of the marital residence, the Appellate Division held: “It is undisputed that the marital residence, which [the husband] purchased long before the parties’ marriage, is [the husband's] separate asset. During the long-standing marriage, the residence increased in value by $585,000. In view of [the wife's] direct and indirect contributions to the marriage and the home, we conclude that she should have been awarded one quarter of the appreciation.” Again, no explanation was given as to how the court arrived at that particular percentage.

Seminal Decision

No discussion of the appreciation of separate property would be complete without reference to the seminal decision of the New York Court of Appeals in Fields v. Fields, 15 NY3d 158 (2010), because of the complexities of the facts of that case and the manifest discrepancy between the wealth of the two spouses. Fields, of course, is a bit of an outlier among these cases because the residence was a multifamily townhouse that the husband owned equally with his mother.

The husband’s share had been purchased early on during the 35-year marriage with inherited funds and a loan that his mother would be repaying, along with two mortgages. Title was originally taken in the husband’s name, but then transferred into joint ownership with his mother. At some point, the spouses moved into separate residences within the townhouse. The wife paid rent for her apartment; and, among other things, marital funds were used to pay down the mortgages.

In Fields, the husband’s claims that his one-half interest in the townhouse was his separate property were denied by both the First Department and the Court of Appeals. In concluding that the trial court had not abused its discretion in awarding the wife 35 percent of the husband’s half interest in the townhouse, the court affirmed the trial court’s reliance on the facts that the parties “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 wife did not invest in the purchase of the townhouse; and that the couple maintained separate units in the building for approximately 28 years.” (Parenthetically, it should be noted that the husband was later directed to pay $20,000 for “her appellate counsel fees.” Fields v. Fields, 82 AD3d 542 [1st Dept. 2011].) This less than 50 percent distribution to the wife of the townhouse’s value, despite the finding that it was marital property, may have been an implicit nod to the origin of the funds through which the building was acquired, which appear to have been clearly separate in nature.

Role and Contribution

The trend demonstrated by the foregoing decisions continued in 2012 when the First Department affirmed a determination by Justice Ellen F. Gesmer, of the Supreme Court, then sitting in Bronx County (and today presiding in a matrimonial part in New York County). In Maldonado v. Maldonado, 100 A.D.3d 448 (2012), Justice Gesmer awarded the wife 35 percent of the appreciation of the husband’s separate property, a Manhattan cooperative apartment. The Appellate Division found that the record supported the lower court’s findings that the wife had “played a role in the upkeep and maintenance of the apartment, contributed financially to the payments of the mortgage and maintenance, and contributed indirectly by acting as homemaker and mother.”

Most recently, Justice Richard Dollinger, sitting in Supreme Court, Monroe County, was called upon earlier this year to make an unusual ruling in a divorce action involving both equitable distribution and claims by the husband of the establishment of a “constructive trust” to the wife’s separately titled post-marital residence. The wife in that matter had purchased this residence by using the proceeds of the sale of a pre-marriage residence, and the husband’s claims were based upon his alleged contribution of inherited funds to the purchase price, work he performed on the house during the marriage, alleged promises made by the wife, his financial contributions to the expenses of the family, inclusive of housing, etc.

Dollinger declined to grant the wife’s motion for summary judgment on the constructive trust claim, noting the confusing and conflicting principles that come to bear when overlapping remedies of marital constructive trusts intersect with the principles a court is required to apply when equitably distributing marital property as part of the same case. Bower v. Bower, 42 Misc.3d 1231(A) (2014). Citing both Maldonado and Hale, Dollinger concluded that “the husband, by living in the prior marital home, paying expenses (presumably including the mortgage) and performing repairs, created some marital interest in the prior home even though the wife owned it before he move in, and he never paid any portion of the down payment on the prior property.”

Takeaways

Although there are few finite conclusions that can be drawn from this line of cases, there appear to be at least two important “takeaways.” First, where a premarital or otherwise separate property residence appreciates in value over the course of a marriage, the natural marital contributions of the non-titled spouse, be it direct payment of expenses, providing services to and contributing to the upkeep of the property, caring for the family and providing for its financial support, and acting in the capacity of a contributing spouse will create an equitable distribution claim to a portion of the appreciation.

Second, the courts have yet to articulate in detail how they arrive at the percentage awarded, be that percentage 50 percent, 35 percent or a greater or lesser percentage and, consequently, there is little ability to accurately predict, when advising a client, what a court will do with respect to the division of a marital residence in a given case.

All of this reminds one of what Zsa Zsa Gabor had to say, “I’m a great housekeeper. I get divorced. I keep the house.” Gabor might not be so certain if the house involved was located in New York.1

Endnotes:

1. In 2008 and 2009, Marcy L. Wachtel and Lori K. Meyer, published a related three-part article in New York Family Law Monthly titled “Equitable Distribution of the Appreciation in Value of Separately Owned Residences,” Vol. 10, No. 4, et seq. That article concluded by arguing for the application by our courts of a formulaic approach to the division of the appreciation in value of separate property residences.