Author: LegalEase Solutions
How is “marital property” defined under New York law? What factors are considered in determining what is marital property? How is marital property distributed in a divorce action?
According to Domestic Relations Law (“DRL”) § 236, “marital property” is defined as:
[A]ll 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, except as otherwise provided in agreement pursuant to subdivision three of this part. Marital property shall not include separate property as hereinafter defined.
DRL § 236(1)(c). “Separate property” is defined under as:
(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.
DRL § 236(1)(d). Furthermore, under DRL § 236(B), marital property is subject to equitable distribution, whereas separate property is not.
Given the express language of DRL § 236(B), “in the absence of a separation agreement, the commencement date of a matrimonial action demarcates ‘the termination point for the further accrual of marital property.’” Mesholam v Mesholam, 11 NY3d 24, 28 (2008) (quoting Anglin v. Anglin, 80 NY2d 553, 556  ). “Property acquired during the marriage is presumed to be marital property and the party seeking to overcome such presumption has the burden of proving that the property in dispute is separate property.” Judson v. Judson, 255 AD2d 656, 657 [3d Dept. 1998] (citing McSparron v. McSparron, 190 A.D.2d 74, 77 ). “The term ‘marital property’ is to be broadly construed while the phrase ‘separate property’ is to be narrowly construed.” Id. (citing Price v. Price, 69 N.Y.2d 8, 15 ). The reason why “marital property” is broadly defined is “‘in order to give effect to the ‘economic partnership’ concept of the marriage relationship recognized in the statute.’” Mesholam, 11 NY3d at 28 (quoting Price v. Price, 69 NY2d 8, 15 ).
Moreover, “[i]n determining whether the commencement of a particular ‘matrimonial action’ terminates the accrual of marital property, we have looked to ‘the overall legislative intent of the Domestic Relations Law and . . . the particular application of the equitable distribution regime.’” Id. (quoting Anglin, 80 N.Y.2d at 556). The New York Court of Appeals holds that “‘[t]he economic partnership should be considered dissolved when a matrimonial action is commenced which seeks ‘divorce, or the dissolution, annulment or declaration of the nullity of a marriage’, i.e., an action in which equitable distribution is available.” Id. at 29 (quoting Anglin, at 557).
However, New York courts do not seem to elaborate on what the term “acquired” means regarding at what point a spouse technically has an asset that can be defined as a “marital asset.” Nevertheless, given the broadness in which courts view marital assets and the presumption in favor of classifying something as a marital asset, it would seem as though New York courts presume that when a spouse is entitled to exercise rights or ownership over an asset, they have acquired it. See Mesholam, 11 NY3d at 28.
Additionally, what courts seem to focus on regarding marital assets such as stocks in a company is not whether it is a marital asset or not, but what value is given to that asset. “Once property is classified as marital or separate, the trial court has broad discretion to select an ‘appropriate date for measuring the value of [the] property.’” Id. (quoting McSparron v. McSparron, 87 NY2d 275, 287  ). “However, the valuation date must be between ‘the date of commencement of the action [and] the date of trial.’” Id. (quoting Domestic Relations Law § 236[B][b] ).
“Assets subject to equitable distribution may be classified as either ‘active’ or ‘passive’ for purposes of determining the appropriate date of valuation with the former valued as of action commencement and the latter valued as of the trial date.” Ferraioli v Ferraioli, 295 AD2d 268, 270 [1st Dept 2002]. “‘[C]ourts have consistently recognized that assets such as undeveloped real estate or mutual funds, which appreciate in value strictly as a result of random market fluctuations or the efforts of others, constitute passive assets, while assets that appreciate due to the efforts of the titled spouse are active.’” Id. (quoting Greenwald v. Greenwald, 164 AD2d 706, 716 ).
“[T]he principle that active assets are valued as of the commencement date is a helpful guidepost rather than a rigid rule.” Naimollah v De Ugarte, 18 AD3d 268, 270 [1st Dept 2005] (citing McSparron v. McSparron, 87 N.Y.2d 275, 288 ). Moreover, the First Department held that when a spouse exchanged private shares for public shares—which resulted in the value increasing after the divorce action was filed—that increase was “relevant for valuation purposes.” Heine v Heine, 176 AD2d 77, 87 [1st Dept 1992]. Because “there is no fixed rule mandating a particular valuation date[,]” the value given to a particular asset is left to the sound discretion of the trial court. Id. (citing Wegmen v. Wegmen, 123 AD2d 220, 234 [2d Dept. 1986]).
The closest we get to an on-point answer comes from Wyser-Pratte v Wyser-Pratte, 68 AD3d 624 [1st Dept 2009]. In that case, the First Department held that “deferred incentive fees owed to husband’s investment management company as business assets constituted marital property to be divided equally.” Id. The Courts analysis in coming to that conclusion held:
Although these fees, which total $31,020,400, were earned by plaintiff’s company for managing a hedge fund during 1996 through 2000, plaintiff caused the company to defer receipt of payment from the fund, and they remain unpaid. Upon their payment to the company, which is a Subchapter S corporation, the fees would be taxable to plaintiff as income, and as plaintiff acknowledges, he deferred their receipt to postpone paying personal income tax. Plaintiff also claims that the deferral was intended to benefit the fund’s performance by increasing the amount available for investment. However, under the circumstances, where plaintiff chose not to realize profits from his business that were earned years before the commencement of this action, the deferred fees constitute marital property to be divided equally.
Id. at 625.
Based on the foregoing, given the presumption and broadness given to “marital assets,” any stock the husband was awarded as compensation prior to the divorce being initiated is likely to be classified a marital asset. In determining what the value of that asset is, the Court will likely look at the value when it was awarded versus when he sold it—if he sells it. If the value substantially increased post-commencement, that is a factor the Court will consider in properly evaluating the property.