In Cordova v. Cordova, (2d Dep’t 2009), the Supreme Court held the husband in contempt for his willful failure to comply with a stipulation of settlement because he knew at the time of entering into the stipulation that he had misrepresented the extent of his equity share in the marital residence.

The parties stipulated that the husband would retain the marital residence and that he would pay the wife $144,000 for her share of equity in the property.  The property had been owned by the husband and his two sisters.  However, the husband represented to the wife and the Court that the marital property was titled to him, purchased with marital funds.  Despite the stipulation, the husband did not refinance the property to buy out the wife’s share of equity.  He instead transferred the property to his two sisters by quitclaim deed. 

The wife moved for an order of contempt after failing to receive the $144,000 payment.  The husband commenced an action to vacate or modify the stipulation on the ground of mutual mistake, claiming that the recital in the stipulation that he was the titled owner of the marital residence was incorrect, as was the assertion that the property had been purchased with marital funds. 

The Appellate Division affirmed the Supreme Court’s holding of contempt because the former husband acknowledged that he knew when he signed the stipulation that his characterization of the ownership of the property was incorrect and he had no intention of complying with his obligation under the agreement.

Most attorneys include a provision in a settlement agreement for the disposition of a tax refund paid after the agreement is signed by parties to a matrimonial action.  The normal options include one party keeping the entirety of the refund, the parties equally dividing the refund or the parties dividing the refund in proportion to their respective incomes during the tax year at issue.  However, issues can arise with regard to tax refunds received due to a business operating loss, especially when a party applies a post-divorce loss retroactively to the parties’ prior tax returns. 

 In Lusk v. Lusk, 55 A.D.3d 408 (1^st Dep’t 2008), the Appellate Division determined that a wife should receive 50% of tax refunds paid as the result of the amendment of the parties’ prior tax returns due to the Husband’s post-divorce business losses.  The parties entered into a settlement agreement and were divorced in 2000.  The parties’ settlement agreement stated that if a tax refund or credit is due for any joint tax return, such refund or credit must be equally divided by the parties.  In 2002, Mr. Lusk incurred a significant net operating loss and had the option of offsetting the loss against future gains over the next 20 years or amending a prior tax return to apply the loss retroactively.  Mr. Lusk decided to carry back the net operating loss and amended the parties’ joint 1997 income tax return without informing his former wife.  As a result of the amendment, the IRS issued a tax refund in the amount of $1.3 million.  Because the IRS must notify both parties to a tax return when a refund check is issued, Ms. Lusk learned that the check had been mailed to Mr. Lusk.  Mr. Lusk deposited the check without endorsement into his separate account and Ms. Lusk filed a motion seeking 50% of the refund pursuant to the parties’ settlement agreement.  Due to the language contained in the parties’ settlement agreement, Ms. Lusk’s motion was successful in the trial court and thereafter affirmed by the Appellate Division.

In White v. Mazella-White, 60 A.D.2d 1047 (2d Dep’t 2009), the wife filed for bankruptcy during the course of a matrimonial action and the bankruptcy trustee appointed by the U.S. Bankruptcy Court appeared in the divorce action in the wife’s place, arguing that he possessed any interest the wife might have to equitable distribution of marital property.  The bankruptcy trustee then entered into a stipulation of settlement with the husband settling the wife’s equitable interest in the marital residence for $85,000. 

The Appellate Division determined that the Supreme Court wrongly denied the wife from being heard on the question of equitable distribution of the marital residence and wrongly permitted the trustee to enter into the stipulation on behalf of the wife.  Though the order of the U.S. Bankruptcy Court appointed the trustee in bankruptcy and authorized him to appear in the parties’ matrimonial action on behalf of the bankruptcy estate, at that point in the litigation, a judgment had not yet been obtained in the matrimonial action.  As a result, the Court determined that any interest that the wife may have had in marital property had not yet vested in the bankruptcy estate and the trustee had no power to relinquish the wife’s equitable distribution rights.

In Howe v. Howe, (2d Dep’t 2009), the husband became a New York City firefighter soon after the parties married and remained in that employment until approximately 16 months prior to the divorce action.  He became disabled as a result of his service following September 11, 2001 and retired with a disability pension.  In their divorce action, the Supreme Court determined that his entire pension was part of the marital estate and awarded the wife her marital share.  There was a lack of evidence in the court record by which the disability and non-disability portions of the pension could be distinguished.  The husband argued that the lack of expert testimony or evidence on the court record to distinguish the pension portions is not fatal to his separate property claim since that distinction can be made by the pension administrator. 

 The Appellate Division recognized that pension benefits, except to the extent that they are earned or acquired before marriage or after the commencement of a matrimonial action, constitute marital property.  To the extent that the disability pension represents deferred compensation, it is subject to equitable distribution in the matrimonial action.  To the extent that a disability pension represents compensation for personal injuries, that compensation is separate property not subject to equitable distribution.  The presumption is that the entire disability pension is marital property until proven otherwise. 

 The Court determined that, even where the record is technically lacking, public policy favors proper distribution of a disability pension.  In this case, the only evidence in the record as to the nature of the husband’s pension was his testimony that he receives approximately $5,000 per month.  There was no evidence of the terms of the pension plan pursuant to which he retired and no statement from the plan administrator as to how the pension amount was calculated.  There was nothing in the record about the husband’s earning such that a hypothetical final average salary could be determined and nothing that establishes the percentage of final average salary to which the husband is entitled as his pension.  Thus, the Supreme Court determined there was no record to determine the non-disability portion of the pension.  However, the Appellate Division recognized that the plan administrator of the pension would easily have this information at hand.  The administrator knows the terms of the husband’s pension plan, his final average salary and the percentage of that salary by which the pension is determined.  The division into two separate accounts of what the non-disability portion of the pension amounts to is accomplished by the plan administrator.   Thus, the Appellate Division sided with the husband’s argument that his separate property could be distinguished from the wife’s marital share of his pension.

In New York State, the Supreme Court equitably distribute all marital property in a divorce action.  Most people assume, especially in the case of a long-term marriage, that equitable distribution means an equal split of assets, but that  is not always what happens. 

In Glassberg v. Glassberg, the Suffolk County Supreme Court determined that a husband to a seventeen-year marriage was entitled to receive only 35% of the marital assets due to his “limited, sporadic, unreliable and inconsistent” support of the marriage.  Specifically, the husband was admitted to the New York State Bar prior to the marriage, but testified that he did not earn more than $30,000 in income annually as an attorney.  He testified that he conducted his practice out of his basement and car because he could not afford an office.  He was disbarred in 2000.  Thereafter, he worked several jobs, including at a chocolate store and card store.  He was able to obtain a position in a Bronx high school but was fired nearly two years later for misconduct.  After his wife commenced the divorce action, the husband relocated to Los Angeles and earned an income as a teacher of approximately $64,000 in 2008.  In contrast, the wife earned over $118,000 in 2007 as a teacher.

The husband testified that he had been involved with the family despite his misfortune.  The wife argued that despite working on a full-time basis, she performed all household duties with no assistance from her husband for such chores as cooking, cleaning, yard work, laundry and helping their son with homework.  She did testify that, during the marriage, her husband took out the trash and coached their son’s soccer team for two years.

The Court concluded that the husband’s failure to become involved in the day-to-day household chores and contribute toward the economic partnership of the marriage warranted a lesser award of the marital assets.

Earning a degree or attaining a license during a marriage results in the creation of a property interest that will be valued and divided at the time of divorce.

 Pursuant to Domestic Relations Law § 236(B)(1)(c), marital property is defined as “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.” 

 In an action for divorce, the Supreme Court has the power to “equitably distribute” the value of educational degrees and professional licenses that are obtained during the course of the marriage.  Although in some cases and educational degree that not grant a spouse the right to engage in a particular profession, it may still constitute a marital property subject to equitable distribution.  In O’Brien v. O’Brien, 66 N.Y.2d 576 (1985), the Court of Appeals determined that a professional license can constitute marital property subject to equitable distribution to the extent that it is acquired during the marriage.

The value of a spouse’s educational degree and/or professional license can be determined through the use of expert testimony.  If the parties proceed to trial and one must prove the value of the other spouse’s educational degree or professional license, the expert witness must submit a written report to the Supreme Court detailing his or her opinion at least sixty (60) days prior to trial.

Spouses who file joint federal and state tax returns are “jointly and severally liable” for the total amount of taxes due, such that the Internal Revenue Service can seek to collect the tax due from either spouse to satisfy the entire tax liability.  The IRS can also seek to collect any interest and penalties assessed after a tax filing, including civil or criminal penalties.

 To avoid being held responsible for the other spouse’s purposeful understatement of taxes owed, a spouse filing tax returns jointly can claim that he or she is an “innocent spouse”, i.e., unaware of any understatement of income, such as for unreported income or taking deductions are that not permitted, and that there were no circumstances to make him or her suspicious of the income that was reported in that tax year by the spouse.  This relief is permitted even if the parties are still married and residing together. 

 In the alternative, spouses who are widowed, divorced, legally separated or have lived apart for at least one year can also qualify as innocent spouses and limit their liability for deficiencies on the tax returns during those years, caused by the other spouse.  Because it can be difficult for an innocent spouse to prove that he or she had no knowledge of any fraudulent activities conducted by the other spouse, a spouse may elect to limit liability for any deficiency on the joint tax return to that spouse’s allocable portion of the deficiency.  In such cases, the tax deficiency will be allocated between the spouses as if they had filed separate tax returns.

In order to obtain innocent spouse relief, a Request for Innocent Spouse Relief form, IRS form 8857, must be timely filed with the IRS within two years after the IRS begins trying to collect the owed tax debt.

All marital assets are valued in a divorce case.  The date selected for valuing an asset can significantly vary the value of the asset.  In New York, the Court must select a valuation date as soon as possible after the divorce action has been commenced.

 In determining a valuation date, a distinction is made between “active” assets and “passive” assets.  The value of an active asset is dependent on the actions or labor of the spouse to whom the asset is titled.  Generally, active assets are valued as of the date of commencement of the divorce action to prevent the titled spouse from manipulating the asset’s value after the action is commenced.  An example of an active asset is a business that is solely managed by one of the parties.

The value of a passive asset depends solely on market forces.  Generally, a passive asset is valued as of the date of trial in a divorce action.  This prevents the titled spouse from suffering financially due to post-commencement market fluctuations beyond his or her control.  Examples of a passive assets are real estate that is not improved during the pendancy of the divorce action and a 401k that changes in value due to changes in the market.

The above illustrations of active and passive assets are not steadfast rules that are rigidly adhered to.  New York divorce courts have discretion to determine which category an asset should fall into.  For example, a substantial and continuing recession may impact the value of a business, compelling a court to determine that a business is really a passive and not an active asset.