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.