Marriage is the chief cause of divorce. – Groucho MarxPerhaps second only to the issue of child custody, determining what assets are—or are not—subject to Equitable Distribution is the most important factor that shapes matrimonial litigation.
Since 1980, New York State has employed the Equitable Distribution methodology to dividing "Marital Property" in divorce proceedings. The Equitable Distribution approach, in stark contrast to the division used in common law property states, divides "Marital Property" equally regardless of individual ownership by taking a snapshot of the assets owned between husband and wife upon the commencement of the Divorce action.
The New York Domestic Relations Law (D.R.L.) § 236 (B)(1)(c), defines "Marital Property" as: all 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. The form in in which title is held is immaterial unless the parties had previously entered into a Prenuptial Agreement which outlined the assets and debts that would remain as "Separate Property."
The Court of Appeals has defined "Marital Property" as "things of value arising out of the marital relationship," provided those things of value are acquired within the statutory parameters of DRL § 236 (B). In short, "Marital Property" is anything that has a provable economic worth which is the product of the efforts of either or both spouses during the marriage, which is itself considered an economic partnership.
Assets obtained prior to the marriage and assets obtained following the commencement of the Divorce action are not "Marital Property" and are instead considered "Separate Property." "Separate Property" not only consists of property acquired before the marriage, but also includes both property acquired by inheritance from a party other than the other spouse (i.e.: property acquired by bequest, devise or descent), and any property acquired by gift from a third party.
Inevitably, the parties in a matrimonial action will disagree about what property constitutes "Marital Property" that is subject to Equitable Distribution and that which is "Separate Property," and this an analysis is not always as clear cut as it might seem. For example, the appreciation or increase in value of "Separate Property" is considered "Separate Property, "except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse." Thus, a non-titled spouse who seeks to include the appreciation value of "Separate Property" that accrued during the marriage as part of the Equitable Distribution has the burden of not only establishing that the "Separate Property" appreciated during the time of the marriage, but that the appreciation was due in part to his or her efforts. If the non-titled spouse meets this burden of proof, then the appreciation value is deemed to be "Marital Property," and the non-titled spouse will be entitled to receive a share of the increase as part of the Equitable Distribution.
The Court of Appeals construes the non-titled spouse’s contribution to the appreciation of "Separate Property" broadly, holding that the non-titled spouse may aid or facilitate the appreciation in value through contributions of direct or indirect efforts of any nature, including those of a spouse as a homemaker or parent. However, where the appreciation is not, in any part, due to the efforts of either of the spouses, but to the efforts of others, or to unrelated factors including inflation or other market forces, sometimes known as "passive appreciation," such appreciation remains "Separate Property," and the non-titled spouse has no claim to a share of the appreciation.
As most spouses comingle funds in Joint bank accounts, and often use "Marital Property" to pay for "Individual" expense and obligations, the Courts have consistently held that a non-titled spouse is entitled to an Equitable Distribution of marital funds applied to the other spouse’s "Separate Property." Furthermore, where "Separate Property" has been commingled with "Marital Property," there is a presumption that the commingled funds constitute "Marital Property" which may be overcome by presenting sufficient evidence that the source of the funds was in fact "Separate Property."
The Court of Appeals has further held that that in determining the Equitable Distribution of "Marital Property," there may be circumstances where equity requires a credit to one spouse for "Marital Property" used to pay off the separate debt of one spouse or used to add to the value of one spouse’s "Separate Property." To this end, the non-titled spouse should be awarded a credit for one-half of the marital funds used to pay for such things as the taxes and maintenance of the titled spouse’s "Separate Property." Similarly, a non-titled spouse is limited in his or her equitable share only to the amount of marital funds applied toward the titled spouse’s "Separate Property," and nothing more.
Though the facts and circumstances in a Divorce action that determine if property is defined as "Marital" or "Separate" are without limit, over the past 30 years, the Courts have laid out a fairly comprehensive and relatively consistent framework for how to deal with the multitude of facets to this question. Though this analysis can at times be complex, the rules of law outlined above represent the foundation of the Court’s approach.