Equitable Distribution: Where Have we Gone Wrong?

On July 19, 2005, the equitable distribution statute celebrated its twenty-fifth anniversary.  It is particularly interesting to note that even after the courts have struggled with the statute’s complexities over these many years, which include eleven enumerated and mandatory factors for the court to consider in arriving at its decision, much has been unexplored and some portions of the statute have been totally ignored.
In looking back at these past twenty-five years of judicial scrutiny, it is clear that the interpretation of the statute has resulted in some injustices.   More effort will have to be expended by both the bench and bar to right some of the wrongs and to forge new horizons.

For example, when the O’Brien1 case was decided, many commentators initially applauded the Court of Appeals decision to adopt the principle of enhanced earnings, and thereby create a remedy by which an aggrieved spouse could receive compensation for dispensing with his or her career, or putting it on hold and devoting efforts to their spouses’s career, enabling him to obtain, in the O’Brien case, a medical license and begin his  medical practice.  Interestingly, there were other commentators who postulated that there was no real tangible value to enhanced earnings and that to create such a remedy would work a grave injustice upon a professional spouse.  These authors suggested that perhaps rehabilitative maintenance might be the wiser choice to compensate the deprived spouse while not creating an overwhelming and burdensome liability to the physician, attorney,  accountant, or other professional.

Recently, more than nineteen years later, the Court of Appeals had the opportunity to review the O’Brien doctrine, and the extent to which it had been expanded , when it decided Holterman2, a case in which a physician was ordered to pay almost ninety percent of his  income stream, in order to satisfy the court’s award for equitable distribution, maintenance, and child support.  Although the high court in the past had peripherally dealt with the issue of double and perhaps triple-dipping, directing the lower courts to take into consideration the income stream  of the paying spouse,  the court, nonetheless, had the chance to overrule the doctrine of enhanced earnings.  Rather than seizing this opportunity to reverse its holding in O’Brien, and forge a more equitable remedy for an aggrieved spouse, they failed to do so.  Yet, a blistering dissenting opinion by Judge Smith, gave insights that the O’Brien doctrine had, at last, been recognized for its deficiencies, and perhaps its foundation had at last begun to tremble.

New York is perhaps the last formidable state that still retains the doctrine of enhanced earnings despite the fact that a professional has grave difficulty in selling his or her practice, or his or her interest in a professional partnership for more than a contracted amount. The majority of our high court continues, however, to believe that professional practices and licenses have tangible value closing its eyes to the realities of the marketplace, and disregarding  any professional or ethical prohibitions with respect to such sale.  While only a professional litigant is subjected to dual valuation of both a license and practice, the lower courts seem to ignore the fact that a businessman, who owns a successful business may have a college degree and that the spouse of such businessman would be entitled to a valuation of his enhanced earnings achieved during his marriage compared to that of a high school graduate.  To some, such valuation may seem ludicrous, yet a literal interpretation of  O’Brien  requires that any degree, whether it was from grade school, high school, college or an advanced school of learning, would have value when measured against the spouse who possessed no degree or a lesser degree, when it creates a greater ability to generate income.  This column explored these conundrums and suggested in the Fall 2004 issue of the Family Law Review that perhaps it was time for a change.

The specific criteria contained in the equitable distribution statute Domestic Relations Law §236 B(5)(d)(1-13) requires the court to specifically consider such provisions before rendering its decision.  A similar provision exists for spousal support.3 Domestic Relations Law §236 B(6)(1-11)  Unfortunately, some of these mandatory provisions  have either not been considered by the court in the past twenty-five years, or given mere peripheral attention.  For example,  Domestic Relations Law §236 B(5)(d)(4) mandates the court to consider the loss of inheritance rights, yet there has been no decision that comprehensively discussed this factor let alone applied it.  There are many injustices that arise where a spouse whose husband or wife has large sums of money and assets in separate property, that will not and cannot be shared upon divorce.  Yet in a long term marriage, if a death occurs a surviving spouse would be entitled to elect up to one-third of the net  estate or an amount up to $50,000, whichever is greater, as a marital portion, if no provision was made in the decedent’s will. EPTL 5-1.1-A  However, if a divorce occurs, and there are only separate assets, a spouse will receive absolutely nothing in the way of equitable distribution.  If such separate assets were always maintained in separate accounts and any increases in value were due to passive circumstances, no portion of these assets would be marital.  Why would the courts either refuse, or overlook, this enumerated factor in equitable distribution, that could create a financial hardship to one spouse and an economic windfall to the other?  If a court would apply this factor, a judge would have the discretion to award a disproportionate share of marital assets to the non-monied spouse, if there were any, or direct maintenance to be paid for a stated period to compensate for the loss of inheritance rights.

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