Although not commonly known or appreciated, a corporate executive going through a divorce will have his exceptional wage earning abilities valued, and distributed in part, to their spouse during a divorce proceeding.
In one of the most comprehensive decisions to be written in the field of enhanced earnings, a New York Supreme Court judge reached the conclusion, that personal good will is inherent in a person's career, and should be considered a marital asset subject to evaluation and distribution upon divorce. Expressed another way the judge decided that no license or degree was necessary to compute the enhanced earnings of an exceptional wage earner.
There have been a series of divorce decisions that recognized that degrees and licenses were valuable property rights that had to be appraised and distributed upon divorce. It was not till Moll v. Moll was decided that it became clear that all corporate executives, whether or not they earned degrees or licenses during their careers, would be subject to the long arm of the divorce court. The court explained that the prior cases that dealt with this issue based their finding that such property was a marital asset. The "enhanced earning capacity" was the "thing of value" and provided to its recipient a valuable asset. The Court went on to explain that "when a person's expertise in a field has allowed him or her to be an exceptional wage earner, this generates a value similar to that of the good will of a business" and that "the skills of an artisan, actor, professional athlete or any person whose expertise in his or her career has enabled him or her to become an exceptional wage earner should be valued as marital property subject to equitable distribution".
Perhaps the following illustration will enable the reader to understand this concept. A corporate executive earning $350,000 a year holds but an undergraduate degree. Because of the special skills and experience acquired during the marriage the executive's salary rose from an entry level sum of $35,000 a year to $350,000 a year. The courts will then determine what an average college graduate's pay is in the area, say $85,000, then calculate the years to retirement, say 15 years, and multiply that number by $265,000 ($350,000 less $85,000) and discount the result to a present value sum. Here in our example $265,000 times 15 years would equal $3,975,000 in enhanced earnings, and the discounted amount might be as much as $1,800,000 depending upon the discount rate employed.
Most people are shocked by this result, but nevertheless this scenario is frequently played out in the divorce court. Once again, the Moll's case offers an explanation ... "in determining the value of marital property, all income generating assets should be considered if they were obtained during the marriage" especially where "one spouse has sacrificed and assisted the other in an effort to increase the other spouses earning capacity. It should make no difference what form the asset takes as long as it results in an increased earning capacity."
Were the Courts to rule otherwise, it would deprive a significant number of spouses from obtaining a share of the enhanced earning capacity of an exceptional corporate wage earner, artisan or entertainer. All litigants must be treated equally and enjoy equal protection under the law. It would be highly inequitable to prefer a spouse whose husband or wife has a professional degree or license over those without them. After all it is the exceptional wage earning ability whether created by a license or by special skills and experience garnered during the marriage on a person's career path, that is truly the marital asset that must be valued and distributed.
The selection of an outstanding forensic accountant, and throughly experienced matrimonial lawyer to represent you, can well soften the blow, since the evaluation process is regarded by the courts as an art and not an exact science.
*Elliot Samuelson is the senior partner in the Garden City matrimonial law firm of Samuelson, Hause & Samuelson, and is included in “The Best Lawyers of America” and the “Bar Registry of Preeminent Lawyers in America.” He has appeared on both national and regional television and radio programs, including Larry King Live. Mr. Samuelson can be reached at (516) 294-6666 or [email protected]