Equitable Distribution Law

Property divisions, title state, & the Equitable Distribution Law

Prior to July 1980, New York was known as a “title state.” That is, property distributions between spouses in divorce cases were governed by in whose title the asset was held. For example, if a spouse owned a business, pension or even the marital residence, that spouse would retain title to the asset and the other spouse had no rights to the property or a distributive award.

In order to temper what was often an inequitable result, New York passed the Equitable Distribution Law. This was a compromise between the old “title” law which favored monied spouses and the “community property” law (such as in California) which provided that everything was divided on a 50/50 basis.

The definition of “property” was subsequently expanded by the O’Brian case and its’
progeny to include advanced degrees and licenses such as medical, law, accounting,
nursing, teaching, stock brokers, MBA’s and the like. This is referred to as enhanced
earnings.

Issues often arise when assets are “part marital” (property acquired during the marriage) and part “separate” (property acquired prior to the marriage) property. In those instances, a fraction is often used by the court to determine the percentage of marital as opposed to separate property. Following that determination, the court then sets a percentage of distribution (both in marital and separate property or in partial marital and partial separate property cases) to determine the entitlement of the titled and non-titled spouse.

Businesses are also valued, normally with the assistance of forensic experts. The court further determines the percentage of entitlement of the titled and non-titled spouse. Normally, the titled spouse or the spouse that devotes substantially all of her or his energies to developing, managing and improving the asset receives a higher distribution of the business asset than does the non-titled or non-working spouse. Businesses and enhanced earnings cases are treated differently than are liquid assets such as bank accounts, brokerage accounts and pensions, are more commonly divided on a 50/50 basis between spouses.

The kind of valuation method is often critical to the determination of the value of an asset. Such different definitions of value may include fair market value, liquidation value, going concern value or value agreed upon in a shareholder’s agreement.
In valuing a business, a determination as to whether the books, records and tax returns accurately reflect the income stream is …