Equitable Distribution

Long Island Equitable Distribution Lawyer

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 essential. Most often forensic accountants determine “add backs” which will increase both the income to the money/titled spouse as well as the value ofthe business. Often times unreported cash is received and more often than not improper deductions are taken by the money/titled spouse which artificially reduces the profitability of the company and accordingly must be added back. These items include vacations, meals, automobile expenses, professional fees and other personal items that are deducted from the business. A close review of depreciation deductions is also critical as although these are appropriate deductions for accounting purposes, they should not affect the profitability or value of a business.

Retaining the proper expert is critical and is an important role of the matrimonial attorney. Expert witnesses are required to value such businesses as professional practices, retail and wholesale entities, real estate and pensions. The appropriate methodology as well as the extensiveness of the investigative work will compliment the attorney’s efforts during the discovery phase of litigation. By the time an attorney and a party get to trial, they are limited to the evidence they have obtained. Accordingly, the most important work in a matrimonial case regarding the valuation of assets and the determination of true income is in the pre-trial discovery phase. Document production and depositions are essential to achieving the maximum result. Hard work, vision and perseverance are the keys to success.