Valuation of Marital Property: A New Twist

Pendente Lite Relief in 2003?

In July 2000, the wife retained her present counsel, who commenced a plenary action to set aside the stipulation and moved to vacate the judgment of divorce. By amended order dated Jan. 29, 2003, the stipulation was rescinded and the judgment of divorce vacated on the ground that the Aug. 12, 1999, stipulation was the product of the husband's overreaching. The wife commenced the instant action for divorce April 4, 2003, and sought omnibus pendente lite relief. The husband opposed his wife's application for pendente lite relief on the ground that he had consistently voluntarily provided for her needs and those of the children. The court granted such relief, however, in order to prevent the wife from having to rely on her husband's largesse alone.

In the second divorce proceeding, the husband submitted an affidavit of net worth stating that he was the sole owner of 17 real properties located in Nassau County. All but two of these properties were purchased after the marriage. One of the properties was purchased after Dec. 28 1999, the date on which the wife commenced her prior divorce action.

The husband moved for an order fixing Dec. 28, 1999 as the classification and valuation date of marital assets. The wife opposed, contending that because all marital assets were titled in the husband's name alone (except for the marital residence), he would receive a windfall if she were precluded from sharing in the post Dec. 28, 1999 appreciation in the value of said assets. The husband countered that precedent in the Second Department, which views the commencement of the prior action as marking the termination of the parties' economic partnership if they do not reconcile in the interim between filings, supported a valuation date of Dec. 28, 1999.

The court noted that if this action had been brought in the First, Third or Fourth Departments, it would have been compelled by controlling precedent to classify and value the marital assets on a date between the commencement of the instant action, April 4, 2003, and the date of the trial (see, Cozza v Colangelo, AD2d, 747 N.Y.S.2d 641; O'Connell v O'Connell, 290 A.D.2d 774, 736 N.Y.S.2d 728; McAteer v McAteer, 294 A.D.2d 783, 742 N.Y.S.2d 718; McMahon v McMahon, 187 Misc2d 364, 722 N.Y.S.2d 723). The controlling law in the Second Department, however, permits selection of a valuation date pursuant to DRL 236B(1)(c) and (4)(b) at any time between the commencement of the prior action and the date of the trial of the present action (see, McSparron v McSparron, 87 N.Y.2d 275, 639 N.Y.S.2d 265, 662 N.E.2d 745; Kushman v Kushman, 297 A.D.2d 333, 746 N.Y.S.2d 319; Martinucci v Martinucci, 288 A.D.2d 444; Marconi v Marconi, 240 A.D.2d 641, 658 N.Y.S.2d 702; Fuegel v Fuegel, 271 A.D.2d 404, 705 N.Y.S.2d 400; Marcus v Marcus, 137 A.D.2d 131).

Valuing 'Passive' Assets

Although well-settled precedent provides that “passive” assets such as real property should generally be valued close to the date of the trial (see, Grunfeld v Grunfeld, 94 N.Y.2d 696, 709 N.Y.S.2d 486, 731 N.E. 2d 142; McSparron v McSparron, supra; Wegman v Wegman, 123 A.D.2d 220, 509 N.Y.S.2d 342), Second Department precedent has been that unless the parties have reconciled during the period between the termination of a prior divorce action and the commencement of a subsequent divorce action, property acquired after the commencement of the prior action is classified as separate. “Active” marital assets such as a business, which appreciates primarily due to the efforts of one spouse, are generally valued as of the date of the commencement of the prior action. See, Miller v Miller, 304 A.D.2d 727; Lamba v Lamba, 266 A.D.2d 515, 698 N.Y.S.2d 715; Gonzalez v Gonzalez, 240 A.D.2d 630, 659 N.Y.S.2d 499; Thomas v Thomas, 221 A.D.2d 621, 634 N.Y.S.2d 496). The Second Department's application of this principal is intended to prevent unjust enrichment to a non-owner spouse who has not contributed toward the appreciation in value of marital and/or separate assets titled solely in the name of the owner spouse subsequent to the commencement of a prior action for divorce. This rule embodies the concept that the commencement of the prior action marked the end of the parties' economic partnership.

In Tucillo, the first divorce action was filed Dec. 28, 1999, and the parties did not reconcile between that time and the commencement of the present action. However, the court in Tucillo found that unlike many divorcing couples, the economic partnership did not terminate on commencement of the prior action. It continued during the period between the two filings even though the parties resided apart and did not engage in sexual relations, with the husband continuing to retain control of all marital assets and the income generated by said assets. He continued to contribute to the parties' economic partnership as the primary or sole income earner by managing the marital assets and providing support for the wife and children. Similarly, the wife continued, as she had during the marriage, to contribute to the husband's ability to pursue his business interests and grow his businesses, by acting as the primary caretaker of the parties' four young children and as the homemaker maintaining the marital residence.

All but two of the 17 real properties listed on the husband's affidavit of net worth were purchased after the parties' marriage. Only one of the 17 properties was purchased after Dec. 28, 1999, the date of the commencement of the prior action. As appreciation in the value of real property is generally “passive” in that it is largely attributable to market factors, the court held that in conformance with the precedents set down in Grunfeld and McSparron the 16 real properties purchased prior to the commencement of the prior action for divorce would be valued as of the date of the trial. (The two properties purchased prior to the marriage would also be valued as of the date of the marriage to enable the court to determine any claim the wife might have with regard to appreciation in the value of those properties.)

What the Court Found

But, breaking from earlier precedent, the court found that under the specific facts of the Tucillo case – where 1) the prior divorce action was terminated on the rescission of a stipulation of settlement and vacatur of a judgment of divorce on the ground of the husband's overreaching; and 2) the wife's continuing contribution as the primary care giving parent of four young children and homemaker, subsequent to the commencement of the prior action, enabled the husband to grow his businesses – the businesses in the husband's name should be valued as of the date of the commencement of the present action (April 4, 2003) and the single property purchased by the husband after the first filing date should be classified as a marital asset and valued as of the date of the trial of the present action. The court concluded its opinion by summing up its new general rule after Tucillo: “In a case where the prior divorce action was terminated upon the rescission of a stipulation on the ground of overreaching, the commencement date of such action should not mark the termination of the acquisition by the 'overreacher' of marital assets … Further, as in the instant case, where the wife contends that assets owned by the husband have appreciated in value subsequent to the commencement of the prior action and seeks to share in said appreciation in value, it would be against public policy to allow the husband to benefit from his aforesaid overreaching by valuing the assets titled in his name alone as of the date of the commencement of the prior divorce action.”

Conclusion

The threat of application of the Tucillo holding to subsequent cases should be taken into consideration by those who may be tempted to strong-arm an opposing party in a divorce action into settling for less than is their due. If the first action is abandoned or vacated, what at first looked like victory may in the long run lead to financial loss for the “winner.”

Justice Anthony J. Falanga of the Supreme Court, Nassau County has added another twist to the case law fixing dates for the valuation of marital property when a previous action for divorce is abandoned. The case, Tuccillo v. Tuccillo , 2003 NY Slip Op 51151U, 2003 N.Y. Misc. LEXIS 999, (Sup. Ct., Nassau Cty., 8/4/03) (Falanga, J.), involves a wife's motion for omnibus pendente lite relief and the husband's cross motion for an order determining the appropriate valuation date of the marital property to be Dec. 28, 1999 (the date the first divorce application was made) for purposes of equitable distribution. The husband also moved for a determination that the date of termination of the acquisition of marital property be Dec. 28, 1999. At the hearing's conclusion, the court, finding that the husband had overreached in convincing his wife to sign a settlement agreement unfavorable to her, refused to apply the general rule in the Second Department that sets the date for valuation of marital assets at the commencement of the first action if the parties fail to reconcile in the interim.

The Tucillos were married Nov. 21, 1986. They have four children between the ages of 11 and 16. The wife, a high-school graduate, had at her husband's request been unemployed for 19 years, serving as homemaker and primary caregiver to the children. This, she averred, freed her husband to pursue his business ventures, which at the time of this action included his sole ownership of the following businesses: Anchor Foods, Anchor Fish of Westbury and Anchor Fish Distributors, Ltd., businesses he acquired in 1981; Diversified Processors Inc., acquired in 1995-1996; 32 Urban Corporation acquired in 1991; Prince of the Sea, Ltd., acquired in 1989; Internet Seaford, acquired in 1995; and Myfour Realty Inc., acquired in 1997.

On Aug. 12, 1999, the parties entered into a stipulation of settlement waiving all claims to equitable distribution of marital assets. The wife commenced an action for divorce on Dec. 28, 1999. An uncontested judgment of divorce, premised on the stipulation signed in August 1999, was entered Sept. 9, 2000.

Pendente Lite Relief in 2003?

In July 2000, the wife retained her present counsel, who commenced a plenary action to set aside the stipulation and moved to vacate the judgment of divorce. By amended order dated Jan. 29, 2003, the stipulation was rescinded and the judgment of divorce vacated on the ground that the Aug. 12, 1999, stipulation was the product of the husband's overreaching. The wife commenced the instant action for divorce April 4, 2003, and sought omnibus pendente lite relief. The husband opposed his wife's application for pendente lite relief on the ground that he had consistently voluntarily provided for her needs and those of the children. The court granted such relief, however, in order to prevent the wife from having to rely on her husband's largesse alone.

In the second divorce proceeding, the husband submitted an affidavit of net worth stating that he was the sole owner of 17 real properties located in Nassau County. All but two of these properties were purchased after the marriage. One of the properties was purchased after Dec. 28 1999, the date on which the wife commenced her prior divorce action.

The husband moved for an order fixing Dec. 28, 1999 as the classification and valuation date of marital assets. The wife opposed, contending that because all marital assets were titled in the husband's name alone (except for the marital residence), he would receive a windfall if she were precluded from sharing in the post Dec. 28, 1999 appreciation in the value of said assets. The husband countered that precedent in the Second Department, which views the commencement of the prior action as marking the termination of the parties' economic partnership if they do not reconcile in the interim between filings, supported a valuation date of Dec. 28, 1999.

The court noted that if this action had been brought in the First, Third or Fourth Departments, it would have been compelled by controlling precedent to classify and value the marital assets on a date between the commencement of the instant action, April 4, 2003, and the date of the trial (see, Cozza v Colangelo, AD2d, 747 N.Y.S.2d 641; O'Connell v O'Connell, 290 A.D.2d 774, 736 N.Y.S.2d 728; McAteer v McAteer, 294 A.D.2d 783, 742 N.Y.S.2d 718; McMahon v McMahon, 187 Misc2d 364, 722 N.Y.S.2d 723). The controlling law in the Second Department, however, permits selection of a valuation date pursuant to DRL 236B(1)(c) and (4)(b) at any time between the commencement of the prior action and the date of the trial of the present action (see, McSparron v McSparron, 87 N.Y.2d 275, 639 N.Y.S.2d 265, 662 N.E.2d 745; Kushman v Kushman, 297 A.D.2d 333, 746 N.Y.S.2d 319; Martinucci v Martinucci, 288 A.D.2d 444; Marconi v Marconi, 240 A.D.2d 641, 658 N.Y.S.2d 702; Fuegel v Fuegel, 271 A.D.2d 404, 705 N.Y.S.2d 400; Marcus v Marcus, 137 A.D.2d 131).

Valuing 'Passive' Assets

Although well-settled precedent provides that “passive” assets such as real property should generally be valued close to the date of the trial (see, Grunfeld v Grunfeld, 94 N.Y.2d 696, 709 N.Y.S.2d 486, 731 N.E. 2d 142; McSparron v McSparron, supra; Wegman v Wegman, 123 A.D.2d 220, 509 N.Y.S.2d 342), Second Department precedent has been that unless the parties have reconciled during the period between the termination of a prior divorce action and the commencement of a subsequent divorce action, property acquired after the commencement of the prior action is classified as separate. “Active” marital assets such as a business, which appreciates primarily due to the efforts of one spouse, are generally valued as of the date of the commencement of the prior action. See, Miller v Miller, 304 A.D.2d 727; Lamba v Lamba, 266 A.D.2d 515, 698 N.Y.S.2d 715; Gonzalez v Gonzalez, 240 A.D.2d 630, 659 N.Y.S.2d 499; Thomas v Thomas, 221 A.D.2d 621, 634 N.Y.S.2d 496). The Second Department's application of this principal is intended to prevent unjust enrichment to a non-owner spouse who has not contributed toward the appreciation in value of marital and/or separate assets titled solely in the name of the owner spouse subsequent to the commencement of a prior action for divorce. This rule embodies the concept that the commencement of the prior action marked the end of the parties' economic partnership.

In Tucillo, the first divorce action was filed Dec. 28, 1999, and the parties did not reconcile between that time and the commencement of the present action. However, the court in Tucillo found that unlike many divorcing couples, the economic partnership did not terminate on commencement of the prior action. It continued during the period between the two filings even though the parties resided apart and did not engage in sexual relations, with the husband continuing to retain control of all marital assets and the income generated by said assets. He continued to contribute to the parties' economic partnership as the primary or sole income earner by managing the marital assets and providing support for the wife and children. Similarly, the wife continued, as she had during the marriage, to contribute to the husband's ability to pursue his business interests and grow his businesses, by acting as the primary caretaker of the parties' four young children and as the homemaker maintaining the marital residence.

All but two of the 17 real properties listed on the husband's affidavit of net worth were purchased after the parties' marriage. Only one of the 17 properties was purchased after Dec. 28, 1999, the date of the commencement of the prior action. As appreciation in the value of real property is generally “passive” in that it is largely attributable to market factors, the court held that in conformance with the precedents set down in Grunfeld and McSparron the 16 real properties purchased prior to the commencement of the prior action for divorce would be valued as of the date of the trial. (The two properties purchased prior to the marriage would also be valued as of the date of the marriage to enable the court to determine any claim the wife might have with regard to appreciation in the value of those properties.)

What the Court Found

But, breaking from earlier precedent, the court found that under the specific facts of the Tucillo case – where 1) the prior divorce action was terminated on the rescission of a stipulation of settlement and vacatur of a judgment of divorce on the ground of the husband's overreaching; and 2) the wife's continuing contribution as the primary care giving parent of four young children and homemaker, subsequent to the commencement of the prior action, enabled the husband to grow his businesses – the businesses in the husband's name should be valued as of the date of the commencement of the present action (April 4, 2003) and the single property purchased by the husband after the first filing date should be classified as a marital asset and valued as of the date of the trial of the present action. The court concluded its opinion by summing up its new general rule after Tucillo: “In a case where the prior divorce action was terminated upon the rescission of a stipulation on the ground of overreaching, the commencement date of such action should not mark the termination of the acquisition by the 'overreacher' of marital assets … Further, as in the instant case, where the wife contends that assets owned by the husband have appreciated in value subsequent to the commencement of the prior action and seeks to share in said appreciation in value, it would be against public policy to allow the husband to benefit from his aforesaid overreaching by valuing the assets titled in his name alone as of the date of the commencement of the prior divorce action.”

Conclusion

The threat of application of the Tucillo holding to subsequent cases should be taken into consideration by those who may be tempted to strong-arm an opposing party in a divorce action into settling for less than is their due. If the first action is abandoned or vacated, what at first looked like victory may in the long run lead to financial loss for the “winner.”