Exceptions to <i>McSparron</i>

Part One of a Two-Part Article

What happens when a divorcing party with a professional license fails to use it, rendering its value nonexistent? Is the spouse out of luck when it comes to equitable distribution of that license's value?

In the landmark case of McSparron v. McSparron, 87 N.Y.2d 2756, 662 N.E.2d 745, 639 N.Y.S.2d 265 (1995), the Court of Appeals stated that “the valuation inquiry is made more complicated by the passage of time and the licensee's harvesting of some portion of the enhanced earning capacity that accompanies the license. The value of a newly earned license may be measured by simply comparing the average lifetime income of a college graduate and the average lifetime earnings of a person holding such a license and reducing the difference to its present value … In contrast, where the licensee has already embarked on his or her career and has acquired a history of actual earnings, the foregoing theoretical valuation method must be discarded in favor of a more pragmatic and individualized analysis based on the particular licensee's remaining professional earning potential (citations omitted).” (Emphasis added.)

The holding in McSparron was quickly followed by the decision of the Appellate Division, Fourth Department, in Wadsworth v. Wadsworth, 219 A.D.2d 410, 641 N.Y.S,2d 779 (4th Dept. 1996), which cited to McSparron in determining that a divorcing party's law license should be valued separately from his law practice, using past history and remaining professional earning potential to estimate the value.

Thus, when a license holder has already embarked on his career and has a history of actual earnings, the valuation methodology employed must, pursuant to the dictates of McSparron, be based on the actual earnings of the license holder. See also Grunfeld v. Grunfeld, 94 N.Y.2d 686, 731 N.E.2d 142, 709 N.Y.S.2d 486 (2000).

When the License Is Not Used

But, where a party voluntarily or purposely abandons or wastes a professional license, is the enhanced earnings capacity attributable to that license, had it in fact been used, subject to equitable distribution? Can the court consider the licensee's economic misconduct and apply a theoretical or statistical valuation of the license to determine the quantum of the waste in making an equitable distribution award? Recent lower court cases suggest this may be a viable approach to avert the dictates of McSparron.

In Pino v. Pino, 189 Misc.2d 331 (Sup. Ct. Nassau 2001), the husband obtained a license as a ships master or captain during the marriage. His income increased due to this advanced license, but he then abandoned that license, instead becoming a harbor pilot apprentice at a salary of about one-seventh of his former earnings. There was a sharp factual dispute as to whether the wife encouraged this employment change. The apprenticeship would have ultimately led to the husband being closer to home and earning far more than his master's license. However, the immediate effect was a much lower salary and a move to another state. Id. at 332-33.

The wife moved to declare that the license was a marital asset that the husband had deliberately abandoned and that the court could place a value on the enhanced earning capacity that it afforded the husband. The husband, in turn, argued inter alia that because he abandoned the ships master's license prior to the divorce action, it had no value for equitable distribution purposes. Id. at 334-35.

The lower court found as a matter of law that it could, indeed, value the abandoned license using the enhanced earning capacity method, but denied the wife's motion solely on the ground that there was a “sharply contested issue of whether or not the wife consented to the husband's voluntary decision to quit his job and accept an apprenticeship [that would] be determined at trial.” Id.

The Pino court noted that it was a matter of first impression whether a “nonlicensed spouse is entitled to a distributive award for an equitable share of the enhanced earnings value of the spouse's voluntarily abandoned license.” Id. at 335. The court further found as a matter of fact that the license “remains both viable and of value.” The court then compared equitable distribution to imputed child support and maintenance, and concluded that it possessed full authority to calculate the enhanced earning potential from the license and add that monetary result to the monies to be equitably distributed:

The law is clear that in determining child support and maintenance, a court may impute income to a party who has voluntarily reduced his or her earning capacity (see, Hickland v Hickland, 39 NY2d 1; Alfano v Alfano, 151 AD2d 530), or has hidden assets or refused to make them productive (see, Kay v Kay, 37 NY2d 632; Matter of Prill v Mandell, 237 AD2d 445). The Pino court held analogously, that a party's unilateral and voluntary election to discontinue employment in the licensed profession did not necessarily defeat his or her spouse's claim to equitable distribution of the enhanced earnings value of the marital portion of the party's abandoned license.

Conclusion

In next month's installment, we look at ways to make the argument in favor of enhanced valuation of an abandoned professional license in equitable distribution scenarios.

Part One of a Two-Part Article

What happens when a divorcing party with a professional license fails to use it, rendering its value nonexistent? Is the spouse out of luck when it comes to equitable distribution of that license's value?

In the landmark case of McSparron v. McSparron , 87 N.Y.2d 2756, 662 N.E.2d 745, 639 N.Y.S.2d 265 (1995), the Court of Appeals stated that “the valuation inquiry is made more complicated by the passage of time and the licensee's harvesting of some portion of the enhanced earning capacity that accompanies the license. The value of a newly earned license may be measured by simply comparing the average lifetime income of a college graduate and the average lifetime earnings of a person holding such a license and reducing the difference to its present value … In contrast, where the licensee has already embarked on his or her career and has acquired a history of actual earnings, the foregoing theoretical valuation method must be discarded in favor of a more pragmatic and individualized analysis based on the particular licensee's remaining professional earning potential (citations omitted).” (Emphasis added.)

The holding in McSparron was quickly followed by the decision of the Appellate Division, Fourth Department, in Wadsworth v. Wadsworth , 219 A.D.2d 410, 641 N.Y.S,2d 779 (4th Dept. 1996), which cited to McSparron in determining that a divorcing party's law license should be valued separately from his law practice, using past history and remaining professional earning potential to estimate the value.

Thus, when a license holder has already embarked on his career and has a history of actual earnings, the valuation methodology employed must, pursuant to the dictates of McSparron, be based on the actual earnings of the license holder. See also Grunfeld v. Grunfeld , 94 N.Y.2d 686, 731 N.E.2d 142, 709 N.Y.S.2d 486 (2000).

When the License Is Not Used

But, where a party voluntarily or purposely abandons or wastes a professional license, is the enhanced earnings capacity attributable to that license, had it in fact been used, subject to equitable distribution? Can the court consider the licensee's economic misconduct and apply a theoretical or statistical valuation of the license to determine the quantum of the waste in making an equitable distribution award? Recent lower court cases suggest this may be a viable approach to avert the dictates of McSparron.

In Pino v. Pino , 189 Misc.2d 331 (Sup. Ct. Nassau 2001), the husband obtained a license as a ships master or captain during the marriage. His income increased due to this advanced license, but he then abandoned that license, instead becoming a harbor pilot apprentice at a salary of about one-seventh of his former earnings. There was a sharp factual dispute as to whether the wife encouraged this employment change. The apprenticeship would have ultimately led to the husband being closer to home and earning far more than his master's license. However, the immediate effect was a much lower salary and a move to another state. Id. at 332-33.

The wife moved to declare that the license was a marital asset that the husband had deliberately abandoned and that the court could place a value on the enhanced earning capacity that it afforded the husband. The husband, in turn, argued inter alia that because he abandoned the ships master's license prior to the divorce action, it had no value for equitable distribution purposes. Id. at 334-35.

The lower court found as a matter of law that it could, indeed, value the abandoned license using the enhanced earning capacity method, but denied the wife's motion solely on the ground that there was a “sharply contested issue of whether or not the wife consented to the husband's voluntary decision to quit his job and accept an apprenticeship [that would] be determined at trial.” Id.

The Pino court noted that it was a matter of first impression whether a “nonlicensed spouse is entitled to a distributive award for an equitable share of the enhanced earnings value of the spouse's voluntarily abandoned license.” Id. at 335. The court further found as a matter of fact that the license “remains both viable and of value.” The court then compared equitable distribution to imputed child support and maintenance, and concluded that it possessed full authority to calculate the enhanced earning potential from the license and add that monetary result to the monies to be equitably distributed:

The law is clear that in determining child support and maintenance, a court may impute income to a party who has voluntarily reduced his or her earning capacity (see, Hickland v Hickland, 39 NY2d 1; Alfano v Alfano, 151 AD2d 530), or has hidden assets or refused to make them productive (see, Kay v Kay, 37 NY2d 632; Matter of Prill v Mandell, 237 AD2d 445). The Pino court held analogously, that a party's unilateral and voluntary election to discontinue employment in the licensed profession did not necessarily defeat his or her spouse's claim to equitable distribution of the enhanced earnings value of the marital portion of the party's abandoned license.

Conclusion

In next month's installment, we look at ways to make the argument in favor of enhanced valuation of an abandoned professional license in equitable distribution scenarios.