Professional Licenses and Equitable Distribution

In last month's newsletter, we discussed the issue of the unused professional license and its value, if any, when seeking equitable distribution at the time of divorce. The court in Pino v. Pino, 189 Misc.2d 331 (Sup. Ct. Nassau 2001), for one, has compared equitable distribution to imputed child support and maintenance and concluded that it possesses full authority to calculate the enhanced earning potential from the license and can add that monetary result to the monies to be equitably distributed. But this is a rather unexplored area of the law in New York — an area ripe for litigation.

Making the Argument

It is well settled that a party must use every reasonable effort to maintain his or her earning capacity for child support and maintenance purposes, and there is no reason that equitable distribution should be any different. A court may impute income in order to arrive at an equitable child support or maintenance payment when a party improperly refuses to shoulder his or her financial burden. See generally Grossman v. Grossman, __A.D.2d__, 2004 N.Y. App. Div. LEXIS 2653 (2d Dept. 2004); Friedman v. Friedman, 309 A.D.2d 830, 831 (2d Dept. 2003) (“In determining a party's maintenance obligation, a court need not rely solely on the party's own account of his or her finances, but may impute income based upon the party's past earnings or demonstrated earning potential”) (citations and internal quotations marks omitted); Hickland v. Hickland, 56 A.D.2d 978, 978 (3d Dep't 1977) (husband “could not be indulged by judicial sanction in his attempt to avoid his obligation to his wife by abandoning a remunerative profession”), citing Hickland v. Hickland, 39 N.Y.2d 1, 5-6 (1976).

The policy underlying these rulings arguably applies to equitable distribution awards as well: Spouses should not be allowed to abandon or waste any asset, including increased earning capabilities from a degree or license, and thereby shirk their responsibility to their spouses and children. As the court in Pino reasonably posited, the standard should apply equally to support, maintenance and equitable distribution.

Other New York cases support the conclusion that an abandoned license has value that can be measured by a statistical analysis for equitable distribution purposes. The Third Department ruled that a re-emerging license may be valued, and its value distributed by the court because it has potential to enhance the earning capacity of the license holder whether or not their exists a current practice. See Martin v. Martin, 200 A.D.2d 304, 307-09 (3d Dept.1994) (affirming lower court decision to value former congressman's law license even though he had no law business at the time and had voluntarily abandoned law to enter Congress); see also Gastineau v. Gastineau, 151 Misc.2d 813 (Sup. Ct., Suff. Cty. 1991) (failure to properly pursue earnings potential may result in calculable injury to the spouse that may be subsequently divided by a court). A Richmond County court noted that where a party intentionally abandons a license in contemplation of or during a divorce proceeding, earnings may be imputed. Surasi v. Surasi, 2001 N.Y. Misc. LEXIS 1117 at *3 (Sup. Ct., Richmond Cty. 2001). The Surasi case stands for the proposition that while a court cannot compel a party to maximize his earnings capacity, it can “apply average enhanced income” where a party “in the preparation for, or during the pendency of an action” purposely underutilizes a degree or license. Id., 2001 N.Y. Misc. LEXIS 1117 at *3.

Fanelli v. Fanelli

In Fanelli v. Fanelli, 191 Misc.2d 123 (Sup. Ct. Westch. 2002), the neutral expert used two methods to value the husband's professional engineer's license. The first used the husband's actual earnings and resulted in a license value determination of $18,400.00. The second used the theoretical or statistical earnings of a professional engineer and resulted in a value of $296,000.00. The court determined that the lower valuation based on actual earnings was correct, but premised that holding on the fact that the licensed engineer never worked as a professional engineer: “The defendant never fully utilized his license, however. From 1978 to 1999, the defendant worked for three different employers in generally supervisory positions, none of which required the use of his professional engineering license. While the defendant did utilize his license in 12 different professional 'engagements' during this period, the actual economic value of those engagements was minimal and it is undisputed that the defendant never entered into a true professional engineering practice or otherwise obtained any meaningful remuneration from the direct use of his license.” This was a career choice made by the husband (presumably with the wife's knowledge, consent or acquiescence), and therefore career track earnings were properly used in valuation.

Guskin v. Guskin

In the recent case of Guskin v. Guskin, Sup. Ct. Nassau Co. 2003, Index No. 02-201098, which was an extension of the fact pattern in Surasi, the court applied a statistical analysis to value the husband's podiatry license based on findings that he had purposely abandoned it during the marriage. It found that the husband made no effort to enhance his earnings by seeking board certification, and that he did not even pick up the phone to call a podiatry school or hospital to determine whether and how he could become board certified. He never actively pursued an application for such a certification program or found out whether the requirements had changed in the many years that he practiced without certification. The husband provided no expert testimony to support his conclusory allegation that no residency program would take him. He never even looked for employment commensurate with his high degree of education, choosing instead to work in a clerical position far below his earnings capacity. Further, a vocational expert for the wife testified, without contradiction, that there existed many jobs in allied fields actually available in trade journal and online classifieds, and that these posted jobs would have brought the husband much more income than he made as a clerical worker.

The court also noted that the husband appeared “to have lost interest in his practice, as evidenced by his having essentially deserted it” and that he should not gain through this act. The wife's expert testified that the husband's podiatry practice was essentially worthless. The court specifically found the husband's “de minimus earnings to be due more to his lack of enterprise and initiative than to any outside forces,” leading the court to determine that the husband had “intentionally diminished his income.” Based on these factual determinations, the court accepted the wife's expert's statistical analysis and valued the enhanced earning capacity attributable to the husband's podiatry license in the amount of $400,000. An analysis using the husband's actual earnings would have resulted in a zero value for his license.

In making its equitable distribution award, the Guskin court took into consideration the value of the husband's abandoned podiatry license and therefore awarded the wife 90% of her teachers' pension and tax-deferred annuity. The case is now on appeal in the Appellate Division, Second Department.

The fact pattern in Guskin is far different from a situation involving a license holder who is an under-achiever or one who decides to pursue his career in the less remunerative public sector. Career “track record” earnings would be appropriate in valuing such a license. But these recent lower court holdings — Pino, Surasi and Guskin — tell us that even under McSparron, the actual earnings of a license holder need not be used for valuation purposes without regard to any external factors, such as a purposeful abandonment or waste of the license, which amounts to economic misconduct. Whether or not these cases carve out an exception to McSparron must await further determination by the appellate courts.

In last month's newsletter, we discussed the issue of the unused professional license and its value, if any, when seeking equitable distribution at the time of divorce. The court in Pino v. Pino, 189 Misc.2d 331 (Sup. Ct. Nassau 2001), for one, has compared equitable distribution to imputed child support and maintenance and concluded that it possesses full authority to calculate the enhanced earning potential from the license and can add that monetary result to the monies to be equitably distributed. But this is a rather unexplored area of the law in New York — an area ripe for litigation.

Making the Argument

It is well settled that a party must use every reasonable effort to maintain his or her earning capacity for child support and maintenance purposes, and there is no reason that equitable distribution should be any different. A court may impute income in order to arrive at an equitable child support or maintenance payment when a party improperly refuses to shoulder his or her financial burden. See generally Grossman v. Grossman, __A.D.2d__, 2004 N.Y. App. Div. LEXIS 2653 (2d Dept. 2004); Friedman v. Friedman, 309 A.D.2d 830, 831 (2d Dept. 2003) (“In determining a party's maintenance obligation, a court need not rely solely on the party's own account of his or her finances, but may impute income based upon the party's past earnings or demonstrated earning potential”) (citations and internal quotations marks omitted); Hickland v. Hickland , 56 A.D.2d 978, 978 (3d Dep't 1977) (husband “could not be indulged by judicial sanction in his attempt to avoid his obligation to his wife by abandoning a remunerative profession”), citing Hickland v. Hickland , 39 N.Y.2d 1, 5-6 (1976).

The policy underlying these rulings arguably applies to equitable distribution awards as well: Spouses should not be allowed to abandon or waste any asset, including increased earning capabilities from a degree or license, and thereby shirk their responsibility to their spouses and children. As the court in Pino reasonably posited, the standard should apply equally to support, maintenance and equitable distribution.

Other New York cases support the conclusion that an abandoned license has value that can be measured by a statistical analysis for equitable distribution purposes. The Third Department ruled that a re-emerging license may be valued, and its value distributed by the court because it has potential to enhance the earning capacity of the license holder whether or not their exists a current practice. See Martin v. Martin , 200 A.D.2d 304, 307-09 (3d Dept.1994) (affirming lower court decision to value former congressman's law license even though he had no law business at the time and had voluntarily abandoned law to enter Congress); see also Gastineau v. Gastineau , 151 Misc.2d 813 (Sup. Ct., Suff. Cty. 1991) (failure to properly pursue earnings potential may result in calculable injury to the spouse that may be subsequently divided by a court). A Richmond County court noted that where a party intentionally abandons a license in contemplation of or during a divorce proceeding, earnings may be imputed. Surasi v. Surasi, 2001 N.Y. Misc. LEXIS 1117 at *3 (Sup. Ct., Richmond Cty. 2001). The Surasi case stands for the proposition that while a court cannot compel a party to maximize his earnings capacity, it can “apply average enhanced income” where a party “in the preparation for, or during the pendency of an action” purposely underutilizes a degree or license. Id., 2001 N.Y. Misc. LEXIS 1117 at *3.

Fanelli v. Fanelli

In Fanelli v. Fanelli , 191 Misc.2d 123 (Sup. Ct. Westch. 2002), the neutral expert used two methods to value the husband's professional engineer's license. The first used the husband's actual earnings and resulted in a license value determination of $18,400.00. The second used the theoretical or statistical earnings of a professional engineer and resulted in a value of $296,000.00. The court determined that the lower valuation based on actual earnings was correct, but premised that holding on the fact that the licensed engineer never worked as a professional engineer: “The defendant never fully utilized his license, however. From 1978 to 1999, the defendant worked for three different employers in generally supervisory positions, none of which required the use of his professional engineering license. While the defendant did utilize his license in 12 different professional 'engagements' during this period, the actual economic value of those engagements was minimal and it is undisputed that the defendant never entered into a true professional engineering practice or otherwise obtained any meaningful remuneration from the direct use of his license.” This was a career choice made by the husband (presumably with the wife's knowledge, consent or acquiescence), and therefore career track earnings were properly used in valuation.

Guskin v. Guskin

In the recent case of Guskin v. Guskin, Sup. Ct. Nassau Co. 2003, Index No. 02-201098, which was an extension of the fact pattern in Surasi, the court applied a statistical analysis to value the husband's podiatry license based on findings that he had purposely abandoned it during the marriage. It found that the husband made no effort to enhance his earnings by seeking board certification, and that he did not even pick up the phone to call a podiatry school or hospital to determine whether and how he could become board certified. He never actively pursued an application for such a certification program or found out whether the requirements had changed in the many years that he practiced without certification. The husband provided no expert testimony to support his conclusory allegation that no residency program would take him. He never even looked for employment commensurate with his high degree of education, choosing instead to work in a clerical position far below his earnings capacity. Further, a vocational expert for the wife testified, without contradiction, that there existed many jobs in allied fields actually available in trade journal and online classifieds, and that these posted jobs would have brought the husband much more income than he made as a clerical worker.

The court also noted that the husband appeared “to have lost interest in his practice, as evidenced by his having essentially deserted it” and that he should not gain through this act. The wife's expert testified that the husband's podiatry practice was essentially worthless. The court specifically found the husband's “de minimus earnings to be due more to his lack of enterprise and initiative than to any outside forces,” leading the court to determine that the husband had “intentionally diminished his income.” Based on these factual determinations, the court accepted the wife's expert's statistical analysis and valued the enhanced earning capacity attributable to the husband's podiatry license in the amount of $400,000. An analysis using the husband's actual earnings would have resulted in a zero value for his license.

In making its equitable distribution award, the Guskin court took into consideration the value of the husband's abandoned podiatry license and therefore awarded the wife 90% of her teachers' pension and tax-deferred annuity. The case is now on appeal in the Appellate Division, Second Department.

The fact pattern in Guskin is far different from a situation involving a license holder who is an under-achiever or one who decides to pursue his career in the less remunerative public sector. Career “track record” earnings would be appropriate in valuing such a license. But these recent lower court holdings — Pino, Surasi and Guskin — tell us that even under McSparron, the actual earnings of a license holder need not be used for valuation purposes without regard to any external factors, such as a purposeful abandonment or waste of the license, which amounts to economic misconduct. Whether or not these cases carve out an exception to McSparron must await further determination by the appellate courts.