New York Court Allows Two Bites of the Apple

In a decision that caused a stir among the bench and bar, New York State's highest court, the Court of Appeals, sanctioned a highly controversial practice that enables custodial spouses to draw child support twice from the same income stream. In a 5-2 ruling, the court affirmed the lower court's decision and found no statutory authority for deducting enhanced earning contributions from the child support calculus. The majority concluded that “it appears that the Legislature did not wish to have a child's lifestyle and support altered based on a distributive award.” Holterman v. Holterman, 73 (N.Y.Ct.App., June 10, 2004.)

The immediate effect of the ruling is that Dr. Robert Holterman must pay his former wife of 19 years two-thirds of his net income, about $91,000 a year. Mrs. Holterman had originally been awarded $35,000 annually in maintenance and $21,288 annually as an equitable share of Dr. Holterman's enhanced earning capacity attributable to his medical license. He was ordered to pay yearly child support of $34,876. The child support was based on Dr. Holterman's income, excluding spousal maintenance but including the value of the medical license.

The Appeal

On appeal, Dr. Holterman's attorney, Michael P. Friedman of Friedman & Molisek in Delmar, Albany County, argued that it was “intellectually dishonest,” unfair and contrary to Court of Appeals precedent to base child support partially on income that was already awarded to Mrs. Holterman. The wife's attorney, Shawn D. Flaherty of Albany's Arroyo, Copland, Flaherty & O'Brien, countered that neither the statute nor Court of Appeals precedent supports Dr. Holterman's position.

Last summer, the Third Department ruled against Dr. Holterman, apparently adopting Mr. Flaherty's argument, finding “no controlling case law or statutory authority to support defendant's argument that the annual payment he makes to satisfy the equitable distribution of his enhanced earnings is deductible in computing his child support obligation” (see 307 AD2nd 442).

Since then, two appellate court cases have been decided: Goodman v. Goodman, 201099-00, agreed there is a lack of authority on the issue, but found that an enhanced earnings distribution should not be included in calculating child support obligations; Murphy v. Murphy, 775 NYS 2d 370, concurred with the Third Department's decision in Holterman.

On June 10, the question split the Court of Appeals. The majority, led by Judge Victoria A. Graffeo, agreed explicitly with the Third Department and implicitly with the Second.

The Majority Opinion

The judge stated that neither of the two key precedents cited by Dr. Holterman apply here, and further wrote that Dr. Holterman's proposed formula was “impermissible under the CSSA” (the Child Support Standards Act). Both of those precedents addressed spousal maintenance and enhanced earnings awards — not child support. The judge noted that “if the Legislature intended to make distributive awards deductible from one parent's income and includable in the other's, it could easily have so provided.” Because it neglected to do so, the judge concluded, it appeared the Legislature wanted to ensure that a distributive award did not diminish child support.

The Dissent

The dissenters said all of the courts that considered Holterman mechanically adopted “an illogical and unfair method of allocating the parties' income for purposes of calculating child support.” They said none of the courts considered the overall fairness of their rulings and attacked the court's decision in O'Brien v. O'Brien, 66 NY2d 576 (1985). In that case, the Court of Appeals became the first — and last — court of last resort to hold that a professional license is marital property subject to equitable distribution.

They further observed that in the 19 years since the court adopted the O'Brien rule, not a single other state has followed suit. They also recognized that O'Brien has been roundly criticized, and suggested that any benefits of the rule are outweighed by the “complexities and uncertainties” it has imposed on divorce litigation.

Timothy M. Tippins, an adjunct professor at Albany Law School and a columnist for the New York Law Journal, said the decision will have “perverse results,” particularly in those cases where it is the custodial parent paying a distributive award under O'Brien. “Say a [custodial] mother is required to pay thousands of dollars per year to the father as a distributive award,” Tippins said. “She no longer has that income available to her to use for the children. Then, adding insult to injury, the father will pay no child support on that income. The result is a lower child support award because of the failure to reassign income.”

In a decision that caused a stir among the bench and bar, New York State's highest court, the Court of Appeals, sanctioned a highly controversial practice that enables custodial spouses to draw child support twice from the same income stream. In a 5-2 ruling, the court affirmed the lower court's decision and found no statutory authority for deducting enhanced earning contributions from the child support calculus. The majority concluded that “it appears that the Legislature did not wish to have a child's lifestyle and support altered based on a distributive award.” Holterman v. Holterman, 73 (N.Y.Ct.App., June 10, 2004.)

The immediate effect of the ruling is that Dr. Robert Holterman must pay his former wife of 19 years two-thirds of his net income, about $91,000 a year. Mrs. Holterman had originally been awarded $35,000 annually in maintenance and $21,288 annually as an equitable share of Dr. Holterman's enhanced earning capacity attributable to his medical license. He was ordered to pay yearly child support of $34,876. The child support was based on Dr. Holterman's income, excluding spousal maintenance but including the value of the medical license.

The Appeal

On appeal, Dr. Holterman's attorney, Michael P. Friedman of Friedman & Molisek in Delmar, Albany County, argued that it was “intellectually dishonest,” unfair and contrary to Court of Appeals precedent to base child support partially on income that was already awarded to Mrs. Holterman. The wife's attorney, Shawn D. Flaherty of Albany's Arroyo, Copland, Flaherty & O'Brien, countered that neither the statute nor Court of Appeals precedent supports Dr. Holterman's position.

Last summer, the Third Department ruled against Dr. Holterman, apparently adopting Mr. Flaherty's argument, finding “no controlling case law or statutory authority to support defendant's argument that the annual payment he makes to satisfy the equitable distribution of his enhanced earnings is deductible in computing his child support obligation” (see 307 AD2nd 442).

Since then, two appellate court cases have been decided: Goodman v. Goodman, 201099-00, agreed there is a lack of authority on the issue, but found that an enhanced earnings distribution should not be included in calculating child support obligations; Murphy v. Murphy , 775 NYS 2d 370, concurred with the Third Department's decision in Holterman .

On June 10, the question split the Court of Appeals. The majority, led by Judge Victoria A. Graffeo, agreed explicitly with the Third Department and implicitly with the Second.

The Majority Opinion

The judge stated that neither of the two key precedents cited by Dr. Holterman apply here, and further wrote that Dr. Holterman's proposed formula was “impermissible under the CSSA” (the Child Support Standards Act). Both of those precedents addressed spousal maintenance and enhanced earnings awards — not child support. The judge noted that “if the Legislature intended to make distributive awards deductible from one parent's income and includable in the other's, it could easily have so provided.” Because it neglected to do so, the judge concluded, it appeared the Legislature wanted to ensure that a distributive award did not diminish child support.

The Dissent

The dissenters said all of the courts that considered Holterman mechanically adopted “an illogical and unfair method of allocating the parties' income for purposes of calculating child support.” They said none of the courts considered the overall fairness of their rulings and attacked the court's decision in O'Brien v. O'Brien , 66 NY2d 576 (1985). In that case, the Court of Appeals became the first — and last — court of last resort to hold that a professional license is marital property subject to equitable distribution.

They further observed that in the 19 years since the court adopted the O'Brien rule, not a single other state has followed suit. They also recognized that O'Brien has been roundly criticized, and suggested that any benefits of the rule are outweighed by the “complexities and uncertainties” it has imposed on divorce litigation.

Timothy M. Tippins, an adjunct professor at Albany Law School and a columnist for the New York Law Journal, said the decision will have “perverse results,” particularly in those cases where it is the custodial parent paying a distributive award under O'Brien. “Say a [custodial] mother is required to pay thousands of dollars per year to the father as a distributive award,” Tippins said. “She no longer has that income available to her to use for the children. Then, adding insult to injury, the father will pay no child support on that income. The result is a lower child support award because of the failure to reassign income.”