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Tracking Enhanced Earnings Awards
Ever since the 1985 landmark case of O'Brien v. O'Brien, 66 N.Y.2d 576 (1985), was decided by the New York Court of Appeals, the concept of enhanced earning capacity (EEC) has been one of the most controversial areas in New York matrimonial law practice. The controversy stems from the fact that although degrees, licenses and other educational attainments earned during the marriage have no real tangible value, these educational attainments are valued and distributed as marital property in New York divorce actions just like bank accounts and other tangible assets.
A Call for Change
New York is currently the only jurisdiction in the country treating EEC in this manner. Some practitioners have consequently called upon the New York Legislature to abolish enhanced earnings as a marital asset subject to equitable distribution. See e.g., Elliot D. Samuelson: Matrimonial Law: Collapsing Like a House of Cards? 40 Family Law Rev. No. 4, p. 1 (Winter 2008). While the Legislature has not yet acted in this regard, it appears that the respective Appellate Divisions are now making significant efforts to limit such EEC awards, particularly where there are limited actual contributions to the attainment of the EEC by the non-titled spouse.
Case Law in New York
As reflected in the chart below, for the years 2007 through 2009, there were approximately 15 New York appellate division decisions addressing the appropriateness of EEC awards determined at the trial level. While the sample of cases is admittedly small, it is interesting to note that the average and median EEC appellate awards during this time period were respectively 19% and 20% of the total value of the enhanced earnings. These are not very impressive figures, particularly when considering the fact that the trial court EEC award in O'Brien was 40%.
Moreover, there was a significant drop-off in the size of appellate EEC awards in years 2008 through 2009, as reflected in Higgins v. Higgins, 50 A.D.3d 852 (2nd Dept. 2008) (0%), Kriftcher v. Kriftcher, 59 A.D.3d 392 (2nd Dept. 2009). (10%), Wiener v. Wiener, 57 A.D.3d 241 (1st Dept. 2008) (10%), Guha v. Guha, 61 A.D.3d 634 (2nd Dept. 2009) (5%), and the recently decided Schwartz v. Schwartz, 67 A.D.3d 989 (2nd Dept. 2009) (10%).
What is clear from the appellate decisions, in oft-cited language, is that in order for a non-titled spouse to share in the EEC of the titled spouse, he or she must show “a substantial contribution to the titled party's acquisition of that marital asset,” and “where only modest contributions are made by the nontitled spouse toward the other spouse's attainment of a degree or professional license, and the attainment is more directly the result of the titled spouse's own ability, tenacity, perseverance and hard work, it is appropriate for courts to limit the distributed amount of that enhanced earning capacity.” Higgins at 853, citing Brough v. Brough, 285 A.D.2d 913 (3rd Dept. 2001) and Farrell v. Cleary-Farrell, 306 A.D.2d 597 (3rd Dept. 2003).
In Higgins, Kriftcher, Guha and Schwartz, the appellate courts emphasized the minimal contributions by the non-titled spouse toward the titled spouse's attainment of his or her EEC (e.g., no career sacrifice, no significant financial contributions, no disproportionate share of household chores or child-rearing assumed).
However, in cases where the non-titled spouse was able to demonstrate significant contributions toward the husband's attainment of his EEC, such as in Jayaram v. Jayaram, 62 A.D.3d 951, 880 N.Y.S.2d 305 (2nd Dept. 2009) and Mairs v. Mairs, 61 A.D.3d 1204 (3rd Dept. 2009), the awards were consequently larger.
Conclusion
Are the trial courts getting the message? It seems so: The Kriftcher case was cited in Fleischmann v. Fleischmann, 2009 NY Slip Op. 51614 (U), 24 Misc 3d 1225(A) (Sup. Ct., Westchester Cty. 7/22/09) (Lubell, J.), a Westchester trial court decision decided in July 2009. As a basis for awarding the wife only 10% of the husband's law degree and license, the court cited to the wife's minimal contributions toward the acquisition of these marital assets.
It will be interesting to see if the trend exhibited by the appellate divisions in the last two years with respect to such EEC awards will continue this year, and whether we are truly witnessing a sea change in the treatment of enhanced earnings in the state of New York.
[IMGCAP(1)]
Ronnie P. Gouz and Benjamin E. Schub are partners with Berman Bavero Frucco & Gouz. This article first appeared in the New York Law Journal, an ALM sister publication of this newsletter.
Ever since the 1985 landmark case of
A Call for Change
Case Law in
As reflected in the chart below, for the years 2007 through 2009, there were approximately 15
Moreover, there was a significant drop-off in the size of appellate EEC awards in years 2008 through 2009, as reflected in
What is clear from the appellate decisions, in oft-cited language, is that in order for a non-titled spouse to share in the EEC of the titled spouse, he or she must show “a substantial contribution to the titled party's acquisition of that marital asset,” and “where only modest contributions are made by the nontitled spouse toward the other spouse's attainment of a degree or professional license, and the attainment is more directly the result of the titled spouse's own ability, tenacity, perseverance and hard work, it is appropriate for courts to limit the distributed amount of that enhanced earning capacity.” Higgins at 853, citing
In Higgins, Kriftcher, Guha and Schwartz, the appellate courts emphasized the minimal contributions by the non-titled spouse toward the titled spouse's attainment of his or her EEC (e.g., no career sacrifice, no significant financial contributions, no disproportionate share of household chores or child-rearing assumed).
However, in cases where the non-titled spouse was able to demonstrate significant contributions toward the husband's attainment of his EEC, such as in
Conclusion
Are the trial courts getting the message? It seems so: The Kriftcher case was cited in
It will be interesting to see if the trend exhibited by the appellate divisions in the last two years with respect to such EEC awards will continue this year, and whether we are truly witnessing a sea change in the treatment of enhanced earnings in the state of
[IMGCAP(1)]
Ronnie P. Gouz and Benjamin E. Schub are partners with Berman Bavero Frucco & Gouz. This article first appeared in the
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