You Can't Go Back! Or Can You?

In 2009 the Court of Appeals articulated a new rule for Family Law practitioners, referred to by some as the “don't look back” rule. The court stated:

As a general rule, where payments are made before either party is anticipating the end of the marriage, and there is no fraud or concealment, courts should not look back and try to compensate for the fact that the net effect of the payments may, in some cases, have resulted in the reduction of marital assets. ' The parties' choice of how to spend funds during the course of the marriage should ordinarily be respected. Courts should not second-guess the economic decisions made during the course of a marriage, but rather should equitably distribute the assets and obligations remaining once the relationship is at an end.

Mahoney-Buntzman v. Buntzman, 12 NY3d 415, 421 (2009).

The court in Buntzman used this rule to deny a wife's attempts to recoup money that was spent during the marriage to pay the husband's maintenance obligation to his former wife and to pay back the husband's school loan that was taken out during the marriage. Although not explicitly stated, it seems apparent that the court's reasoning with respect to the previously existing obligation is that the parties go into the marriage with their eyes open and that, unless otherwise explicitly agreed to, it is understood that marital funds will be used to pay those obligations. The court does clearly state, with respect to the student loan, that since it was both incurred and paid off during the marriage, the loan was a marital obligation for which responsibility was to be shared between the spouses. After all, had the advanced degree led to an economic benefit, the other spouse would have been entitled to a share in its value. The court simply did not want courts reviewing economic decisions made during the course of a marriage, or attempting to adjust for the fact that certain payments made from separate property may have benefited both spouses ' or even the non-titled spouse alone.

At the same time, the Buntzman court reminded us that Domestic Relations Law ' 236(B)(5)(d)(13) (now codified at D.R.L. ' 236(B)(5)(d)(14)) expressly and broadly authorizes the trial court to consider “'any other factor which the court shall expressly find to be just and proper'” in determining an equitable distribution of marital property. The court specifically noted, “There may be circumstances where equity requires a credit to one spouse for marital property used to pay off the separate debt of one's spouse or add to the value of one's spouse's separate property.” So, which is it? Should the courts look back or not? And, if so, when?

Some Clear-Cut Cases

There is one clear area where everyone agrees that the courts not only are able to look back, but must. That is when monies derived from separate property are used to purchase marital property. The Domestic Relations Law defines marital property as all property acquired by either or both spouses during the marriage, and expressly states that marital property shall not include separate property, which includes property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse. D.R.L. ' 236(B)(1)(c) and (d). Obviously, in determining what constitutes marital property, the courts must go back to determine whether property was acquired before the marriage. That is simple.

What is more difficult to sort out involves the situation in which separate funds are used to purchase marital property. It is very common for one spouse to contribute the down payment on a marital home solely from separate funds and for the spouses to then take out a joint mortgage (or even for one spouse to entirely purchase the marital home from separate funds). In these cases, barring any agreement otherwise, the house is a marital asset, with the money-providing spouse given a credit for the separate funds contributed. As the Court of Appeals stated:

Even where one spouse contributes monies derived from separate property toward the acquisition of the marital residence, this has not precluded its classification as marital property where the other spouse made economic or other contributions to the residence and the marriage; the contributing spouse generally has received a credit for that contribution.

Fields v. Fields, 15 NY3d 158, 166 (2010).

Thus, it is clear that the courts must look back to the source of funds used to purchase marital property and give credit if one spouse contributed monies derived from separate property.

Where the Waters Get Murkier

Confusion ensues when we look at situations in which marital funds are used to pay separate obligations, or where the value of separate property increases due to marital funds or the contributions of the non-titled spouse. This is where there seems to be an arbitrary decision as to when courts are permitted to look back at the economic decisions made during the marriage and give spouses credit for marital funds expended, and when courts cannot.

Let us first look at a straightforward scenario: when separate property increases in value during the marriage. When the assets are distributed, who gets credit for the increase in value? That depends on who or what caused the increase in value. The Domestic Relations Law, when defining separate property, specifically excludes from the category of separate property the increase in value of separate property that is due in part to the contributions or effort of the other spouse. D.R.L. ' 236(B)(1)(d)(3). As the Second Department clearly explained:

Appreciation in the value of separate property is considered separate property, “except to the extent that such appreciation us due in part to the contributions or efforts of the other spouse” [ ]. When the nontitled spouse makes direct financial contributions to the property and/or direct nonfinancial contributions to the property “such as by personally maintaining, making improvement to, or renovating a marital residence,” or the appreciation is the result of both parties' efforts, appreciation due to those efforts constitutes marital property subject to equitable distribution.

Bernholc v. Bornstein, 72 AD3d 625, 628 (2d Dept. 2010) (internal citations omitted); see also Kost v. Kost, 63 A.D.3d 798, 799 (2d Dept. 2009); Mongelli v. Mongelli, 68 A.D.3d 1070, 1072 (2d Dept. 2009); Keil v. Keil, 85 A.D.3d 1233, 1235 (4th Dept. 2011); Albanese v. Albanese, 69 A.D.3d 1005, 1006 (3rd Dept. 2010).

Thus, if the non-titled spouse can prove that he/she contributed to the increase in value, he/she is entitled to a portion of the increase in value as part of the equitable distribution calculation. However, if the increase in value is not due to the efforts of either spouse, but rather to the efforts of others or unrelated factors such as inflation or market forces, the appreciation remains separate property and the non-titled spouse has no claim on the increase in value as part of an equitable distribution. P.D. v. L.D., 2010 NY SLIP Op 51574U, *11 (West. Co. Sup. Ct. Sept. 9, 2010), citing Feldman v. Feldman, 195 AD2d 207, 215-216 (2d Dept. 1993).

The greatest challenge to the consistency of the courts comes when we look to cases where marital funds were used to pay separate obligations. People often come to a marriage with pre-existing debts: A man may have a maintenance obligation to a former wife, a woman may have an outstanding school loan, or one of them may own property with a mortgage outstanding. What happens when marital funds are used to pay for these pre-marital obligations? Is the non-obligated spouse entitled to a credit for a portion of the marital funds as part of an equitable distribution award? The courts seem to be making arbitrary decisions as to when they may look back, review economic choices made by a couple during a marriage, and make adjustments.

Following the principle enunciated in Buntzman, other cases have held that if marital funds are used to pay down the mortgage and reduce the indebtedness on separate property, the nontitled spouse is entitled to a credit. Bernholc at 628; P.D. v. L.D. at *11; Kost v. Kost, 63 A.D.3d 798, 799 (2d Dept. 2009); Swett v. Swett, 934 N.Y.S.2d 280 (4th Dept. 2011). Bernholc explained that:

The reduction of indebtedness on separate property is not considered appreciation in the value of the separate property; rather, the credit is to remedy the inequity created by the expenditure of marital funds to pay off separate liabilities. The marital funds used to pay off those liabilities are added backing into marital property, and the nontitled spouse is awarded his or her equitable share of those recouped marital funds.

Bernholc at 628-629 (internal citations omitted).

While this principle seems very clear and well reasoned, what is not so clear is why this exact reasoning does not apply to the cases where marital funds are used to pay one spouse's pre-marital maintenance or child support obligation. As we noted at the outset, the Court of Appeals in Buntzman specifically held that payments to a former spouse and/or children of an earlier marriage from marital funds are not the type of liabilities that are entitled to recoupment. Buntzman at 421. That ruling was repeated by the Court of Appeals in its decision in Johnson v. Chapin, 12 NY3d 461, 467 (2009) issued the same day as Buntzman.

The Buntzman ruling has since been relied on in the Appellate Division and the lower courts. Cohn v. Cohn, 80 A.D.3d 419, 420 (1st Dept. 2011); Tawil v. Tawil, 2011 NY Slip Op 21450, *7, (Kings Co. Sup. Ct. Dec. 19, 2011). The Supreme Court of Kings County explicitly stated the reasoning for this ruling: “[T]he current Mrs. Tawil was, or should have been, fully cognizant that the plaintiff had financial obligations to a first family and, as such, she cannot credibly aver that she was unaware that said obligations would decrease the income and assets available to the subsequent family she built with the plaintiff.” Tawil at *7. The Buntzman court put the matter a little differently, stating, “Expenditures made during the life of a marriage toward maintenance to a former spouse, as well as payments made pursuant to a child support order, are obligations that do not enure solely to the benefit of one spouse.” Buntzman at 421. Why this is not equally true when marital funds are used to reduce indebtedness on separate property is not clear, especially when: 1) just as in the case of a pre-existing maintenance obligation, a spouse is well aware when they get married that the other spouse owns property and that there is a mortgage on it that must be paid; and 2) it can be argued that, when the separate property was used as the marital home, the nontitled spouse received equal benefit from the payments due to continued residence in the home.

Conclusion

So, the current state of the law is this: Sometimes you can go back again. In cases where marital funds were used to reduce indebtedness incurred before the marriage on separate property, the courts may look back and make adjustments to the equitable distribution award by putting those marital funds back into the pot to be distributed. But, where the same marital funds are used to pay for different debts incurred before the marriage, such as a maintenance or child support obligation, the courts are directed not to look back and second guess the economic decisions of the couple made during marriage ' and the marital funds are not recouped for equitable distribution.

One can only hope that the Court of Appeals will one day articulate a reason for treating these two types of pre-marital debt differently.

In 2009 the Court of Appeals articulated a new rule for Family Law practitioners, referred to by some as the “don't look back” rule. The court stated:

As a general rule, where payments are made before either party is anticipating the end of the marriage, and there is no fraud or concealment, courts should not look back and try to compensate for the fact that the net effect of the payments may, in some cases, have resulted in the reduction of marital assets. ' The parties' choice of how to spend funds during the course of the marriage should ordinarily be respected. Courts should not second-guess the economic decisions made during the course of a marriage, but rather should equitably distribute the assets and obligations remaining once the relationship is at an end.

Mahoney-Buntzman v. Buntzman , 12 NY3d 415, 421 (2009).

The court in Buntzman used this rule to deny a wife's attempts to recoup money that was spent during the marriage to pay the husband's maintenance obligation to his former wife and to pay back the husband's school loan that was taken out during the marriage. Although not explicitly stated, it seems apparent that the court's reasoning with respect to the previously existing obligation is that the parties go into the marriage with their eyes open and that, unless otherwise explicitly agreed to, it is understood that marital funds will be used to pay those obligations. The court does clearly state, with respect to the student loan, that since it was both incurred and paid off during the marriage, the loan was a marital obligation for which responsibility was to be shared between the spouses. After all, had the advanced degree led to an economic benefit, the other spouse would have been entitled to a share in its value. The court simply did not want courts reviewing economic decisions made during the course of a marriage, or attempting to adjust for the fact that certain payments made from separate property may have benefited both spouses ' or even the non-titled spouse alone.

At the same time, the Buntzman court reminded us that Domestic Relations Law ' 236(B)(5)(d)(13) (now codified at D.R.L. ' 236(B)(5)(d)(14)) expressly and broadly authorizes the trial court to consider “'any other factor which the court shall expressly find to be just and proper'” in determining an equitable distribution of marital property. The court specifically noted, “There may be circumstances where equity requires a credit to one spouse for marital property used to pay off the separate debt of one's spouse or add to the value of one's spouse's separate property.” So, which is it? Should the courts look back or not? And, if so, when?

Some Clear-Cut Cases

There is one clear area where everyone agrees that the courts not only are able to look back, but must. That is when monies derived from separate property are used to purchase marital property. The Domestic Relations Law defines marital property as all property acquired by either or both spouses during the marriage, and expressly states that marital property shall not include separate property, which includes property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse. D.R.L. ' 236(B)(1)(c) and (d). Obviously, in determining what constitutes marital property, the courts must go back to determine whether property was acquired before the marriage. That is simple.

What is more difficult to sort out involves the situation in which separate funds are used to purchase marital property. It is very common for one spouse to contribute the down payment on a marital home solely from separate funds and for the spouses to then take out a joint mortgage (or even for one spouse to entirely purchase the marital home from separate funds). In these cases, barring any agreement otherwise, the house is a marital asset, with the money-providing spouse given a credit for the separate funds contributed. As the Court of Appeals stated:

Even where one spouse contributes monies derived from separate property toward the acquisition of the marital residence, this has not precluded its classification as marital property where the other spouse made economic or other contributions to the residence and the marriage; the contributing spouse generally has received a credit for that contribution.

Fields v. Fields , 15 NY3d 158, 166 (2010).

Thus, it is clear that the courts must look back to the source of funds used to purchase marital property and give credit if one spouse contributed monies derived from separate property.

Where the Waters Get Murkier

Confusion ensues when we look at situations in which marital funds are used to pay separate obligations, or where the value of separate property increases due to marital funds or the contributions of the non-titled spouse. This is where there seems to be an arbitrary decision as to when courts are permitted to look back at the economic decisions made during the marriage and give spouses credit for marital funds expended, and when courts cannot.

Let us first look at a straightforward scenario: when separate property increases in value during the marriage. When the assets are distributed, who gets credit for the increase in value? That depends on who or what caused the increase in value. The Domestic Relations Law, when defining separate property, specifically excludes from the category of separate property the increase in value of separate property that is due in part to the contributions or effort of the other spouse. D.R.L. ' 236(B)(1)(d)(3). As the Second Department clearly explained:

Appreciation in the value of separate property is considered separate property, “except to the extent that such appreciation us due in part to the contributions or efforts of the other spouse” [ ]. When the nontitled spouse makes direct financial contributions to the property and/or direct nonfinancial contributions to the property “such as by personally maintaining, making improvement to, or renovating a marital residence,” or the appreciation is the result of both parties' efforts, appreciation due to those efforts constitutes marital property subject to equitable distribution.

Bernholc v. Bornstein , 72 AD3d 625, 628 (2d Dept. 2010) (internal citations omitted); see also Kost v. Kost , 63 A.D.3d 798, 799 (2d Dept. 2009); Mongelli v. Mongelli , 68 A.D.3d 1070, 1072 (2d Dept. 2009); Keil v. Keil , 85 A.D.3d 1233, 1235 (4th Dept. 2011); Albanese v. Albanese , 69 A.D.3d 1005, 1006 (3rd Dept. 2010).

Thus, if the non-titled spouse can prove that he/she contributed to the increase in value, he/she is entitled to a portion of the increase in value as part of the equitable distribution calculation. However, if the increase in value is not due to the efforts of either spouse, but rather to the efforts of others or unrelated factors such as inflation or market forces, the appreciation remains separate property and the non-titled spouse has no claim on the increase in value as part of an equitable distribution. P.D. v. L.D. , 2010 NY SLIP Op 51574U, *11 (West. Co. Sup. Ct. Sept. 9, 2010), citing Feldman v. Feldman , 195 AD2d 207, 215-216 (2d Dept. 1993).

The greatest challenge to the consistency of the courts comes when we look to cases where marital funds were used to pay separate obligations. People often come to a marriage with pre-existing debts: A man may have a maintenance obligation to a former wife, a woman may have an outstanding school loan, or one of them may own property with a mortgage outstanding. What happens when marital funds are used to pay for these pre-marital obligations? Is the non-obligated spouse entitled to a credit for a portion of the marital funds as part of an equitable distribution award? The courts seem to be making arbitrary decisions as to when they may look back, review economic choices made by a couple during a marriage, and make adjustments.

Following the principle enunciated in Buntzman, other cases have held that if marital funds are used to pay down the mortgage and reduce the indebtedness on separate property, the nontitled spouse is entitled to a credit. Bernholc at 628; P.D. v. L.D. at *11; Kost v. Kost , 63 A.D.3d 798, 799 (2d Dept. 2009); Swett v. Swett , 934 N.Y.S.2d 280 (4th Dept. 2011). Bernholc explained that:

The reduction of indebtedness on separate property is not considered appreciation in the value of the separate property; rather, the credit is to remedy the inequity created by the expenditure of marital funds to pay off separate liabilities. The marital funds used to pay off those liabilities are added backing into marital property, and the nontitled spouse is awarded his or her equitable share of those recouped marital funds.

Bernholc at 628-629 (internal citations omitted).

While this principle seems very clear and well reasoned, what is not so clear is why this exact reasoning does not apply to the cases where marital funds are used to pay one spouse's pre-marital maintenance or child support obligation. As we noted at the outset, the Court of Appeals in Buntzman specifically held that payments to a former spouse and/or children of an earlier marriage from marital funds are not the type of liabilities that are entitled to recoupment. Buntzman at 421. That ruling was repeated by the Court of Appeals in its decision in Johnson v. Chapin , 12 NY3d 461, 467 (2009) issued the same day as Buntzman .

The Buntzman ruling has since been relied on in the Appellate Division and the lower courts. Cohn v. Cohn , 80 A.D.3d 419, 420 (1st Dept. 2011); Tawil v. Tawil , 2011 NY Slip Op 21450, *7, (Kings Co. Sup. Ct. Dec. 19, 2011). The Supreme Court of Kings County explicitly stated the reasoning for this ruling: “[T]he current Mrs. Tawil was, or should have been, fully cognizant that the plaintiff had financial obligations to a first family and, as such, she cannot credibly aver that she was unaware that said obligations would decrease the income and assets available to the subsequent family she built with the plaintiff.” Tawil at *7. The Buntzman court put the matter a little differently, stating, “Expenditures made during the life of a marriage toward maintenance to a former spouse, as well as payments made pursuant to a child support order, are obligations that do not enure solely to the benefit of one spouse.” Buntzman at 421. Why this is not equally true when marital funds are used to reduce indebtedness on separate property is not clear, especially when: 1) just as in the case of a pre-existing maintenance obligation, a spouse is well aware when they get married that the other spouse owns property and that there is a mortgage on it that must be paid; and 2) it can be argued that, when the separate property was used as the marital home, the nontitled spouse received equal benefit from the payments due to continued residence in the home.

Conclusion

So, the current state of the law is this: Sometimes you can go back again. In cases where marital funds were used to reduce indebtedness incurred before the marriage on separate property, the courts may look back and make adjustments to the equitable distribution award by putting those marital funds back into the pot to be distributed. But, where the same marital funds are used to pay for different debts incurred before the marriage, such as a maintenance or child support obligation, the courts are directed not to look back and second guess the economic decisions of the couple made during marriage ' and the marital funds are not recouped for equitable distribution.

One can only hope that the Court of Appeals will one day articulate a reason for treating these two types of pre-marital debt differently.