Interest on Distributive Awards

Actions in which recoverable. Interest shall be recovered upon a sum awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title, or possession or enjoyment of, property, except that in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court's discretion.'

A matrimonial action involving equitable distribution is a proceeding of an “equitable nature.” Therefore, pursuant to CPLR ' 5001(a), whether to award prejudgment interest, as well as the rate of interest and the date from which it is computed, are matters within the court's discretion. See Madonna v. Madonna, 265 AD2d 455 (2nd Dept. 1999).

In Selinger v. Selinger, 232 AD2d 471 (2nd Dept. 1996), the Appellate Division, Second Judicial Department, citing the Court of Appeals decision in Love v. State of New York, 78 NY2d 540 (1991), explained the basis for an award of prejudgment interest in a matrimonial action, stating as follows:

The plaintiff is entitled to prejudgment interest on the distributive award. Interest is not a penalty. Rather, it is simply the cost of having the use of another person's money for a specified period. It is intended to indemnify successful plaintiffs for the nonpayment of what is due to them, and it is not meant to punish defendants for delaying the final resolution of the litigation (see, Love v. State of New York, 78 NY2d 540, 544, 577 NYS2d 359, 583 N.E.2d 1296). Since marital assets in this case were valued as of the date of commencement of the action, the plaintiff is entitled to interest from that date (see, Povosky v. Povosky, 124 AD2d 1068, 1070, 508 NYS.2d 722).

Pursuant to the holding in Selinger, where marital assets are valued as of the date of commencement of an action, the court may, as a matter of discretion, award prejudgment interest from that date. See, e.g., Baron v. Baron, 71 AD3d 807 (2nd Dept. 2010); Gurbacki v. Gurbacki, 270 AD2d 807 (4th Dept. 2000). Furthermore, under Selinger, an award of prejudgment interest is not viewed as a penalty, but rather a means of indemnifying the non-titled spouse for being deprived of his or her share of marital assets during the pendency of the action.

Considerations in Awarding Prejudgment Interest

Notwithstanding the Selinger holding, courts have in fact recognized misconduct as a factor to be considered in awarding prejudgment interest. For example, in Lipsky v. Lipsky, 276 AD2d 753 (2nd Dept. 2000), the Appellate Division affirmed the trial court's imposition of prejudgment interest on the wife's distributive award representing 50% of the value of the husband's enhanced earning capacity and 10% of the value of his medical practice. The Appellate Division found that the award of prejudgment interest was appropriate because the husband had failed to provide certain financial records, causing his medical practice to be substantially undervalued.

In Largiader v. Largiader, 151 AD2d 724 (2nd Dept. 1989), the Appellate Division held that, in view of the inordinate delay in reaching the trial of the action (seven years from the date of commencement of the action), the wife was entitled to prejudgment interest at the statutory rate on her interest in the husband's pension funds, which were valued as of the date of commencement of the action. The appellate court noted that the husband had engaged in a “significant amount of stonewalling.”

Conversely, courts have also cited the lack of misconduct of the titled spouse as a basis for denying prejudgment interest. For example, in Rubin v. Rubin, 1 AD3d 220 (1st Dept. 2003), the Appellate Division, First Department, held that the wife was not entitled to an award of prejudgment interest on her distributive award in the absence of evidence that misconduct on the husband's part deprived the wife of marital property.

In Schwartz v. Schwartz, 54 AD3d 400 (2nd Dept. 2008), the Appellate Division held that an award of prejudgment interest on the wife's share of the husband's interest in his law practice was not appropriate where there was no evidence of misconduct by the husband that deprived the wife of her use or share of marital property.

In light of the foregoing cases, it is apparent that the misconduct (or lack thereof) of the titled spouse is a factor that may be taken into consideration by a court in determining whether to exercise its discretion in awarding prejudgment interest, notwithstanding the statement by the Court of Appeals in Love v. New York State, supra, that prejudgment interest is not to be imposed
as a penalty.

Another factor that may be taken into account by the court in deciding to award prejudgment interest on a distributive award is the nature of the asset upon which the distributive award is based. Where the asset is intangible in nature, such as the enhanced earning capacity attributable to a license or advanced degree, an award of prejudgment interest on a distributive award based on the value of such asset may not be appropriate.

For example, in Jayaram v. Jayaram, 62 AD3d 951 (2nd Dept. 2009), the Appellate Division held that the trial court abused its discretion in awarding the wife prejudgment interest on her distributive award, which was comprised mostly of the wife's interest in the husband's enhanced earning capacity attributable to his MBA degree and securities licenses. The court held that prejudgment interest was not appropriate because the enhanced earning capacity was “not a tangible asset which the wife was deprived the use of during the pendency of the litigation.” See also Ritz v. Ritz, 166 AD2d 568 (2nd Dept. 1990).

In Haymes v. Haymes, 298 AD2d 117 (1st Dept. 2002), the Appellate Division found that the trial court properly denied the wife's application for prejudgment interest on her share of certain commercial property that was valued as of the date of commencement of the action pursuant to stipulation of the parties. The appellate court found that, because prospective income was utilized in determining the value of the property, an award of prejudgment interest for the loss of such prospective income would be duplicative.

In next month's issue, we will discuss the award of post-judgment interest: when it is awarded, and the factors that may go into calculating its amount.

Thomas A. Elliot, a member of this newsletter's Board of Editors, is a partner in the Garden City firm of Moran, Broderick & Elliot.

'

'

Interest on distributive awards is an important ' and at times overlooked ' aspect of matrimonial practice. When a matrimonial action becomes protracted, an award of prejudgment interest, measured from the date of commencement of the action, may be substantial, especially if the award is at the statutory rate of 9%. Similarly, when a court directs a distributive award to be paid out over a period of years, then an award of post-judgment interest on the unpaid balance will substantially increase the ultimate amount paid out over time. Therefore, an understanding of the various statutes and case law applicable to the concept of interest on distributive awards is crucial for family law practitioners.

Prejudgment Interest

The statutory provision applicable to awards of prejudgment interest is Civil Practice Law and Rules (CPLR) ' 5001. CPLR ' 5001(a) provides as follows:

Actions in which recoverable. Interest shall be recovered upon a sum awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title, or possession or enjoyment of, property, except that in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court's discretion.'

A matrimonial action involving equitable distribution is a proceeding of an “equitable nature.” Therefore, pursuant to CPLR ' 5001(a), whether to award prejudgment interest, as well as the rate of interest and the date from which it is computed, are matters within the court's discretion. See Madonna v. Madonna , 265 AD2d 455 (2nd Dept. 1999).

In Selinger v. Selinger , 232 AD2d 471 (2nd Dept. 1996), the Appellate Division, Second Judicial Department, citing the Court of Appeals decision in Love v. State of New York , 78 NY2d 540 (1991), explained the basis for an award of prejudgment interest in a matrimonial action, stating as follows:

The plaintiff is entitled to prejudgment interest on the distributive award. Interest is not a penalty. Rather, it is simply the cost of having the use of another person's money for a specified period. It is intended to indemnify successful plaintiffs for the nonpayment of what is due to them, and it is not meant to punish defendants for delaying the final resolution of the litigation ( see, Love v. State of New York , 78 NY2d 540, 544, 577 NYS2d 359, 583 N.E.2d 1296). Since marital assets in this case were valued as of the date of commencement of the action, the plaintiff is entitled to interest from that date ( see, Povosky v. Povosky , 124 AD2d 1068, 1070, 508 NYS.2d 722).

Pursuant to the holding in Selinger, where marital assets are valued as of the date of commencement of an action, the court may, as a matter of discretion, award prejudgment interest from that date. See, e.g., Baron v. Baron , 71 AD3d 807 (2nd Dept. 2010); Gurbacki v. Gurbacki , 270 AD2d 807 (4th Dept. 2000). Furthermore, under Selinger, an award of prejudgment interest is not viewed as a penalty, but rather a means of indemnifying the non-titled spouse for being deprived of his or her share of marital assets during the pendency of the action.

Considerations in Awarding Prejudgment Interest

Notwithstanding the Selinger holding, courts have in fact recognized misconduct as a factor to be considered in awarding prejudgment interest. For example, in Lipsky v. Lipsky , 276 AD2d 753 (2nd Dept. 2000), the Appellate Division affirmed the trial court's imposition of prejudgment interest on the wife's distributive award representing 50% of the value of the husband's enhanced earning capacity and 10% of the value of his medical practice. The Appellate Division found that the award of prejudgment interest was appropriate because the husband had failed to provide certain financial records, causing his medical practice to be substantially undervalued.

In Largiader v. Largiader , 151 AD2d 724 (2nd Dept. 1989), the Appellate Division held that, in view of the inordinate delay in reaching the trial of the action (seven years from the date of commencement of the action), the wife was entitled to prejudgment interest at the statutory rate on her interest in the husband's pension funds, which were valued as of the date of commencement of the action. The appellate court noted that the husband had engaged in a “significant amount of stonewalling.”

Conversely, courts have also cited the lack of misconduct of the titled spouse as a basis for denying prejudgment interest. For example, in Rubin v. Rubin , 1 AD3d 220 (1st Dept. 2003), the Appellate Division, First Department, held that the wife was not entitled to an award of prejudgment interest on her distributive award in the absence of evidence that misconduct on the husband's part deprived the wife of marital property.

In Schwartz v. Schwartz , 54 AD3d 400 (2nd Dept. 2008), the Appellate Division held that an award of prejudgment interest on the wife's share of the husband's interest in his law practice was not appropriate where there was no evidence of misconduct by the husband that deprived the wife of her use or share of marital property.

In light of the foregoing cases, it is apparent that the misconduct (or lack thereof) of the titled spouse is a factor that may be taken into consideration by a court in determining whether to exercise its discretion in awarding prejudgment interest, notwithstanding the statement by the Court of Appeals in Love v. New York State, supra, that prejudgment interest is not to be imposed
as a penalty.

Another factor that may be taken into account by the court in deciding to award prejudgment interest on a distributive award is the nature of the asset upon which the distributive award is based. Where the asset is intangible in nature, such as the enhanced earning capacity attributable to a license or advanced degree, an award of prejudgment interest on a distributive award based on the value of such asset may not be appropriate.

For example, in Jayaram v. Jayaram , 62 AD3d 951 (2nd Dept. 2009), the Appellate Division held that the trial court abused its discretion in awarding the wife prejudgment interest on her distributive award, which was comprised mostly of the wife's interest in the husband's enhanced earning capacity attributable to his MBA degree and securities licenses. The court held that prejudgment interest was not appropriate because the enhanced earning capacity was “not a tangible asset which the wife was deprived the use of during the pendency of the litigation.” See also Ritz v. Ritz , 166 AD2d 568 (2nd Dept. 1990).

In Haymes v. Haymes , 298 AD2d 117 (1st Dept. 2002), the Appellate Division found that the trial court properly denied the wife's application for prejudgment interest on her share of certain commercial property that was valued as of the date of commencement of the action pursuant to stipulation of the parties. The appellate court found that, because prospective income was utilized in determining the value of the property, an award of prejudgment interest for the loss of such prospective income would be duplicative.

In next month's issue, we will discuss the award of post-judgment interest: when it is awarded, and the factors that may go into calculating its amount.

Thomas A. Elliot, a member of this newsletter's Board of Editors, is a partner in the Garden City firm of Moran, Broderick & Elliot.

'

'