Notes and Comments

TWENTY FIVE YEARS OF EQUITABLE DISTRIBUTION:  

WHERE HAVE WE GONE WRONG?

by

Elliot D. Samuelson,

Editor

On July 19, 2005, the equitable distribution statute will celebrate its twenty-fifth anniversary.  It is particularly interesting to note that even after the courts have struggled with the statute's complexities over these many years, which include eleven enumerated and mandatory factors for the court to consider in arriving at its decision, much has  been unexplored and some portions of the statute have been totally ignored. 

In looking back at these past twenty-five years of judicial scrutiny, it is clear that the interpretation of the statute has resulted in some injustices.   More effort will have to be expended by both the bench and bar to right some of the wrongs and to forge new horizons. 

For example, when the O'Brien¹ case was decided, many commentators initially applauded the Court of Appeals decision to adopt the principle of enhanced earnings, and thereby create a remedy by which an aggrieved spouse could receive compensation for dispensing with his or her career, or putting it on hold and devoting efforts to their spouses's career, enabling him to obtain, in the O'Brien case, a medical license and begin his  medical practice.  Interestingly, there were other commentators who postulated that there was no real tangible value to enhanced earnings and that to create such a remedy would work a grave injustice upon a professional spouse.  These authors suggested that perhaps rehabilitative maintenance might be the wiser choice to compensate the deprived spouse while not creating an overwhelming and burdensome liability to the physician, attorney,  accountant, or other professional.

Recently, more than nineteen years later, the Court of Appeals had the opportunity to review the O'Brien doctrine, and the extent to which it had been expanded , when it decided Holterman², a case in which a physician was ordered to pay almost ninety percent of his  income stream, in order to satisfy the court's award for equitable distribution, maintenance, and child support.  Although the high court in the past had peripherally dealt with the issue of double and perhaps triple-dipping, directing the lower courts to take into consideration the income stream  of the paying spouse,  the court, nonetheless, had the chance to overrule the doctrine of enhanced earnings.  Rather than seizing this opportunity to reverse its holding in O'Brien, and forge a more equitable remedy for an aggrieved spouse, they failed to do so.  Yet, a blistering dissenting opinion by Judge Smith, gave insights that the O'Brien doctrine had, at last, been recognized for its deficiencies, and perhaps its foundation had at last begun to tremble.

New York is perhaps the last formidable state that still retains the doctrine of enhanced earnings despite the fact that a professional has grave difficulty in selling his or her practice, or his or her interest in a professional partnership for more than a contracted amount. The majority of our high court continues, however, to believe that professional practices and licenses have tangible value closing its eyes to the realities of the marketplace, and disregarding  any professional or ethical prohibitions with respect to such sale.  While only a professional litigant is subjected to dual valuation of both a license and practice, the lower courts seem to ignore the fact that a businessman, who owns a successful business may have a college degree and that the spouse of such businessman would be entitled to a valuation of his enhanced earnings achieved during his marriage compared to that of a high school graduate.  To some, such valuation may seem ludicrous, yet a literal interpretation of  O'Brien  requires that any degree, whether it was from grade school, high school, college or an advanced school of learning, would have value when measured against the spouse who possessed no degree or a lesser degree, when it creates a greater ability to generate income.  This column explored these conundrums and suggested in the Fall 2004 issue of the Family Law Review that perhaps it was time for a change.

The specific criteria contained in the equitable distribution statute Domestic Relations Law §236 B(5)(d)(1-13) requires the court to specifically consider such provisions before rendering its decision.  A similar provision exists for spousal support.³ Domestic Relations Law §236 B(6)(1-11)  Unfortunately, some of these mandatory provisions  have either not been considered by the court in the past twenty-five years, or given mere peripheral attention.  For example,  Domestic Relations Law §236 B(5)(d)(4) mandates the court to consider the loss of inheritance rights, yet there has been no decision that comprehensively discussed this factor let alone applied it.  There are many injustices that arise where a spouse whose husband or wife has large sums of money and assets in separate property, that will not and cannot be shared upon divorce.  Yet in a long term marriage, if a death occurs a surviving spouse would be entitled to elect up to one-third of the net  estate or an amount up to $50,000, whichever is greater, as a marital portion, if no provision was made in the decedent's will. EPTL 5-1.1-A  However, if a divorce occurs, and there are only separate assets, a spouse will receive absolutely nothing in the way of equitable distribution.  If such separate assets were always maintained in separate accounts and any increases in value were due to passive circumstances, no portion of these assets would be marital.  Why would the courts either refuse, or overlook, this enumerated factor in equitable distribution, that could create a financial hardship to one spouse and an economic windfall to the other?  If a court would apply this factor, a judge would have the discretion to award a disproportionate share of marital assets to the non-monied spouse, if there were any, or direct maintenance to be paid for a stated period to compensate for the loss of inheritance rights. 

Domestic Relations Law §236 B(d)(4) mandates the court to determine the loss of inheritance and pension rights upon dissolution  of the marriage as of the date of dissolution.  There are not many instances where pension rights are lost because of divorce but because Qualified Domestic Relations Orders can be implemented to share the pension benefit, no prejudice would arise.  However, there is no similar remedy to compensate a spouse for the loss of inheritance rights.

Domestic Relations Law §236 B(d)(6) is interesting.  Its provision permits the court to consider the contribution of a  spouse, parent, or homemaker before dividing marital assets.  If the courts continue to quantify the value of enhanced earnings, and this doctrine remains the law  in New York, it would seem even more important to obtain a quantification of such services.  There are experts who can be found who will be able to quantify these services.  We all know the value of a nanny in a busy household;  the cost of domestic servants, and even conjugal rights can also be quantified. 

Domestic Relations Law §236 B(d)(8) is another provision that has rarely been comprehensively commented upon by the courts in their equitable distribution decisions.  How does one quantify the probable future financial circumstances of each party?  It can be done simply by calling an expert in economics and employment opportunity who can offer testimony as to the reasonable expectation and value of a woman's place in the marketplace (if that be the case) as opposed to a male, and the likelihood of obtaining employment on an executive level, based upon the education and/or work experience that she had foregone during the marriage.  In a marriage of long duration, where a woman is a stay-at-home mom, and has given up years of experience in the job market, this would translate into lower earnings over the course of one's working life.  More attention should be given by both bench and bar to this enumerated factor. 

In its wild card factor Domestic Relations Law §236 B(d)(13), which requires the court to consider any other factors which are found to be just and proper, the court has carte blanche to delve into any peculiar circumstances germane  to the individual case, that could affect its final decision.  But this factor is discretionary not mandatory, and a salient factor can be overlooked or declined from a court's consideration.

DRL §236 B(6)(5) which provides for consideration of "reduced or lost lifetime earning capacity of the party seeking maintenance as a result of having foregone or delayed education, training, employment, or career opportunities during the marriage", seems to be misplaced.  It appears that the legislature overlooked the impact this enumerated factor, contained only in the maintenance section,  would have on an award of equitable distribution.  Even although the court can consider any factor it deems relevant, it is not  mandatory to do so.  Subdivision (5) is one of the few enumerated factors which is not contained in both the maintenance as well as the equitable distribution sections.  In fact, subdivision (1), (2), (3),  (6), (7), (8), (9), (10) and (11) are duplicative of the provisions contained in subdivision (d). 

It is most troublesome that the courts in the past twenty-five years have yet to specifically address some of the issues we raise, and have failed to supply comprehensive decisions which would furnish advice and insights to the bar.

In another arena, even though the courts seem for the most part, to be unconcerned with marital fault, (seeking in most instances to have the parties take an inquest on constructive abandonment) fault continues to  remain a part of the Domestic Relations Law.  It is an archaic, and unreasonable requirement under the law.  Although it is rare to see a contested divorce case on grounds reach trial,  or for that matter a court denying the plaintiff relief for lack of proof of cruel and inhuman treatment, nevertheless published decisions continue to appear.  The failure to grant a divorce, apart from causing emotional trauma to the plaintiff, compels parties to live together and remain married, imports incalculable harm to the children, and will continue to do so if such results continue to proliferate.  An exception for egregious fault exists that permits the court to consider such fact in making an award of equitable distribution. No similar provision, however, appears to apply to maintenance cases. Whether egregious fault can be considered as a wild card factor or not, it is long past due for the legislature to repeal the requirement of fault to obtain a divorce, and enter the twenty-first century.

What interpretation of the equitable distribution statute will be made in the next twenty-five years remains to be seen.  Nonetheless one thing is clear, the doctrine of enhanced earnings has outlived its welcome, and must be reversed.  If the courts fail to do so, the legislature must act.  In default of such occurrences,  the doctrine must be applied across-the-board to non-professionals and any artisan or workman who enjoys special skills acquired during the course of an apprenticeship or actual work experience on the job during marriage.  Failing to do so should cause a constitutional attack that the statute as it applies to enhanced earnings, does not permit equal protection under the law to all litigants.  We should not have to wait another twenty-five years for such relief to be granted.  It should now be done.