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Owens v. Owens

Supreme Court of New York, Third Department

June 13, 2013

TARA A. OWENS, Appellant,
FRANK J. OWENS, Respondent.

Calendar Date: April 15, 2013

Greenwald Law Offices, Chester (Gary Greenwald of counsel), for appellant.

Baum Law Offices, LLP, Monticello (Morton I. Baum of counsel), for respondent.

Before: Rose, J.P., Spain, McCarthy and Egan Jr., JJ.


Spain, J.

Appeal from a judgment and amended judgment of the Supreme Court (Meddaugh, J.), entered October 24, 2011 and October 26, 2011 in Sullivan County, granting plaintiff a divorce and ordering, among other things, equitable distribution of the parties' marital property, upon a decision of the court.

Plaintiff (hereinafter the wife) and defendant (hereinafter the husband) were married in 1985. At that time, the husband owned an apartment building in Manhattan (hereinafter the NYC rental property), as well as a one-half interest in real property located in the Town of Tusten, Sullivan County (hereinafter the marital residence), where the parties resided for the duration of their marriage. The husband inherited the other one-half interest in the marital residence in 1986, following his father's death. After the birth of the parties' first child in 1987, the husband gradually gave up his photography business, and the family lived on the income generated by the NYC rental property. A second child was born in 1993 and, in 1998, the wife earned a Bachelor's degree in nursing and obtained her license as a registered nurse. During the marriage, aside from very brief periods of employment, the wife was not employed as a nurse or otherwise. In 2007, the husband sold the NYC rental property for $6 million and, thereafter, the family was supported by the proceeds.

The parties separated in 2008 and, in 2009, the wife commenced the instant action for divorce. In October 2010, the wife was granted pendente lite spousal support of $3, 500 per month and $7, 500 in interim counsel fees. At the time of the bench trial in March 2011, the parties' oldest child was emancipated and the youngest child, who had reached the age of 18, was residing with the husband in the marital residence. Following a trial and on the consent of the husband to the wife's allegations of constructive abandonment, Supreme Court granted the parties a divorce. The court subsequently adjudged both the NYC rental property and the marital residence to be the separate property of the husband, awarded him a 30% share of the wife's enhanced earning capacity as a nurse and awarded her a 40% share of the appreciation of the marital residence during the marriage which, when offset by the husband's enhanced earnings share, resulted in a net equitable distribution award to the wife of $100, 400. The court further awarded the wife maintenance of $18, 000 to be paid over a period of nine months, as well as additional counsel fees in the amount of $25, 000 [1]. The wife now appeals, challenging the court's separate property determinations and contending that the amounts awarded to her for equitable distribution, maintenance and counsel fees were inadequate.

First, addressing Supreme Court's classification of certain property as separate property not subject to equitable distribution, the Domestic Relations Law defines separate property as that "acquired before marriage or... by bequest, devise, or descent, or gift from a party other than the spouse" (Domestic Relations Law § 236 [B] [1][d] [1]). Separate property also includes "the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse" (Domestic Relations Law § 236 [B] [1][d] [3]; see Keil v Keil, 85 A.D.3d 1233, 1235 [2011]). Moreover, "property [that is] acquired in exchange for [separate] property, even if the exchange occurs during marriage, is separate property" (Chernoff v Chernoff, 31 A.D.3d 900, 902-903 [2006]; see Domestic Relations Law § 236 [B] [1][d] [3]), and "'the initial determination of whether a particular asset is marital or separate property is a question of law'" (Armstrong v Armstrong, 72 A.D.3d 1409, 1415 [2010], quoting DeJesus v DeJesus, 90 N.Y.2d 643, 647 [1997]).

Here, it is undisputed that the husband purchased the NYC rental property in 1978 — seven years prior to the marriage — for $130, 000 and, when he sold it for $6 million in September 2007, he ultimately received $4.6 million. The husband testified that he utilized an absentee management system wherein tenants of the rental units would communicate directly with maintenance and utility workers, and that the wife never had any involvement in managing the property. While the husband may have treated the rental income as marital income, the proceeds from the sale of the property were wired to a bank account that was in his name only. Insofar as the wife failed to carry her burden of demonstrating that the property or the sale proceeds transmuted to marital property (see Keil v Keil, 85 A.D.3d at 1235; Armstrong v Armstrong, 72 A.D.3d at 1415; Chernoff v Chernoff, 31 A.D.3d at 902-903), or that she contributed in any significant way to the appreciation in the property's value (see Bonanno v Bonanno, 57 A.D.3d 1260, 1261 [2008]; Chernoff v Chernoff, 31 A.D.3d at 903), the record fully supports Supreme Court's conclusion — crediting the husband's testimony — that this property constituted separate property. The court also properly concluded that the marital residence, which remained in the husband's name alone throughout the marriage, was his separate property. As the husband has not challenged the court's determination that the wife was entitled to a share of the appreciation in value of the marital residence, we need not address that issue.

The next contention that the wife places squarely before us is whether a court is empowered to consider one spouse's wasteful dissipation of separate property during the marriage as a relevant factor when later resolving equitable distribution and maintenance. Supreme Court found that the husband had wastefully dissipated his substantial separate property, but concluded that, because it was separate property, as distinguished from marital property, such dissipation was not encompassed in the statutory factors of Domestic Relations Law § 236 (B); thus, the court did not consider this dissipation in its otherwise thorough determination of the wife's equitable distribution and maintenance awards. We agree with the wife, however, that — in appropriate circumstances — evidence of egregious economic fault in mismanaging, dissipating and wasting separate assets can and should be considered under the statutory catchall "just and proper" factor for equitable distribution and maintenance, respectively Domestic Relations Law § 236 (B) (5) (d) (former [13]) and Domestic Relations Law § 236 (B) (6) (a) (former [11]), [2] and the husband presents no argument to the contrary.

It is beyond cavil that the wasteful dissipation of marital assets and other economic fault related to marital assets is a relevant factor in equitable distribution and maintenance awards (see Domestic Relations Law § 236 [B] [5][d] [former (11)]; [B] [6] [a] [former (9), (10)]; Brzuszkiewicz v Brzuszkiewicz, 28 A.D.3d 860, 861-862 [2006]). Although separate property itself is not subject to equitable distribution, it may be taken into consideration in equitably distributing marital property under the statutory factors pertaining to each parties' income and property at the commencement of the action, the potential loss of inheritance rights, and both parties' probable future financial circumstances (see Domestic Relations Law § 236 [B] [5][d] [former (1), (4), (8)]; Armstrong v Armstrong, 72 A.D.3d at 1416; Petrie v Petrie, 143 A.D.2d 258, 259 [1988], lv denied 73 N.Y.2d 702 [1988]; Brennan v Brennan, 103 A.D.2d 48, 54-55 [1984]; Alan D. Scheinkman, Practice Commentaries, McKinney's Cons Laws of NY, Book 14, Domestic Relations Law C236B:25 at 234, 238). Likewise, separate property is taken into account in maintenance determinations under the statutory factors contemplating consideration of each parties' income and property, the present and future earning capacity of each party and the ability of each party to become self-supporting (see Domestic Relations Law § 236 [B] [6] [a] [former (1), (3), (4)]; Carl v Carl, 58 A.D.3d 1036, 1037 [2009]; Alan D. Scheinkman, Practice Commentaries, McKinney's Cons Laws of NY, Book 14, Domestic Relations Law C236B:8 at 128; C236B:36 at 295; see e.g. Saia v Saia, 91 A.D.3d 1110, 1111 [2012]; Penna v Penna, 29 A.D.3d 970, 972 [2006]; Kearns v Kearns, 270 A.D.2d 392, 393 [2000], lv denied 95 N.Y.2d 760 [2000]). Indeed, "the fact that a portion of [a spouse's] income is derived from an asset determined to be separate property not subject to equitable distribution does not render that income immune from consideration in calculating a party's maintenance obligation" (Carl v Carl, 58 A.D.3d at 1037). We further note that financial disclosure pertaining to separate property can be compelled as relevant to both distribution and maintenance (see Jaffe v Jaffe, 91 A.D.3d 551, 554 [2012]).

Considering that "[e]conomic fault, which [includes] conduct [that] unfairly prevents the court from making an equitable distribution of marital property, has generally been considered relevant to the distribution" (Blickstein v Blickstein, 99 A.D.2d 287, 293 [1984], appeal dismissed 62 N.Y.2d 802 [1984]; see Brzuszkiewicz v Brzuszkiewicz, 28 A.D.3d at 861; Griffin v Griffin, 115 A.D.2d 587, 588 [1985]; see also Maharam v Maharam, 245 A.D.2d 94, 94- 95 [1997]), and that the catchall factors provide "substantial flexibility [to] fashion[] an appropriate decree based on what i[s]... fair and equitable under the circumstances" (Mahoney-Buntzman v Buntzman, 12 N.Y.3d 415, 420 [2009]), we conclude that, in compelling circumstances, a spouse's wasteful dissipation of his or her separate assets, may "just[ly] and proper[ly]" be considered relevant to equitable distribution and maintenance (Domestic Relations Law § 236 [B] [5][d] [former (13)]; [B] [6] [a] [former (11)]; see Alan D. Scheinkman, Practice Commentaries, McKinney's Cons Laws of NY, Book 14, Domestic Relations Law C236B:36 at 300; see also Mulverhill v Mulverhill, 268 A.D.2d 948, 949 [2000]; Rheinheimer v Rheinheimer, 235 A.D.2d 742, 743 [1997]). Recognizing that "[a] trial court has substantial discretion to fashion [equitable distribution and maintenance] awards based on the circumstances of each case" (Vertucci v Vertucci, 103 A.D.3d 999, 1001 [2013]; see Williams v Williams, 99 A.D.3d 1094, 1096 [2012]) and that our discretion in determining such issues is just as broad (see Majauskas v Majauskas, 61 N.Y.2d 481, 493 [1984]; Moschetti v Moschetti, 277 A.D.2d 838, 839 [2000]), we turn to whether modification of the wife's equitable distribution and maintenance awards is warranted here.

By the time of the 2011 trial, most of the proceeds from the 2007 sale of the NYC rental property ($4.6 million) had been spent or lost as a result of the husband's poorly made and/or mismanaged investments. It is troubling that he did not, in the record before us, account for exactly what happened to most of these proceeds. The record demonstrates, as Supreme Court found, that his incredible losses within a relatively short period of time were not merely the product of market forces but, rather, were also attributable to his gross mismanagement and wasteful spending. For example, shortly after receiving the sale proceeds, the husband invested $2 million in one investment account, and failed to monitor his losses or exercise any oversight over the funds; almost all of those funds had been lost or were being held in escrow, out of his control, at the time of trial. In addition, the husband set up one brokerage account that was worth almost $1.2 million in May 2008, but was fully depleted by June 2009. Another of his brokerage accounts, worth $621, 000 in May 2009, had been ...

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