Equitable Distribution of Marital Assets and Debt

One of the first questions that arises when a married couple decides to part ways is, who gets the house in a divorce? What will I get to keep, and what do they get to take? Their first inclination may be to try and divide everything they own 50/50, but while spouses can agree to do so, there’s no statutory requirement for equal division of property in New York. New York courts divide marital property equitably, prioritizing fairness over equality. “Fairness” here obliges courts to consider a variety of different factors, and to delineate between “separate property” and “marital property,” of which only the latter is subject to equitable distribution. With fairness in mind, New York courts will take into account what both of the parties contributed to the marriage, and what both of the parties will need in their lives post-divorce.

The equitable division of assets in a divorce, as well as any debts, can be a complex, emotionally charged process. Even if you feel that you and your spouse are well positioned to work out an agreement without judicial intervention, there are still many factors to consider – and disputes that can arise. Throughout the process, it can be easy to lose sight of the real goal – a new beginning. The dissolution of a marriage is not just about separating yourself from a life that wasn’t working for you, but also about initiating the start of a life that is right for you. Having the right attorney on your side, offering objective, insightful advice, will give you some peace of mind in a tumultuous time and help you protect your best interests and your future.

Ksenia Rudyuk of Rudyuk Law Firm, P.C., has experience with all manner of divorce cases, including high-net-worth divorces with complex financial arrangements, and can help you navigate the intricacies of matrimonial law with a steadfast pursuit of your best interests, so you can come out at the other end with a favorable resolution.

Division of Property in a Divorce

There’s no doubt that determining how to divide property during a divorce – deciding on the nitty-gritty details – can be a stress-inducing venture into uncertainty, but the division of property typically always starts at the same place. When two people divorce in New York, all the property must be categorized as either separate property or marital property, and the value of each must be assessed. You and your spouse can make these decisions together, but if you can’t come to an agreement, the court will make that determination for you.

What Is Marital Property in New York?

Marital property consists of any and all the property that was purchased or earned or otherwise accumulated during the marriage. It doesn’t matter who purchased it or whose name is on the paperwork (e.g., the title of a vehicle), if it was acquired during the marriage, it’s more likely to be considered marital property in New York.

Marital property in New York can consist of real property, personal property, and intangible property, including:

• Family home or other real estate purchased during the marriage
• Cash, bank accounts, retirement accounts, pensions, and investments acquired while married
• Personal property purchased during the marriage, including vehicles, boats, art and other valuable collections, furniture, planes, etc.
• Advanced degrees and licenses attained during the marriage
• Specialized business permits acquired during the marriage
• Gifts you and your spouse gave to each other

What Is Separate Property in a Divorce Proceeding?

Separate property is what the law considers as belonging to you, and not to the marriage, and for which you have a stronger claim in the divorce. Anything that you or your spouse owned prior to the marriage (premarital property) is typically considered separate property. Some gifts or specific kinds of property that you or your spouse acquired while married (such as an inheritance) might also be considered separate property. Likewise, the value of any new assets for which you exchanged separate property may also be considered separate property.

Separate property in New York may consist of real property, personal property, or intangible property, including:

• Real property that was yours or your spouse’s prior to the marriage
• Personal property that was yours or your spouse’s prior to the marriage
• Any property defined as separate property in a written document, such as in a prenuptial or postnuptial agreement (See also: Prenuptial and Postnuptial Agreements in New York)
• Property obtained in exchange for personal property (e.g., a car purchased with proceeds from personal property)
• Any property you or your spouse accumulated through inheritance or as a gift from someone other than each other
• Compensation for personal injuries, even if received while married if unrelated to loss of wages or earning ability during the marriage
• Any increase in the value of separate property that cannot be attributed to you or your spouse’s contributions/efforts during the marriage (e.g., if the value of a home purchased before the marriage increases due to a rise in neighborhood market prices rather than because of renovations during the marriage)

How Can Separate Property Become Marital Property?

There are circumstances where separate property may be subject to consideration as marital property in the eyes of the law, depending on how the separate property was treated during the marriage.

Separate Property Commingles with Marital Property – If during the marriage separate property is in some way incorporated by the marriage, the property may be deemed marital property.

For example, if you own a home prior to your marriage and, during the marriage, you change the title of the home to jointly include your spouse, the home will likely be deemed marital property. The same goes with a bank account. If after you marry, you add your spouse’s name to an individual bank account you’ve owned since before the marriage, the entire account may be treated as marital property.

Likewise, if you deposit the proceeds from separate property (such as from an inheritance) into a jointly-owned investment account, the inheritance funds may be deemed marital property.

Spousal Contribution Increases Value – If a spouse’s contributions help increase the value of your separate property, the increase in value may be deemed marital property.

For example, if you own a home prior to the marriage, and your spouse renovates your home during the marriage, thereby increasing the value, (or if they contribute time, money, or other resources so that you or someone else can renovate the home), the increase in the home’s value may be deemed marital property. You may then have to compensate your spouse for the increase in value resulting from their contribution.

Marital Contribution to Separate Property – If marital property is used to increase the value of separate property, the increase in the value of the separate property may be deemed marital property.

For example, if funds from a joint bank account are used to pay down the mortgage for a home one of you owned prior to the marriage, the amount of the paydown may be considered marital property.

How Is Marital Property Valuated?

Once all the assets are categorized as separate or marital property, the fair market value of the marital property will be ascertained (as of the date of separation) so that it can be equitably divided.

The value of some assets are relatively simple to determine – for example, anything with evident cash value, such as a bank account, or tangible property more easily appraised, such as a home. Other assets may be more complicated to valuate, such as frequent flier miles, or a business. Given the various elements that go into funding, establishing, and growing a business, it may be one of the most difficult assets to valuate.

Valuing Business Interest – As with any property, a business interest must first be deemed marital or separate. To this end, you should consider:

• Was the business interest acquired before or after the marriage? (Even if it was acquired before the marriage, the spouse without ownership interest may still be entitled to a portion of the value of the business interest.)
• Who provided the funds for the business?
• What did each spouse contribute (financially and labor-wise) to the business during the marriage?

These factors may be used to determine the portion of the value of the business interest each spouse is entitled to, but determining the actual value of the business can be rather complicated. When the business interest is a minimal asset, sometimes parties can manage to determine its worth without dispute. If the business interest is a significant asset, however, valuation is more likely to lead to major disputes between the spouses, particularly if only one of the spouses has ownership interest.

When dividing a business built during a marriage, it’s important to have adept legal guidance. An attorney experienced with matrimonial law can help you determine your options and what course of action to take to protect your rights regarding your business interest during a divorce.

How Do New York Courts Distribute Marital Property?

As marital property is divided equitably in New York, rather than equally, courts will consider a number of different factors to determine how to distribute marital property.

Factors – New York courts may consider any of the following:

• Incomes and property of both spouses from before and after nuptials
• Length of the marriage
• Age and health of both parties
• Potential future income and financial circumstances of both parties
• Potential future losses and tax implications
• Loss of health insurance benefits resulting from the divorce
• Loss of inheritance interest and pension benefits due to the divorce
• In divorces involving unemancipated children, necessity of the custodial parent to remain in marital home and to be awarded marital household goods to care for the children
• Liquidity of assets (ability to convert assets into cash)
• Spousal maintenance the court may be awarding (See also: Spousal Maintenance in New York)
• Both spouses’ contributions to the acquisition of marital property, including a spouse’s efforts as a stay-at-home parent (which is treated as having a monetary value)
• Any marital property that both spouses contributed to but which only one of the spouses is entitled to after the divorce, such as advanced degrees and licenses acquired during the marriage (e.g., medical degree and license to practice)

Additionally, the court may also consider any other factor it deems pertinent to the divorcing spouses’ specific circumstances to award an equitable distribution of marital property.

Distributive Awards – When property is difficult or even impossible to divide, such as in cases where there is an advanced degree or license or a business interest that would be impractical to divide, the court may weigh the need for a distributive award – a lump-sum payment or annuity awarded to counterbalance the uneven distribution of property.

Penalties – New York courts may also decide to penalize a spouse who is found to have wasted marital assets while a divorce was ongoing, or for having sold or transferred marital property (or encumbered it) in anticipation of a divorce.

The process of determining the division of marital property can be confusing and unnerving. You may wonder how to keep a house after divorce, what your obligations may be or what you stand to lose, how your efforts as a stay-at-home parent during the marriage might now affect you after the papers are signed, or maybe how the master’s degree you earned while you were married might impact your outcome. In a high assets divorce, the division of marital property and liabilities can be particularly complex, often involving unique challenges and higher stakes. Whatever your circumstances, having a skilled attorney experienced with marital law to tenaciously advocate for you and your rights can make all the difference in ensuring a fair outcome and protecting your best interests.

Division of Debts in a Divorce

When dividing up a household through divorce, assets aren’t the only element considered in the process. A couple’s debts may also be divided. In New York, debts are divided with the same principles of equitable distribution that the courts use in dividing a couple’s assets. Which means that like marital property, only marital debt is subject to equitable distribution.

What Is Marital Debt?

All debts incurred during the marriage, even if accrued by only one of the spouses, are typically considered marital debt in New York. Marital debt can include credit card debt, mortgages, car loans, medical bills, debt from the pursuit of advanced degrees, and more.

What Is Separate Debt?

Separate debt is debt not subject to equitable distribution by the courts. This can include any debt incurred by one of the spouses before the marriage took place that has not become marital debt. Debts may also be excluded from distribution by New York courts for other reasons, including:

• Debts incurred during the marriage but kept a secret from the other spouse (e.g., a secret credit card)
• Debts incurred for an extramarital affair
• Debts incurred as the sole responsibility of one spouse (paid for with separate property), in no way attributable to a marital expense

How Can Separate Debt Become Marital Debt?

Separate debt can become marital debt if it’s in some way incorporated into the marriage, namely, if a couple, after marriage, illustrates a clear and evident intent to pay down a spouse’s personal debt acquired before the marriage. For example, if one spouse enters the marriage with $15,000 in credit card debt, and the married couple then uses a joint account to pay down the credit card balance, the debt may be deemed marital debt.

How Do New York Courts Divide Marital Debt?

Spouses may decide together how to divide their marital debt as part of a settlement agreement, assigning responsibility for the specific debts to either spouse. This is the most ideal scenario, which involves the court typically only for approval of the settlement and to issue a final judgment. If disputes arise that cannot be resolved, judicial intervention will be necessary to determine who pays the marital debt.

To determine how to divide marital debt, the court will consider income and assets, as well as the factors evaluated for the equitable distribution of marital property.

For the sake of fairness in dividing debts, the court will also typically take into account:

• How much is owed
• Why the debt was acquired
• How the debt was acquired
• Which of the spouses benefited most from the debt
• Which of the spouses is most capable of paying off the debt

The division of debts can be a complex process with a high potential for dispute given the financial impact it can have on the parties post-divorce. Whether you choose to negotiate debt division or to litigate the matter, an experienced matrimonial law attorney can review your specific circumstances and help you understand your rights and obligations.

Your Key to a Successful Resolution

Ending a marriage is often an emotionally charged process, and it can be tempting to make unnecessary sacrifices in the divorce just to have it over and done with. As emotions run high, it can be easier to make regrettable decisions with far-reaching consequences. The way that marital assets and debts are divided can have a significant, lasting impact on your life post-divorce, so it’s important to understand all your rights and options before making these weighty decisions. While compromise can be a useful tool during negotiations, an attorney skilled in the equitable distribution process will aggressively pursue your interests and work to protect your rightful claims.

Ksenia Rudyuk, principal attorney of Rudyuk Law Firm, P.C., is just that attorney, and will fight to ensure that you’re able to hold on to all that is rightfully yours after your divorce. This is your future at stake, and you deserve to have someone by your side throughout the process, protecting your best interests.

Call our office today and set up a consultation to see how Ksenia Rudyuk can help you.