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Thursday, May 22, 2014

Expectancy of Interest Argument Against Property Inclusion in Marital Estate

In filing for a Brooklyn divorce, one of the first things both sides will seek to establish is a full accounting of a couple's assets, income, and interests. It is then up to the court to determine whether such property is divisible as part of marital property, or whether it should be retained solely by one spouse as separate property.

What is considered marital property and what is considered separate is a determination that varies from state-to-state. Generally, though, assets acquired during the marriage are marital. Those acquired before or received under special circumstances may be held separate.

As the recent case of Coburn v. Cook shows, this determination can impact not only whether a party gets to keep the property in question, but may also impact how other property is divided.

This is a case out of Vermont, which, like New York, is an equitable distribution state.  This means the court is going to seek to divide marital assets equitably (which does not necessarily mean "evenly").

The dispute upon appeal to the Vermont Supreme Court was whether a husband's "expectancy interest" in a property should have been lumped in with the other marital assets.

Here, the parties married in 1997. They had a daughter in 1999 and separated in 2010. The court issued a final divorce order in 2013, when the wife was 48 and husband 55.

Prior to the marriage, the wife had her own horse stabling and training business, with property valued at $260,000. The husband assisted, and as a labor intensive operation, it was worth more when they worked together than when she worked alone. The husband also worked various other jobs. In 2010, prior to the couple's separation, the husband's mother deeded a 160-acre family farm to her son, though she retained a life estate and the power to sell or mortgage the property during her life. That property was appraised at $425,000, plus there was an adjacent empty lot he owned valued at $15,000. The parties also owned a small joint business together valued at $40,000.

The court analyzed both parties' employment and living situations, with the husband living with his mother and working part-time as a bus driver and the wife continuing to work in her stabling business and also running the business she started with her husband.

The court awarded the wife the horse stabling property, an adjacent lot, the couple's joint business and other personal property. The husband was awarded his mother's farm, the adjacent lot and other items of personal property. The court determined the value of the wife's award was around $436,000 while the husband's was around $453,000. No spousal support was awarded.

The husband appealed, arguing that the court wrongly included his mother's farm in the marital estate. He held that the terms of the warranty deed meant that he held an interest that would be considered similar to that of a beneficiary in a will or revocable trust. The court overlooked this fact, he contended. As such, the wife retained a disproportionate share of the marital estate. 

The Vermont Supreme Court agreed with him on the first argument. While noting that the court has a wide range of discretion in determining what is marital property, the court harkened back to earlier case law that held any interest a spouse held as a beneficiary under a revocable trust or will wasn't deemed marital property, ripe for court-ordered distribution, if the settlor was still alive. The reason was that the property was or interest was a mere "expectancy."

The court ruled that in the Coburn case, the husband's interest in the property was inchoate, or not fully developed, and therefore could not be distributed as marital property.

The same kind of outcome could generally be expected in New York, though the major exception with expectancy of interest would be pensions or retirement benefits. The courts have ruled that these are earned by both spouses in a marriage, and may be considered as marital assets available for division.

If you are contemplating a divorce in Brooklyn, call our offices at (718) 864-2011.

Additional Resources:

Coburn v. Cook, May 2, 2014, Vermont Supreme Court

More Blog Entries:

Baby Boomer Divorce Requires Financial Preparation, May 2, 2014, Brooklyn Divorce Lawyer Blog

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