Keane v. Keane

OPINION OF THE COURT

In Grunfeld v Grunfeld (94 NY2d 696 [2000]) and McSparron v McSparron (87 NY2d 275 [1995]), we made clear that in divorce actions a court should not twice count the income associated with a professional license, an intangible asset, when making distributive and maintenance awards. We are now called upon to determine whether this principle extends to the distribution of a tangible, income-producing asset and the subsequent award of maintenance from income deriving from that asset. It does not.

I.

The parties, in their early 60s at the time of trial, were married for 30 years. During the marriage, the wife had no outside employment and the husband was sole shareholder in a real estate entity (FMK Realty, Inc.) with two assets. One of these assets was a parcel leased to a car repair shop, providing monthly rental income. The other was a mortgage note, yielding monthly income.

In 1981, the husband and his two siblings inherited a vacation property in Madison, Connecticut. He held sole title to that property as of trial, through a transfer without consideration * and only as his siblings’ designee for tax purposes, making the vacation home his separate property (see Domestic Relations Law § 236 [B] [1] [d] [1]) save for any appreciation due to the wife’s efforts (see Domestic Relations Law § 236 [B] [1] [d] [3]; Price v Price, 69 NY2d 8, 17-18 [1986]).

The parties stipulated that, upon divorce, the marital assets should be equally distributed. During trial, the husband’s appraiser valued the body shop rental property at $290,000 using *120 a capitalization of income approach, thus necessarily taking into account the monthly rental income to be received, through the lease term. A market value approach valued the property at $324,000. The Madison residence was valued at $1,050,000, or $990,000 more than its value in 1980, just before the husband and his siblings inherited it.

Supreme Court awarded the wife maintenance of $1,292 per month to continue through December 2010 (coinciding with the end of the body shop lease term) and $471 per month thereafter (to equalize the parties’ Social Security benefits). In addition, the court granted her a distributive award of $57,600 plus monthly payments of $2,000 through September 2012 (to distribute the value of the mortgage as received over time). The court awarded the marital home ($275,500 by stipulation) to the wife, along with its furnishings. The body shop property went to the husband, as did the vacation home, except the value of the appreciation of the husband’s original one-third interest reasonably determined to be due to the wife’s efforts.

The Appellate Division modified, over a partial dissent, by deleting the $1,292 monthly maintenance award, reasoning that it derived from impermissible “double counting” of the husband’s income from the rental property after that income had been included in the valuation of the previously distributed property (25 AD3d 729 [2d Dept 2006]). The Court also deleted the award of the furnishings in the marital home to the wife, because the record showed that some of the furnishings had been gifts to the husband and therefore did not qualify as marital property. The Court then certified the legal questions to us. We agree as to the furnishings, but disagree as to the maintenance and now remit to Supreme Court.

II.

In the landmark case of O’Brien v O’Brien (66 NY2d 576 [1985]), we held that professional licenses could constitute marital property subject to distribution at divorce. Subsequently, courts began allowing such licenses to “merge” into the licensee’s career so they would not be considered marital property. We rejected this doctrine in McSparron v McSparron (87 NY2d 275, 285 [1995]) “in favor of a commonsense approach that recognizes the ongoing independent vitality that a professional license may have and focuses solely on the problem of valuing that asset in a way that avoids duplicative awards.” In other words, although the license cannot merge into or reemerge *121 from the holder’s career, the value of the license should not overlap with the value of other marital assets derived from it or maintenance awards based on the income it produces.

We applied this prohibition against double counting for the first time in Grunfeld v Grunfeld (94 NY2d 696 [2000]). In that case, we modified and remitted to Supreme Court after the Appellate Division improperly decided that half the value of the defendant’s law license should have been distributed to the plaintiff in addition to half the value of the defendant’s law practice.

Here, the Appellate Division cited Grunfeld and McSparron for the proposition that any income-producing asset distributed as marital property may not also be considered a source of income for maintenance purposes. Citing those two cases, the Court vacated Supreme Court’s maintenance award because a portion of the husband’s income, considered in determining maintenance, derived from the rental of the body shop property awarded to the husband during distribution. We now reverse that aspect of the Appellate Division’s order and remit for Supreme Court to reinstate its maintenance determination.

We do not see why an inquiry as to double counting should depend on the valuation method used. After all, any valuation of an income-producing property will necessarily take into account the income-producing capacity of that property. To prevent any income derived from any income-producing property from being “double counted” would, therefore, significantly limit the trial court’s considerable discretion in equitably distributing marital property and awarding maintenance. Significantly, we have already differentiated between a professional license and tangible income-producing property, because

“where a professional license is at issue, ‘[t]he asset is totally indistinguishable and has no existence separate from the projected professional earnings from which it is derived’ (Grunfeld v Grunfeld, 94 NY2d 696, 704 [2000]). Hence, a trial court must convert the enhanced earnings attributable to the license into a monetary marital asset to achieve equitable distribution. In contrast, a court can transfer title to real or personal property in order to equitably distribute the asset” (Holterman v Holterman, 3 NY3d 1, 9 n 5 [2004]).

*122 We agree with dissenting Justice Goldstein that this distinction applies here.

Double counting may occur when marital property includes intangible assets such as professional licenses or goodwill, or the value of a service business. As we said in Grunfeld, “[i]n contrast to passive income-producing marital property having a market value, the value of a professional license as an asset of the marital partnership is a form of human capital dependant upon the future labor of the licensee” (94 NY2d at 704). It is only where “[t]he asset is totally indistinguishable and has no existence separate from the [income stream] from which it is derived” (id.) that double counting results.

Here, the rental property was split between the parties for distributive purposes. The rental income from that property was then considered in determining maintenance. The property will continue to exist, quite possibly in the husband’s hands, long after the lease term has expired, as a marketable asset separate and distinguishable from the lease payments. The mortgage payments, in contrast, were properly distributed as an asset and not counted for maintenance purposes because the payments themselves were the marital asset.

III.

We agree with both the Appellate Division majority and dissent that Supreme Court must reconsider the distribution of the furnishings in the marital residence. The husband argued that some of the furnishings were gifts he received from his parents and therefore his separate property (see Domestic Relations Law § 236 [B] [1] [d] [1], [3]), but the trial court did not address this contention. If indeed some of these items are the husband’s separate property, they should not have been distributed to the wife.

The wife also makes numerous allegations and arguments that the husband and his trial attorney made false representations to Supreme Court and that the fact findings of Supreme Court and the Appellate Division were erroneous. As a court of law we are precluded from reviewing affirmed findings of fact unless there is a question of legal sufficiency of the evidence (NY Const, art VI, § 3; see also e.g. Glenbriar Co. v Lipsman, 5 NY3d 388, 392 [2005]). As the record here is sufficient to support the affirmed facts and the courts below did not abuse their discretion in refusing to award the wife attorneys’ fees (Domestic Relations Law § 237; cf. O’Shea v O’Shea, 93 NY2d 187 [1999]), we cannot further address these points.

*123 Accordingly, the order of the Appellate Division should be modified, with costs to plaintiff, by remitting to Supreme Court for further proceedings in accordance with this opinion, and as so modified, affirmed. The certified question should be answered in the negative.

Chief Judge Kaye and Judges Ciparick, Graffeo, Read, Smith and Pigott concur.

Order modified, etc.