[349] The parties, both attorneys, were married in January 1991. In October of the same year, they had a son. The husband was the father of four children by a prior marriage, which ended in divorce in 1990. The wife, who had graduated from law school in 1979, worked as an associate at a large New York City law firm for six years. She then left private practice and began to work in house at the Walt Disney Company (Disney). In 1991, when she married the husband, she was the corporate vice-president in the motion picture and television department of Disney. Her salary in that position was $220,000 per year. The wife stopped working outside the home when the parties’ son was three years old.
At the time of their marriage, the husband was a partner at another major New York City law firm, where he remained until the end of 1999. He then left the practice of law and became a managing director at hazard Freres & Company, where he earned an annual average salary of $2.1 million over the approximately 11 years that the parties were married. Throughout the marriage, the husband also served on the Board of Directors of a number of publicly traded companies, from which he obtained additional income.
The parties lived an affluent life together that included fine dining, shopping at upscale stores, taking lavish vacations, employing household help, and sending their son to private school. They purchased a 3,700 square foot opulent cooperative apartment on Fifth Avenue between 94th and 95th Streets in [350] Manhattan. At the time of trial, the apartment was worth between $10 and $12 million.
Before the marriage, the husband owned a small home and a tenant house on approximately 160 acres of land in Claverack, New York. During the marriage, the parties invested close to $2 million to remodel the house and make substantial improvements on the surrounding property. The house was expanded, and was fitted with a new large kitchen with indoor and outdoor cooking facilities, a two-story living room, a darkroom, a hot tub, a sauna and a wine cellar. A tennis court and a pond were also built into the property.
The parties agree that the husband played a larger role in the conceptualization and oversight of the Claverack improvements. However, the couple brought their son to Claverack for many weekends and holidays while the renovation was being completed, and, while at Claverack and taking care of the parties’ son, the wife participated in some of the project’s details, and provided food for the workers as well as the family. For example, she testified that she “order[ed] pizza and ma[de] coffee for the guys who were working” on the restoration. The wife also stated that she personally designed the entire interior of one of the new structures on the property, and that she matched the kitchen tiling to the plants that she grew in her organic vegetable garden on the property. She also related that much of the parties’ weekend and vacation time was spent in Claverack and devoted to “going over plans or bills or budget or proposals or finished work for various workmen.” The renovation project spanned virtually the entire 11-year period that the parties were married.
At some point after the wife left Disney, the husband’s travel schedule changed. It allegedly required him to work longer hours and travel internationally more frequently, leaving plaintiff as sole parent in charge of raising the parties’ son. Sometime in 2001, the husband began an affair with a woman he met while traveling. In November of the same year, the wife commenced this action for divorce. In response, the husband immediately cut off her financial support. The wife specifically alleges that the husband hid the family car, and “launched an insidious campaign to alienate [the parties’ son] from his mother.” She claims that the husband committed adultery and that his treatment of her was cruel and inhuman. Her complaint demands a divorce judgment, equitable distribution of the parties’ marital property, title to her separate property, custody of the parties’ child, exclusive occupancy of the marital apartment, maintenance and child support.
[351] In December of 2001, one month after the wife commenced this action, the husband left his position with hazard Freres. Soon thereafter, he began working at Compass Advisors, a boutique investment bank and venture capital firm. The record and the transcript from the trial, which took place between 2003 and 2004, reflect that when defendant joined Compass, its “Deal Log” listed $97 million of deals at various stages of completion. The parties dispute whether Compass will be retained on all of the deals in the Deal Log, as well as Compass’s future. However, at the time of trial, the husband was promised an annual base salary at Compass of $200,000 with a quarterly draw of $100,000. The terms of his employment also included an equity interest in the company, various related bonuses, and other investment opportunities. While Compass’s CFO testified that as of 2003 the Compass partners had not yet received their quarterly draws, she also testified that the company’s performance improved substantially between 2001 and 2003, the last year for which the parties had evidence. It remains the wife’s position that the husband anticipated “paper losses” in the early years at Compass which would be “handsomely rewarded” as deals matured and business grew. Compass’s CFO gave testimony which supported this position. For example, Compass’s CFO testified that the company’s retainers in 2003 were $5,057,837 (items the firm had been contracted for), 10 times its retainers for 2001. She also stated that from 2001 to 2003, the company’s revenue grew from approximately $2 million to $11.8 million, that it expanded its offices and hired additional staff.
In 2002, prior to the trial, the wife made an application for interim relief. In response, the husband insisted that he could not afford to pay the amount requested. He alleged that he was not earning much and had no future expectation of making the millions of dollars he had earned during the marriage.
The court recognized the husband’s deception and nondisclosure of assets, and imputed an average annual income to him of $2,273,680. In an order entered May 16, 2002, the IAS court awarded the wife $18,465 per month in pendente lite maintenance. The court also ordered the husband to pay $10,625 per month in child support beginning June 1, 2002, plus the costs of private schooling, tutors, summer camp, extracurricular and recreational activities and transportation expenses. It found the husband responsible for “all medical, dental and other health-related insurance coverage on behalf of [the wife] and the child” as well as “all unreimbursed, non-discretionary medical, dental, pharmaceutical, optical, [and] psychotherapy expenses for [the [352] wife] and the child.” The husband was also required to pay for all household expenses for the marital residence. This included responsibility for all outstanding and ongoing carrying charges, utility bills, upkeep and maintenance of the marital residence and expenses attributable to household help. Further, the husband was ordered to pay the wife’s counsel fees of $100,000. The husband appealed. This Court affirmed, stating: “[T]he motion court, when confronted with [the husband’s] apparently self-created unemployment and questionable claim of limited future earnings, was warranted in imputing income to him on the basis of his past earnings and earning capacity” (299 AD2d 294, 295 [2002] [emphasis supplied]). In a stipulation which was “so-ordered” and entered October 16, 2003, the parties resolved all issues of custody and visitation.
The husband failed to pay the sums as ordered and built up arrears totaling more than $200,000. As a result, the wife was forced to move for an order enjoining the husband from transferring or spending money for any purpose other than to satisfy his outstanding support obligations. The husband cross-moved for a downward modification of the maintenance, and child support awards and cancellation of his support and maintenance arrears. The IAS court denied the husband’s application and set the arrears owed at $207,857.74 plus interest. It also directed that the husband not transfer certain funds out of his IRA accounts, and it restrained the husband from dissipating the parties’ 2000 tax refund, which had an estimated value of $510,000.
The court noted concrete evidence showing that, in fact, for the prior five years, the husband had an average income of approximately $3 million a year, that he was receiving revenue “from numerous corporations . . . , and [was] a partner in a very active rising investment banking company.” It found the husband’s “allegations of poverty to be spurious,” noting that he spent approximately $63,000 a month on himself. It also stated: “I find [the husband’s] argument that his earning position has greatly changed since September 11, 2001 to be correct. His economic position now is much, much better than it was in 2001. The [husband] has not demonstrated that he has suffered a substantial change in circumstance, financial hardship, loss of income, or loss of earning capacity. If anything, his income has increased” (emphasis supplied). The husband appealed. His appeal was dismissed for lack of prosecution.
The parties were unable to settle their differences and a trial of all remaining financial issues ensued. This took place over approximately 14 days between October 2003 and April 2004. [353] Nine witnesses testified and hundreds of documents were introduced. The court found the testimony of the wife, and her witnesses, to be credible. By contrast, the court did not credit the testimony of the husband, or his witnesses.
In a careful and detailed decision after trial, the court reviewed the parties’ marital history and enumerated the factors to be considered in an equitable distribution of marital property pursuant to Domestic Relations Law § 236 (B) (5) (d). The court expressed continued frustration at the fact that the husband had “stonewalled” and erected numerous obstacles to the full discovery of his income and assets. It stated: “The defendant posed every obstacle imaginable to prevent a fair and orderly discovery of his income and assets. Just as he had stonewalled Justice Marjory Fields, hiding the five million dollars he had made in 2000, so too has he stonewalled this court. In a downward modification application to this court he falsely claimed that he earned 1 million dollars less than he actually received in 2001. In addition to his salary, the defendant has been or is a director for a few very large publicly traded companies, both foreign and domestic, from which he has earned substantial additional income.”
The court recognized that the parties had substantial assets, primarily in real estate. It concluded that at the commencement of the marriage, the husband had over $4 million in assets and the wife had $958,463. The husband had argued that he could no longer afford to support his wife and child in the manner to which they were accustomed. However, the court cited evidence that, despite his protestations of poverty, the husband continued to live a luxurious lifestyle, and that he spent approximately $63,000 a month for his own needs and that of his paramour. This evidence included invoices or other records of transatlantic trips on the Concorde, the purchase of fine jewelry and expensive clothing, and the maintenance of five residences (in New York and Paris). The court also noted the husband’s “severe lapses in memory” when questioned about the thousands of dollars of marital funds spent on his paramour.
The court found that other than their real estate investments, the parties’ cash and investment accounts represented the most significant component of the marital property. These the court correctly deemed active assets, and it determined their value as of the date of the commencement of the action. By contrast, the real estate holdings were deemed passive assets, which were valued as of the date of trial.
The court itemized seven of the parties’ cash and investment accounts, and determined that their cumulative value as of the [354] date of the commencement of the action was $1,925,054. It determined that the husband and wife were each entitled to 50% of this amount, or $962,527. Only one of the accounts, worth $38,793, was in the wife’s name, and the court found that the husband had depleted substantial funds in all of the other accounts. Thus, the court directed that $923,734 owed to the wife was to be paid from the distribution of the remaining accounts, or credited to the wife from the husband’s share of the proceeds of the sale of the Fifth Avenue residence.
The court held that the Claverack estate was the husband’s separate property. It concluded that the main house and land were worth $556,000 as of the date of the parties’ marriage, and the tenant house $357,000. Accepting the valuation of the wife’s expert, the court determined that at the time of trial, the value of the main house and property was $1,985,000, and the tenant house $516,000. The court held that the extensive renovations primarily accounted for the vast increase in value. Therefore, it held that the funds spent on the renovations were 100% marital property subject to equitable distribution. Because the court awarded 50% of the appreciation of the Claverack estate to the wife, it reduced the award for sums paid for improvements by the appreciated value of the property.
The court also reduced the husband’s separate property by $1,282,138. This was the amount of marital property the husband used to pay his separate, premarital debt to his first wife. Thus, the court ordered that the wife be credited with 50% of $1,282,138, or $641,069.
The court determined that because the wife had not worked outside the home for nine years, she could not reestablish her legal career. It also concluded that it would take at least six years for her to develop her career in photography. The court thus awarded the wife durational maintenance of $6,000 per month for six years.
Finally, the court noted that the wife and her son “have suffered day to day crises resulting from the [husband’s] harassment of them” with respect to every aspect of this protracted litigation. It thus awarded the wife legal fees and expert fees to be determined by a referee.
A detailed divorce judgment was entered on May 17, 2005. A hearing before a referee was held, and the court set the award at $800,000 for the wife’s counsel fees, and $85,000 for her expert fees.
The husband appeals from the judgment of divorce and the fee award. He contends that the court erred in making a distributive award to the wife for 50% of the cost of improvements [355] to the Claverack property. He also asserts that the court grossly overvalued that property. The husband also claims it was error for the court to have compensated the wife for his payment of his premarital obligations, and he challenges the award of $885,000 in counsel and expert fees. In reply, the husband seeks a credit for his pendente lite support obligations in the distributive award.
The Domestic Relations Law contemplates an equitable division of assets based upon the parties’ respective contributions to the marriage (see Domestic Relations Law § 236 [B] [5] [d] [6]). The distribution of the assets depends not only on the financial contributions of the parties, “but also on a wide range of nonremunerated services to the joint enterprise, such as homemaking, raising children and providing the emotional and moral support necessary to sustain the other spouse in coping with the vicissitudes of life outside the home” (Price v Price, 69 NY2d 8, 14 [1986] [internal quotation marks omitted]).
Under the Domestic Relations Law, there are two categories of property: marital property and separate property. Upon divorce, marital property is subject to equitable distribution and separate property is not (Domestic Relations Law § 236 [B] [1] [c] , [d]). The statute defines marital property broadly as “all property acquired by either or both spouses during the marriage” (Domestic Relations Law § 236 [B] [1] [c]). The income of both spouses throughout the marriage is considered part of the marital estate and is utilized to calculate an equitable distributive award (Domestic Relations Law § 236 [B] [5] [d] [1]). By contrast, separate property, which is not subject to equitable distribution, is explicitly defined as property excepted from the marital estate. It is “property acquired before marriage or property acquired 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 “property acquired in exchange for or 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]). The concept of separate property is interpreted narrowly (see Hartog v Hartog, 85 NY2d 36, 48 [1995]), and there is a presumption that property is marital until one of the parties proves otherwise (LeRoy v LeRoy, 274 AD2d 362 [2000]).
The court took testimony from a number of witnesses and considered the valuations of the parties’ experts. It then made a detailed itemization of the parties’ property and a detailed distributive award. The court properly considered the factors set [356] forth in Domestic Relations Law § 236 (B) (5) (d), including the parties’ respective contributions to the family economic enterprise (see Price, 69 NY2d at 14-15; O’Brien v O’Brien, 66 NY2d 576, 587 [1985]).
The court determined that on the date of marriage, the value of the Claverack main house and land was $556,000 and the tenant house was worth $357,000. The husband was properly credited these amounts as separate property. The court then determined that on the date of trial the main house and property were worth $1,985,000 and the tenant house $516,000. These values were based upon the court’s acceptance of the wife’s expert’s appraisals. This was proper given the record evidence that the wife’s expert was far more experienced in making the type of appraisals necessary here. Further, the wife’s expert’s report was full and accurate, while husband’s expert’s report was replete with errors and omissions (see Cash-Scher v Scher, 299 AD2d 193, 193 [2002]; Charland v Charland, 267 AD2d 698, 700-701 [1999]).
The court appropriately held that extensive renovations accounted for the vast increase in value and that all improvements were 100% marital. Evidence in the record reveals that the Claverack property, as renovated, bears little resemblance to the former modest country house possessed by the husband when he entered into the marriage. Virtually all of the structures on the land, and the property itself, have been transformed. In awarding the wife half of the property’s appreciated value, the court considered both the wife’s work implementing the renovations as well as the fact that the improvements were paid for with marital funds (see Price, 69 NY2d at 11 [where separate property appreciates “due in part” to efforts of nontitled spouse as parent and homemaker, amount of appreciation is marital property subject to equitable distribution]). The Court of Appeals in Price held that where the nonmonied spouse contributes to the appreciation of the separate property of his or her spouse (through either direct efforts, or by taking care of domestic responsibilities while renovation is in process), he or she is entitled to an equitable share of the value of the appreciation.
The Domestic Relations Law considers spouses as participants in a family economic enterprise. Here, both spouses spent a large amount of time and money refurbishing the country house in Claverack. The wife spent many weekends and vacations with her husband and son in Claverack, and she contributed to the renovation of the property.
However, the court’s award to the wife of 50% of the apprecia[357] tion of the Claverack property was disproportionate (see Ritz v Ritz, 21 AD3d 267 [2005]). Market forces over the approximately 11 years of marriage accounted for some of the property’s increased value. The wife was not entitled to a credit for any portion of this “passive” appreciation. Thus, a 75%/25% division of the appreciation of Claverack is a more equitable apportionment in the circumstances.
However, a point in the dissent on this issue requires response. The dissent states that because the wife “had nothing to do with the roof replacement [on the tenant house at Claverack],” the “active” appreciation of that structure on the property, largely attributable to the new roof, remains separate property. This analysis is in direct conflict with the Court of Appeals’ holding in Price (supra). The Court in Price instructed that: “where separate property of one spouse has appreciated during the marriage and before execution of a separation agreement or commencement of a matrimonial proceeding and where such appreciation was ‘due in part’ to the contributions or efforts of the nontitled spouse as parent and homemaker, the amount of that appreciation should be added to the sum of marital property for equitable distribution (§ 236 [B] [5]). Whether assistance of a nontitled spouse, when indirect, can be said to have contributed ‘in part’ to the appreciation of an asset depends primarily upon the nature of the asset and whether its appreciation was due in some measure to the time and efforts of the titled spouse. If such efforts, . . . were aided and the time devoted to the enterprise made possible, at least in part, by the indirect contributions of the nontitled spouse, the appreciation should, to the extent it was produced by efforts of the titled spouse, be considered a product of the marital partnership and hence, marital property” (69 NY2d at 17-18). The record is plain that the entire renovation, including the work on the tenant house, took place “due in part” to the direct and indirect efforts of both spouses, including the wife’s assistance at Claverack, either caring for the parties’ son, cooking, providing meals to the workers, or otherwise contributing time and energy to a project which spanned the entirety of the parties’ marriage. It cannot be determined, as a matter of law, on this record, that the wife was not at all involved in the renovation. Accordingly, under the Court’s reasoning in Price, there is no basis for determining that the “active” appreciation of that structure was not subject to equitable distribution.
Because the appreciated value of the Claverack property was less than the near $2 million expended on the improvements, the court credited the wife with 50% of the difference between the amount expended and the appreciated value. This was error.
[358] The product of the parties’ efforts, which including the $1.9 million investment and substantial time and work, was the appreciated value of the Claverack property. The wife does not contend that the Claverack improvements were a unilateral “dissipation of assets” on the part of the husband. The couple shared the risk that the property’s appreciation would not equal their investment, and there is no basis in law or equity to now shield the wife from the economic consequences of a shared decision to renovate the Claverack property.
The dissent reaches this same result, for different reasons. First, it states that the $1.9 million dollars the parties decided to invest in Claverack, income earned by the husband during the marriage, was not “marital property” because this action had not yet been commenced. It then draws an analogy between the sums spent on the improvements and hypothetical expenditures by a husband or wife on “designer clothing” or “season tickets to sporting events.” However, the $1.9 million renovation expenditure bears no useful analogy to one spouse’s expensive hobby. This was a joint investment in a renovation project that resulted in substantial appreciation of the husband’s separate property.
The court also properly reduced the value of the husband’s separate property due to his payment of $1,282,138 in after-tax marital funds to pay his separate obligations to his first wife: $584,136 in maintenance and $698,002 in a prior equitable distribution award. These reductions were deemed to increase the wife’s distributive award by $641,069, also to be recouped from the husband’s share of the proceeds of the sale of the Fifth Avenue apartment.
There is ample authority for the proposition that contribution to the separate assets and liabilities of a former spouse may be recouped in an award of equitable distribution. For example, in Lewis v Lewis (6 AD3d 837 [2004]) the Third Department upheld an equitable distribution award which allowed a plaintiff to recoup 50% of payments made during the marriage to reduce mortgage indebtedness on a residence deemed to be the defendant’s separate property. Citing numerous cases, the Court emphatically reaffirmed the settled principle that: “ ‘marital funds should not be used to pay off separate liabilities’ and, whenever that occurs, the inequity may be remedied by permitting the injured spouse to recoup his or her equitable share of the marital funds so used (Micha v Micha, 213 AD2d 956, 957 [1995]; see Carr v Carr, 291 AD2d 672, 676 [2002]; Alessi v Alessi, 289 AD2d 782, 783 [2001]; Burgio v Burgio, 278 AD2d 767, 769 [2000]; Markopoulos v Markopoulos, 274 AD2d 457, [359]*359458-459 [2000]; Carney v Carney, 202 AD2d 907, 908 [1994])” (6 AD3d at 839). Similarly, in Dewell v Dewell (288 AD2d 252 [2001]), the Second Department held that the plaintiff was entitled to recoup 50% of marital funds used to reduce a debt incurred to obtain a medical license which, in the circumstances of that case, was found to constitute the defendant’s separate property. Applying this authority, the court properly held that plaintiff was entitled to recoup 50% of marital funds used to meet the husband’s separate legal obligations to his former wife.
Kohl v Kohl (24 AD3d 219 [2005]), cited by the dissent, is distinguishable on the facts. That case involved the treatment of the value of gifts to a former wife and children, not a legally enforceable debt. There is no conflict between our finding that the husband’s separate premarital debt need not be shared by the wife, and the Kohl court’s conclusion that gifts to a former spouse were not a “wasteful dissipation of marital assets.” (Id. at 220.)
The essence of what the dissent characterizes as a “remarriage penalty” is the lot of any individual who enters into a marriage with outstanding debt. That this husband’s debt stemmed from a former marriage does not distinguish it from educational debt, credit card debt, or any other separate financial obligation.
The dissent criticizes this reasoning, posing a hypothetical to support the conclusion that our position “proves far too much.” One of the hypothetical spouses, W, has $100,000 in educational debt (or medical debt or a judgment) incurred prior to the marriage, which the couple repays in full from W’s earnings during the marriage. The dissent objects to a finding that H should be entitled to 50% of the marital funds used to satisfy W’s debt. However, this was the holding in Dewell v Dewell (288 AD2d 252 [2001], supra). The decision states: “Before the marriage, the defendant had incurred significant debt as a result of his having attended medical school. Despite having a separate and substantial stock and bond portfolio, he used marital funds to pay off $203,155.83 worth of debt. Under the circumstances of this case, the plaintiff is entitled to an award in the amount of 50% of the marital funds that were used to reduce the defendant’s debt incurred to acquire his medical license, which constitutes separate property (see, Markopoulos v Markopoulos, 274 AD2d 457; Micha v Micha, 213 AD2d 956).”
The dissent portends that “the remarriage penalty” represents bad public policy because it will improperly inject financial forecasting into decisions to divorce. This fear, as well as the [360] dissent’s musings as to treatment of legally unenforceable moral obligations on distributive awards, are not pertinent to the distribution of these parties’ assets under the governing law. The fact that the maintenance obligation was incurred incident to a divorce which allowed this couple to enter into a legally enforceable marriage is similarly immaterial. Applying settled precedent to the facts of this case, the wife was entitled to recoup her share of marital property used to pay the husband’s separate debt as part of her distributive award (Lewis, supra; Dewell, supra).
The husband argues that the judgment inequitably directs that he pay $2,833 in monthly child support (plus the costs of school, medical bills, and other itemized necessities) and $6,000 per month for six years in durational maintenance. He also seeks an equitable distribution credit for an alleged overpayment of pendente lite support. However, the court’s durational maintenance award was not an abuse of discretion. The wife was 51 years old at the time of the commencement of this action. She had been out of the work force for nine years, during which time she had primary responsibility for raising the parties’ child. As such, it was both fair and realistic for the court to have concluded that since it would take at least six years for the wife to develop a career in photography, a six-year maintenance award of $6,000 a month would provide her with appropriate assistance in reaching her vocational goals and allowing her to become self-sufficient (see Atweh v Hashem, 284 AD2d 216, 217 [2001]; Kaplan v Kaplan, 21 AD3d 993, 996 [2005]).
However, equity requires that the husband be awarded a distributive credit for $548,460, the amount that his pendente lite support payments exceeded what he would have been required to pay consistent with the final maintenance award (Galvano v Galvano, 303 AD2d 206 [2003]; Gad v Gad, 283 AD2d 200 [2001]). It also requires that the husband be credited $484,370.50, 50% of the $968,741 in mortgage and maintenance payments made for the marital residence during the pendency of the divorce action (Pickard v Pickard, 33 AD3d 202, 205 [2006], appeal dismissed 7 NY3d 897 [2006]).
It is the dissent’s position that the husband’s maintenance, child support and additional court-ordered financial obligations are excessive “in light of the husband’s actual earned income of $330,000.” The $330,000 figure for the husband’s present income is derived from the husband’s assertion, at trial, and on appeal, that he receives a $200,000 salary at Compass and $130,000 in fees for serving on various boards. However, the husband has consistently not been forthcoming regarding his [361] income. The husband has been found incredible in his reporting of his income and assets by the motion court ruling on the pendente lite support order, by the court reviewing the application for a downward modification of support, and by this Court on a prior appeal. Thereafter, the court which presided over the trial and rendered the judgment appealed expressly found that the husband posed “every obstacle imaginable” to discovery of his actual income and assets.