D.R.D. v. J.D.D.
| Decision Date | 10 December 2021 |
| Docket Number | Index No.: E2020009661 |
| Parties | D.R.D., Plaintiff v. J.D.D., Defendant |
| Court | New York Supreme Court |
Aaron M. Gavenda, Esq., Attorney for the Plaintiff, Rochester, New York
John D. Wieser, Esq., Attorney for the Defendant, Rochester, New York
Sometimes, a higher court ruling ages gracefully — think Palsgraff v. Long Island Railroad Co.1 — but other times, the ruling frays at the edges, the legislature seemingly alters its contours in later legislation and as younger judges might say, it loses its "pop."
Should that be the fate of Kahn v. Kahn , 43 N.Y.2d 203, 401 N.Y.S.2d 47, 371 N.E.2d 809 (1977), a decision that the advent of equitable distribution in 1980 and no-fault divorce in 2010 might have consigned to the dog-eared pages in the now yellowing official casebooks weighing down dusty law library shelves?
For now, the rule that judges may not order the sale of real property owned by the couple as tenants-by-the-entirety pendente lite stands but the sands of time may be shifting, as other courts have suggested and as the facts of the matter before this Court demonstrate, equity should, on occasion, be permitted to intervene even while the divorce is pending.
In this instance, a husband and wife own the marital residence, as tenants by the entirety. The husband commenced the action nearly a year ago shortly after he left the marital residence. The wife remained in the house, along with the couple's two children and another child from an unrelated marriage. The husband was ordered by the Court to pay the usual household expenses as a form of "shelter allowance," instead of either child support or maintenance. But, the marital residence was, by accounts of both counsel for the couple, to be sold at the end of the divorce.
The marital residence is encumbered by a significant mortgage, which now stands at about $87,000, according to both parties. But, the residence needs repairs and many of those repairs were itemized by the parties during the pending divorce. This Court, during pre-trial conferences, advised the parties that the repairs should be made in an effort to increase the equity in the home. The husband was slated to perform the repairs but, based on the account from his counsel, the wife refused on several occasions to let him enter the residence to make the needed repairs. A stalemate ensued.
The wife was extremely concerned about the need for housing for the couple's children and her son. The parties agreed to retain a realtor for the sale and the wife, in discussions with the realtor, required that the purchase and sale contract include a provision that the actual transfer of the residence would not occur until she found suitable housing. The mother was rightly concerned that the property might not generate any equity for distribution but she was hoping that her share of the net proceeds would give her the necessary funds to relocate. According to the affidavits before this Court, the realtor, when he obtained the wife's signature on a listing agreement included language that she would not be required to surrender possession until after she had located and established separate housing. When the listing agreement was reviewed by the husband, he objected to any delay in surrendering possession of the property and signed the agreement without the wife's requested provision. The stalemate persisted.
The stalemate arrived at this Court when a new buyer offered an all-cash $92,000 offer for the property with a demand for a closing in 60 days. The wife refused to sign the purchase offer, even though recommended by the realtor and approved by the husband. She continued to contend that she needed an ability to relocate and confirm new housing before she surrendered the property and she added that keeping the children — the couple's two daughters and her son — in the house would allow them to complete the school year in their current schools.
In response, the husband moved to require her to sign the agreement, arguing that the financial facts of continued ownership of the property merited a court order to require the sale. The husband claimed — without dispute — that the outstanding balance of the mortgage — nearly $87,000 — and a revised realtor's commission at only 4.5 per cent would erase any equity and neither parent would be paid any proceeds at the time of the sale. There is no evidence that even if the repairs, which were continually discussed by the parties during pre-trial conference, were made that the equity would be substantially enhanced and allow either parent to recover any net proceeds. The Court had made it clear that if the husband invested separate property funds in the repairs, he would be reimbursed those funds dollar-for-dollar at the time of sale.
A microeconomic review of the consequences of this stalemate drives a conclusion that equity — the governing principle embedded in the legislature's concept of equitable distribution — should weigh in favor of requiring an immediate — or at least prompt — sale of the residence during the pendency of the divorce. First, because the father is paying the "housing expenses," he is not paying either child support or maintenance. This form of shelter allowance covers the cost of the mother and her two children in common with the father continuing to live in the marital residence. But, the mother also has a third child who lives in the home and, in reality, the father is accommodating an unrelated child by financing the housing cost for all three of the mother's children. Second, the mother, living a lifestyle without any change, has little incentive to resolve the divorce or make any of the critical compromises required to achieve an equitable agreement. For her, little has changed since commencement of the divorce: she continues to live in the house and have all the significant living expenses — the mortgage and property taxes — paid. As evidence of her nonchalance during the divorce, the mother has required that any sale of the residence be conditioned on her securing adequate housing. In short, despite the fact that both parents knew that the house — the primary marital asset — would have to be sold as part of the divorce resolution, the wife here has not taken any reasonable steps in the year since the action was commenced to obtain housing, preferably in the same school district to create continuity for her children.
Third, while the Court can countenance the father paying the shelter allowance as an offset against child support and maintenance obligations, the mother is actually using the husband's equity in the residence as a form of interest-free loan to his spouse. Under equitable distribution, the net equity in the property is part of the marital estate and, in this Court's experience, that equity is usually evenly divided between the spouses or traded as an offset against other assets. If as a practical matter, the net equity in a marital residence is $100,000, then at the time of commencement, each party would be entitled to half of that amount. But, if the divorce is delayed a year, the non-occupant spouse loses the benefit of their half of the equity for a year. Even if the loss benefit of money is only three or four percent, the non-occupant spouse has lost $1500-$2000 that they would otherwise have in their pocket if the house were sold on the date of commencement. This Court acknowledges that in many cases, when the non-occupant spouse is paying the mortgage and other housing costs during the pendency, a court, at the conclusion, can ameliorate some of the consequences of that financing by permitting the contributing spouse to get credit for the principal reduction of the mortgage and furthermore, obtain the income tax advantages of the housing payments.
Another equitable consideration in the sale of a marital residence, pendente lite, is a possible separate property claim by the non-occupying spouse. In that instance, the separate property value is being used by the occupant spouse without any payment to the holder of the separate property claim. In short, the occupant spouse gets an interest free-loan from the occupant spouse not only for the value of the residential marital equity but the separate property claim as well. While a separate property claim in the marital residence is not asserted here, nonetheless it could be an equitable factor in future applications to sell a marital residence during the pendency of the divorce.
In this instance, the usual justification for a pre-judgment sale is actually amplified because the marital residence is encumbered by a significant mortgage that will, at sale, snuff out any net equity for distribution. The current mortgage balance is nearly $87,000. The all-cash offer, presented to the Court on the motion, totals $92,000. The father negotiated a reduced realtor's commission which total 4.5 per cent or $4,140. If this deal becomes final, the sale of the residence will be a barely break even proposition. The husband, who has financed the home and would be entitled to a credit for pay down of the principal during the pendency, will get no credit at all from the equity because, in this circumstance, there is no equity to equitably distribute. Instead, the father has been making mortgage payments to keep mortgage current without any ultimate financial benefit to himself or the wife.2
A final equitable factor is that if a sale occurs pendente lite, the proceeds or the liabilities remain subject to equitable distribution.
What changes, upon sale, is simply the form of marital asset: the property is converted into cash, which remains subject to equitable distribution and each spouse has all their claims for separate property or otherwise to the now fungible cash proceeds
Based on all these factors, a court, dividing marital assets in an equitable distribution landscape, should have the authority to consider all...
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Pereira v. Brown (In re Brown)
...in the property and the Sale Proceeds became marital property that remained subject to equitable distribution. See D.R.D. v. J.D.D., 74 Misc.3d 237, 241-42, 160 N.Y.S.3d 767 (N.Y. Sup. Ct. 2021) ("[I]f a sale [of marital property] occurs [during the matrimonial action], the proceeds or the ......