Hartog v. Hartog

• Citation: 85 N.Y.2d 36,647 N.E.2d 749,623 N.Y.S.2d 537
• Parties: , 647 N.E.2d 749 Katherine HARTOG, Appellant, v. Albert HARTOG, Respondent.
• Decision Date: 14 February 1995
• Court: New York Court of Appeals

Page 537

623 N.Y.S.2d 537

85 N.Y.2d 36, 647 N.E.2d 749

Katherine HARTOG, Appellant, v. Albert HARTOG, Respondent.

Court of Appeals of New York.

Feb. 14, 1995.

Squadron Ellenoff Plesent Sheinfeld & Sorkin, New York City (Stanley Plesent, Neal M. Goldman and Stanley D. Heisler, of counsel), for appellant.

Herman Harris Tarnow, New York City, Gretchen Leitzell Johnston and Scheinkman, Fredman & Kosan, White Plains (Alan D. Scheinkman, of counsel), for respondent.

Sandra W. Jacobson, New York City, for The Women's Bar Ass'n of the State of New York, amicus curiae.

OPINION OF THE COURT

BELLACOSA, Judge.

This equitable distribution case, reflecting its unique characteristics of the economic partnership aspect of a 23-year marriage relationship, presents a multifaceted puzzle of issues. The solutions lie in the evidence adduced, in the statutory framework, language and policies, and in their discernment, application and harmonization in the respective levels of judicial review and authority.

I.

Plaintiff wife appeals, pursuant to leave granted by this Court, 83 N.Y.2d 761, 616 N.Y.S.2d 479, 640 N.E.2d 147, from an order of the Appellate Division, 83 N.Y.2d 761, 616 N.Y.S.2d 479, 640 N.E.2d 147 which modified a judgment of Supreme Court, New York County, dissolving the parties' marriage and distributing property, 194 A.D.2d 286, 605 N.Y.S.2d 749. The wife was granted a divorce on abandonment grounds. Afterwards, a trial was held to determine her maintenance and equitable distribution rights. Both parties appealed conflicting aspects to the Appellate Division. The wife now specifies numerous dissatisfactions about parts of the Appellate Division ruling.

She seeks relief from the Appellate Division determinations (1) that the appreciation in value of the husband's separate property businesses was not marital property; (2) that his bonus, earned prior to but paid after commencement of marital proceedings, was not marital property; (3) that the trial court had no authority to order the husband to obtain life insurance for her benefit to secure maintenance payments; (4) that the trial court had no authority to impose a lien on the husband's estate in the event of a shortfall in the ordered life insurance; (5) that maintenance of five-year duration was appropriate in the instant case instead of lifetime maintenance as directed by the trial court; and (6) that tax consequences to the husband of the equitable distribution award should have been considered.

A lead issue for us to decide is whether the husband's limited involvement during the marriage in businesses that appreciated in value qualified as active participation to transmute the appreciation of that otherwise separate property into marital property subject to equitable distribution. We conclude, as the Supreme Court did, that the record supports the view that the husband's involvement was sufficient to convert a proportionate share of the appreciated value of these businesses into marital property. We also agree with Supreme Court that the bonus is marital property subject to equitable distribution. Further, we hold that by not considering the predivorce standard of living, the Appellate Division erred both in its articulation and application of the proper standard to be used in determining maintenance awards.

On the other hand, while courts have statutory authority to order a spouse to maintain life insurance for the other spouse's benefit, we agree with the Appellate Division that such relief is inappropriate in the instant case. Moreover, there is no general inherent judicial authority to interpose liens against estates as alternative financial or legal security measures. Finally, we conclude that the Appellate Division did not abuse its discretion by considering the tax consequences to the husband and by reducing the wife's distributive award accordingly.

II.

The parties were married in November 1968. When they divorced, she was 51 and he was 61. Two children were born of the marriage, both emancipated at the time of the divorce. When they married, the wife was 28 and working for an advertising agency. She left this position shortly before the birth of their first child in 1969. With the exception of some freelance work in June 1969, she did not return to work outside the home until May 1980. From May 1980 through 1985, she worked full time at an advertising firm, earning a maximum of $27,500. In 1990, she started a song writing business, from which she earned nothing, but due to which she incurred $5,000 in expenses. During the marriage, she was a traditional homemaker, serving in roles of spouse, parent, housekeeper and hostess. The husband engaged in various business enterprises during the marriage.

When they married, the husband was 38 and worked in a family jewelry business, F. Staal, Inc. He was also a shareholder and director of another family business, Hartog Trading Corporation (Trading). He owns 50% of the stock in F. Staal and Trading, and 25% of the stock of Hartog Foods International, Inc. (Foods), a spin-off company of Trading. He worked long hours at F. Staal six days per week until 1985 and five days a week thereafter. He was director of Trading throughout the marriage and was its secretary/treasurer from 1969. He was a director and secretary of Foods from the time of its incorporation in 1969. However, his brother or others had primary responsibility for the day-to-day management and operation of Trading and Foods.

F. Staal, Trading and Foods each deducted a salary for the husband as a business expense, and he participated in their respective profit-sharing plans. The corporate tax returns of Trading and Foods list him as a part-time employee, and the corporate minutes note his presence at meetings and his power to sign checks. Testimony at trial indicated that the husband and his brother conferred at times regarding business matters concerning Trading and Foods, the two entities at issue in this case.

On the respective personal health side of their lives, the wife was diagnosed with breast cancer in 1985. She underwent mastectomies in 1985 and 1986, and her health appears stabilized as of the time of the litigation. The husband was more recently diagnosed with prostate cancer.

III.

Supreme Court granted the wife a divorce and distributed the marital property. The court outlined various options for the wife, dependent on whether she chose to sell or retain two marital residential properties. Each option also set forth the distributive award to which the wife would be entitled. She ultimately opted to sell both residences, resulting in a distributive award of $1,692,237.09. This aspect is not in dispute on this appeal.

With respect to the rest of the distributive award, the trial court found the following to be marital property: (1) 100% of the increased value of husband's 50% share in F. Staal ($412,500); (2) 25% of the appreciation of husband's 50% share of Trading ($575,000); and (3) 25% of the appreciation of husband's 25% share of Foods ($686,875). The court also declared the husband's annual bonus to be marital property.

As for maintenance, the court awarded the wife spousal support in the amount of $2,816.66 per month until her death. The court also ordered the husband to maintain a $1 million life insurance policy for his wife's benefit and provided that in the event the policy was not in effect on his death, the amount of the insurance would constitute a pro rata lien against his estate.

The Appellate Division modified, on the law and on the facts and in the exercise of discretion, to provide: (1) the distributive award to the wife be reduced by (i) the share awarded the wife in the appreciated value of Trading and Foods ($630,937.50, representing one half of 25% of the increased value of the husband's interest in Trading and Foods [she would thus receive nothing in this category], (ii) the share awarded the wife in the husband's bonus ($59,998, representing one half of the total bonus paid), and (iii) a portion of the tax liability attributed to the husband resulting from the sale of marital assets; (2) that the distributive award include an additional $197,585, representing one half of the husband's Thomas McKinnon brokerage account (not in issue here); (3) that the award of spousal maintenance in the amount of $650 per week be limited to five years from the date of judgment, retroactive to July 13, 1992; and (4) that the provisions directing the husband to maintain a $1 million life insurance policy for the wife's benefit and establishing a conditional $1 million lien on the husband's estate should he fail to maintain the policy be deleted. As so modified, the judgment was affirmed.

IV.

The wife asserts that because the husband had some active involvement in Trading and in Foods, then the appreciation in value of those businesses, at least in some degree, is marital property subject to equitable distribution. She argues that the Appellate Division imposed a substantial nexus condition requiring a significant connection between the titled spouse's activity and the appreciation of the operating business assets. The wife argues that this (1) is contrary to legislative intent, which meant for the term "marital property" to be broadly construed, and (2) is contrary to this Court's holding and rationale in Price v. Price, 69 N.Y.2d 8, 511 N.Y.S.2d 219, 503 N.E.2d 684, that a titled spouse's "active" contribution to the separate asset during the marriage transforms at least some portion of the appreciated value into marital property.

The husband counters, claiming that his activities amounted to "paper participation" only, and that this type of pro forma involvement had no actual impact on the appreciation in the value of the businesses. The husband asserts that absent some concrete showing by the wife of how his meager involvement actually benefitted the businesses' value, the appreciation in those...