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P.R., Plaintiff, v. D.R., Defendant.
Upon the conclusion of the Plaintiff's case, the Defendant moved by oral application to preclude the Plaintiff from seeking a distributive award with respect to two properties of which the Defendant is the titled spouse; to wit: a condominium located in Florida and a house located in Center Island, New York, on the grounds that the Plaintiff is the non-titled spouse and failed to prove the value of the properties.
The Plaintiff and the Defendant (the “parties”) were married on August 29, 1998.1 There is one unemancipated child born of the marriage. At the time of the marriage, the Plaintiff was a principal of Bridge Painting Enterprises of New York, Inc. (“Bridge Enterprises”), a bridge painting business that was founded by his father and ABC Platform, Inc. (“ABC Platform”), a business that erected suspension platforms to facilitate bridge painting. The Plaintiff purchased a Town House in 1989 for $ 380,000.00, for which he obtained a mortgage in the amount of $ 300,000.00. The parties lived in the Town House from 1997 until the Plaintiff's incarceration.
The Plaintiff was arrested in May of 2000 and charged with Second Degree Murder. Upon his release on bail, the Plaintiff transferred his business interests to his father. He testified that Bridge Enterprises and ABC Platform (collectively the “businesses”) relied on government contracts and, since he was a principal of both companies, his indictment prevented the businesses from bidding on government jobs. Shortly after the businesses were conveyed, the Plaintiff's father unexpectedly died, and the Plaintiff's uncle was named the executor of his estate. The Plaintiff requested that the businesses be transferred back to him, but his uncle refused, claiming that they were the father's property and should be distributed pursuant to his will. The Plaintiff commenced litigation against the estate seeking, in part, that the businesses be transferred back to him. The dispute was resolved in or about June of 2003, when the Plaintiff agreed to accept title of an industrial property located in College Point, New York, and commercial painting equipment to satisfy his claims against the Estate.
The Plaintiff's criminal trial began in or about September of 2001 and jury selection was underway during the terrorist attacks of September 11, 2001. Consequently, the Judge declared a mistrial and a new trial began later that month. The Plaintiff was convicted of Second Degree Murder in November of 2001. Prior to being sentenced, the Plaintiff moved for an order pursuant to CPL § 330.30(2) to set aside the jury verdict based on juror misconduct. The motion was granted, and the Plaintiff was released on bail pending a new trial.
In 2002, the Plaintiff transferred title of the Town House to the Defendant and the Defendant secured a mortgage, which she used to satisfy the remainder of the original mortgage. In May of 2005, following the conclusion of a jury trial, the Plaintiff was again convicted of Second Degree Murder and sentenced to a term of 18 years to life in prison.
The Plaintiff executed a Power of Attorney, granting the Defendant the authority to sell the industrial property he received from his father's estate. The property was sold in July of 2005 for $ 1,300,000.00 plus 750 yards of concrete. Though the property was titled in the Plaintiff's name, the buyer issued checks payable to the Defendant. The Plaintiff testified that this was necessary because the New York State Department of Corrections prohibits inmates from having bank accounts. He further testified that he did not recall if he gave the Defendant instructions as to the use of the proceeds, but he expected her to safeguard them, since he provided support for her and their child by other means.
In 2005, while incarcerated, the Plaintiff retained a broker to sell the painting equipment that he received from his father's estate. When asked about its value, the Plaintiff testified that, in 2005, the equipment was worth approximately $ 1,000,000.00. The purchaser paid for the equipment by checks made out to the Defendant. The Plaintiff testified that this was done “as a matter of convenience,” since the Plaintiff was incarcerated. Copies of the checks were submitted as Plaintiff's Exhibit 11 and total approximately $ 250,000.00. Some of the payments were issued to Design Consulting, Inc. (“Design Consulting”), a business entity formed by the Defendant to receive commissions for consulting work performed by the Plaintiff. When asked why some of the payments for the painting equipment were made payable to Design Consulting, the Plaintiff testified that he didn't know. He further testified that he instructed the Defendant to safeguard the money, so he could use it to start a new business when he was released from prison but that she used the funds to maintain her lifestyle.
In addition to the industrial property and painting equipment, the Plaintiff testified that he inherited other assets from his father, including a payout from his life insurance policy, an unspecified amount of cash, proceeds from the sale of a boat and between $ 250,000.00 and $ 350,000.00 from his pension, which the Defendant used to pay the family's living expenses and legal fees. A portion of the money was deposited into the Defendant's existing bank account.
In 2007, the Defendant renovated the Town House. The Plaintiff testified that she used his inheritance to pay for the renovation and that she did a “beautiful job.” The Defendant and the parties' child continued to live in the Town House until 2011, when the Defendant purchased a house located in Center Island, New York (the “Residence”). The Plaintiff testified that he participated in every step of the purchasing process, including price negotiations. He further testified that the down payment used to purchase the Residence was paid from his inheritance and the rest was financed. The Plaintiff later testified that the Defendant, without his knowledge, borrowed $ 100,000.00 from her brother to purchase the Residence. The Town House was sold in 2012 for $ 480,000.00. The Plaintiff testified that he was involved with the sale to the extent that he approved the sale price. He further testified that the sale netted approximately $ 455,000.00, of which $ 100,000.00 was used to repay the Defendant's brother.
The Plaintiff testified that in 2006, the Defendant asked him for permission to cosign a mortgage to help her brother and sister in law finance a condominium in Florida (the “Florida Condo”). He further testified that he did not learn that the Defendant's name appeared on the title of the Florida Condo until sometime in 2016.
With respect to the Defendant's income, the Plaintiff testified that she traded stocks and made real estate investments at his direction. He further testified that he told their accountant that money deposited into Certified Consulting's bank account was earned by the Defendant. The Plaintiff is currently incarcerated at the XXXX Correctional Facility where he is serving a sentence of 18 years to life. He is eligible for parole in January of 2021.
The Plaintiff commenced an action for divorce on or about May 9, 2016 and the trial commenced on November 7, 2018. The Plaintiff's counsel called only one witness, the Plaintiff, before resting on December 5, 2018. Thereupon, the Defendant, by her counsel, made the instant application. The Court granted the Plaintiff time to submit a memorandum of law, which they submitted on December 6, 2018. The Defendant's counsel responded orally on the same day. At the parties' request, the trial was adjourned pending the Court's determination of the Defendant's motion.
CPLR § 4401, titled “Motion for judgment during trial”, provides that
Any party may move for judgment with respect to a cause of action or issue upon the ground that the moving party is entitled to judgment as a matter of law, after the close of the evidence presented by an opposing party with respect to such cause of action or issue, or at any time on the basis of admissions. Grounds for the motion shall be specified. The motion does not waive the right to trial by jury or to present further evidence even where it is made by all parties.
At the conclusion of the Plaintiff's case, the Defendant's counsel moved to preclude the Plaintiff from seeking a distributive award with respect to the Florida Condo and the Residence. He argued that, by failing to introduce evidence as to the value of the properties, the Plaintiff effectively waived his right to seek a distributive award. In a Memorandum of Law submitted by the Plaintiff on December 6, 2018, his counsel argues that the issue before the Court is the classification of the properties as either separate or marital property. He further argues that neither party presented documentary evidence of how the properties are titled and that both parties list the values of the properties in their Statements of Net Worth, which were submitted into evidence as Plaintiff's Exhibits “27” and “28.” The Plaintiff suggests that, if the Court determines that the properties are marital property, the Court should award each party a distributive award as a percentage of the properties' value and appoint a neutral licensed appraiser post-trial to determine the actual value.
In response to the Plaintiff's Memorandum of Law, the Defendant argues that, if the Court determines that either of the properties are the Plaintiff's separate property, then the Court would effectively be distributing 100% thereof to the Plaintiff, which distribution should still be precluded. On this latter point, the Court disagrees. Separate property is not subject to equitable distribution. D.R.L. § 237(B)(5); Rizzo v. Rizzo, 120 AD3d 1400 (2nd Dept. 2014). Thus, the Court must first determine if the properties are marital property before it can determine if the Plaintiff had an obligation to produce evidence of their value.
Property acquired during the marriage is presumed to be marital property and the party seeking to overcome such presumption has the burden of proving that the property in dispute is separate property. D.R.L. § 236(B)(1)(c); Judson v. Judson, 255 AD2d 656 (2nd Dept. 1998). Both the Residence and the Florida Condo were acquired during the parties' marriage and, therefore, are presumed to be marital property. Since the Plaintiff is seeking a determination that the properties are his separate property, he bears the burden of tracing the funds used to purchase them. Judson, supra; Aloi v Simoni, 82 AD3d 683 (2nd Dept. 2011). The Plaintiff claims that the funds used to purchase the properties came from the inheritance he received from his father's estate and from a settlement with the estate in 2005.
With respect to the Florida Condo, the Plaintiff testified that it was purchased using marital funds. In his Statement of Proposed Disposition, the Plaintiff listed the Florida Condo as a marital asset and, at trial, he failed to trace any of the funds used to purchase the Florida Condo to his separate property. Foremost, the Court is unsure if either party has an ownership interest in this property. If they do, since the Florida Condo was acquired during the marriage and the Plaintiff testified that it was purchased using marital funds, it is, at best, marital property subject to equitable distribution.
The Plaintiff testified that the Residence was purchased using his separate property. In support thereof, the Plaintiff submitted statements from a Fidelity Investments account showing withdrawals totaling $ 250,000.00 in August of 2011, corresponding deposits in the Defendant's checking account and checks issued by the Defendant from that account to purchase the Residence. Thus, the Plaintiff has established that some of the money used for the down payment came from the Fidelity Investments account. However, he failed to establish that said account was his separate property.
The Plaintiff testified that he funded the Fidelity Investments account from his inheritance and that the Defendant used the account to day trade. However, the account is titled in the Defendant's name and the Plaintiff did not provide documentary evidence tracing the funds to his separate property. He further failed to establish that mortgage payments for the Residence were paid using his separate property. All the financial accounts identified by the Plaintiff are titled in the Defendant's name. Even if the funds in those accounts were separate property, they have been commingled with marital property during the Plaintiff's incarceration. For example, the Plaintiff testified that Design Consulting was created to allow the Defendant to collect commissions earned by the Plaintiff. Since those commissions were earned during the marriage, they are marital property. The Plaintiff further testified that commissions totaling approximately $ 700,000.00 were deposited into Design Consulting's bank account. A portion of the proceeds from the sale of the painting equipment, which the Plaintiff claims is his separate property, was deposited into the same account. On at least one occasion, the Defendant transferred $ 15,000.00 from Design Consulting's account to the account from which the down payment for the Residence was paid 2 (the “Capital One Account”) and at least one transfer of $ 7,000.00 was made from the account where the proceeds from the sale of the industrial property were deposited to the Capital One Account. (See Plaintiff's Exhibits 8 and 19). Moreover, for the reasons set forth below, the proceeds from the sale of the Town House are marital property and were also deposited into the Capital One Account.
The Plaintiff testified that the Defendant lived in the Town House for approximately six years after he was incarcerated. He further testified that she did a “beautiful job” renovating the Town House before it was sold. The Plaintiff purchased the Town House for $ 380,000.00 and it was sold for $ 480,000.00. Since the Defendant maintained and improved the Town House in the Plaintiff's absence, its appreciated value constitutes marital property. Patricia B. v. Steven B., 186 AD2d 609 (2nd Dept. 1992). Moreover, the Plaintiff transferred the title of the Town House to the Defendant prior to his conviction, thereby creating a presumption that he intended to convert his separate property interest therein to either marital property or the Defendant's personal property. Geisel v. Geisel, 241 AD2d 442 (2nd Dept. 1992). The burden to rebut this presumption falls on the Plaintiff. Cassara v. Cassara, 1 AD3d 817 (3rd Dept. 2003). The Plaintiff testified that he transferred ownership of the Town House to the Defendant because he was not permitted to own property while he was in prison.3 However, this claim is belied by a directive from the New York State Department of Corrections, which states that inmates cannot keep existing checking accounts or open new accounts but may keep other pre-existing assets. (Plaintiff's Exhibit 35). Thus, the Plaintiff failed to adequately rebut the presumption that he intended to transmute his separate interest in the Town House to marital property and, therefore, the proceeds from the sale of the Town House are marital property. Once separate property is commingled with marital funds, it becomes marital property. McManus v. McManus, 298 AD2d 189 (2002); Judson, supra, citing Carney v. Carney, 202 AD2d 907 (3rd Dept. 1994). Therefore, even if the Plaintiff established that the funds transferred from the Fidelity Investments Account were separate property, which he did not, those funds were commingled with the proceeds from the sale of the Town House and would, presumptively, be transformed into marital property.
Furthermore, the Defendant's name appears on the deed and the mortgage for the Residence and the Plaintiff's name does not. Therefore, even if the Plaintiff had traced the funds used to purchase the Residence to his separate property, which he did not, he still failed to rebut the presumption that placing the Defendant's name on the deed evinces his intent that the Residence be marital property. Geisel, supra.
Accordingly, since the Plaintiff failed to adequately trace the funds used to purchase the Residence to his separate property and because he further failed to rebut the presumption that he intended the Residence to be marital property, any equity in the Residence is marital property, subject to equitable distribution.
As the non-titled spouse, the Plaintiff has the burden of proving the value of the Residence and the Florida Condo to afford the Court a sufficient basis upon which to grant a distributive award. Iwahara v. Iwahara 226 AD2d 346 (2nd Dept. 1996). Upon the failure of the non-titled spouse to prove the value of a marital asset, the Court must decline to make a distributive award regarding that property. Alper v. Alper, 77A.D.3d 694 (2nd Dept. 2010). Indeed, the Second Department has routinely held that, where a non-titled spouse fails to meet their burden of proving the value of a marital asset, the court should not award an equitable share of the unvalued property to the nontitled spouse. Matter of Seckler-Roode v. Roode, 53 AD3d 616 (2nd Dept.2008); citing Tabriztchi v. Tabriztchi, 130 AD2d 652 (2nd Dept. 1987).
Here, the Plaintiff failed to provide appraisals or expert testimony proving the value of the properties. The only evidence purporting to establish their value is contained in the parties' Statements of Net Worth. Therein, the Plaintiff estimates that the Residence is worth $ 1,500,000.00 and that the Florida Condo is worth $ 300,000.00. The Defendant estimates they are worth $ 1,200,000.00 and $ 200,000.00, respectively. The parties' valuations differ by $ 400,000.00 and neither party explained how they determined the same. No additional evidence was provided to help the Court determine if either party's valuation is accurate and averaging the valuations or choosing one arbitrarily is improper. Gainer v. Gainer, 111 AD2d 308 (2nd Dept. 1985) (holding that a court may not avoid its responsibility to determine the value of property by simply averaging the values urged by the competing parties). It is not enough that the court merely determine a value without making further findings to show how the value was ascertained. Capasso v. Capasso, 119 AD2d 268 (1st Dept. 1988). Indeed, the valuation of marital assets must be founded in economic reality and the non-titled spouse has the burden of establishing the value using actual evidence. Iwahara, supra citing Harmon v. Harmon, 173 AD2d 98 (1st Dept. 1992); Culnan v. Culnan, 142 AD2d 805 (2nd Dept. 1988). Thus, the unsubstantiated valuations contained in the parties' Statements of Net Worth are not credible evidence and the Plaintiff has failed to meet his burden to prove the value of the properties.
In the Plaintiff's Memorandum of Law, his counsel argues that this Court should award each party an equitable percentage of the properties' value and appoint a neutral appraiser to determine the actual value of the properties after the trial has concluded. In support thereof, the Plaintiff cites to Lukacs v. Lukacs, 238 AD2d 483 (2nd Dept. 1997). In Lukacs, the trial Court found that the wife was entitled to equitable distribution of her husband's one-third interest in an apartment building, to which the wife contributed her efforts during the marriage. The parties failed to offer evidence of the value of the building as of the date of the trial and the Court ordered that an appraisal be conducted immediately after the trial. The Court further ordered that the husband purchase the wife's interest within 90 days for fair market value or the husband's one-third interest would be sold and the wife would be paid from the proceeds of that sale. The appellate court held that the lower court properly ordered that an appraisal be conducted immediately after the trial to determine the value of the appreciation, since the parties failed to offer any evidence of the current value of the apartment building at trial. Id.
The Court in Lukacs appears to break from every other Second Department case, which require a non-titled spouse to prove the value of marital assets. However, upon a closer reading, it appears that the issue on appeal in Lukacs may have been limited to the date of the valuation. The court held that the parties failed to offer evidence of “the current value of the apartment building [emphasis added]” and cites to Kirshenbaum v. Kirshenbaum, 203 AD2d 534 (2nd Dept. 1994) and Wegman v. Wegman, 123 AD2d 220 (2nd Dept. 1986). In Kirshenbaum, the court held that active assets should be valued as of the date of commencement. In Wegman, the court held that passive assets should be valued as of the date of the trial. Neither case addresses the burden of proof borne by a non-titled spouse and Lukacs has never been cited with respect to that issue. Either way, this Court is guided by the well-settled rule that the non-titled spouse bears the burden of proving the value of an asset of which they seek a distributive award. Iwahara, supra. Absent such proof, the Court must decline to make a distributive award of the unvalued asset. Alper, supra.
Here, in failing to meet his burden to prove the value of the properties, the Plaintiff deprived the Court of the information necessary to make a distributive award. Moreover, without knowing the amount of money that may be subject to distribution, the Court cannot properly consider the effect of the Plaintiff's criminal conviction and incarceration on the parties' finances and their family's stability and well-being. Linda G. v James G., 156 AD3d 25 (1st Dept. 2017) (holding that, in dividing marital assets, trial courts are empowered with “broad discretion” and may consider the impact that the criminal acts and incarceration of one party have on the parties' finances and their family's stability and well-being).
Accordingly, the Defendant's application to preclude the Plaintiff from seeking a distributive award of the Residence or the Florida Condo is GRANTED.
The parties and their counsel are directed to appear before this Court on January 18, 2019 at 9:30 A.M. to resume the trial of this matter.
Any other relief sought herein and not specifically ruled upon is denied.
This constitutes the Decision and Order of the Court.
1. The parties entered into a Prenuptial Agreement dated August 13, 1998. Article 9 of the Agreement provided that the entire Agreement and every provision therein would be null and void after the parties had been married for a period of ten years or more “as if the within agreement had never existed.” The parties were married for approximately 18 years prior to the date of commencement.
2. See Check Number 1564 contained in Plaintiff's Exhibit 19.
3. The Plaintiff testified that he did not transfer his assets to the Defendant to make them “judgment proof” and that no lawsuits related to his conviction were filed against him.
Joseph H. Lorintz, J.
Response sent, thank you
Decided: December 28, 2018
Court: Supreme Court, Nassau County, New York.
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