Legal Separation in New York State

Certain formalities must be followed for legal separation to qualify as grounds for divorce in NY. Simply living apart, without a written separation agreement or a court judgment of separation will not stand up to New York State divorce laws. You must have a detailed contract, which states that the parties agree to live separate for the rest of their lives and shall also set forth the rights and duties of the husband and wife with respect to child custody, child visitation, child support payments, distribution of property, and all other matters pertaining to the marital relationship. After one year of filing a judgment of separation, as well as one year of living apart, either party may sue for a “no fault” divorce. However, divorce in NY is not automatic and court action must be taken. Before the court, each case shall stand on its own facts and will be governed by divorce law in New York State. (click here to continue)

The marital home is often the largest asset of the marriage and linked with many emotional issues. All these emotional and financial issues must be considered before its distribution is finalized. The financial points that need to be addressed are listed below and are organized in the following manner: The Sale of the Home: tax issues, equitable distribution issues to be considered and planning points; Mortgage Interest and Real Estate Taxes: tax issues and planning points.

SELLING THE MARITAL HOME- tax issues

1-If husband and wife have lived in and owned their primary residence 2 out of 5 years from the date of the sale, then they may exclude the first $500,000 of gain from taxable income. If they are already legally separated or divorced and filing as single or head of household, and title is one name, then the gain exclusion is $250,000. The ability to use this provision is limited to once every 2 years, with certain exceptions. If gain exceeds these limits, or the gain was earned in less than 1 year at the time of sale capital gains rules apply.

2-If spouses have joint ownership of the marital home and one moves out giving exclusive possession to the other spouse, the departing spouse can take advantage of the tax benefits as mentioned above when the house is sold. Also, if the house were transferred to the remaining spouse from the departing spouse, the remaining spouses holding period includes the period that the transferor-departing spouse owned the property. (click here to continue)

The Court of Appeals decision in O’Brien v. O’Brien,[i] declaring a professional license, together with the enhanced earning capacity imputed to it, to be marital property, presents a plethora of doctrinal and practical difficulties that have largely fallen to the trial courts and practicing bar to accommodate in fashioning equitable case resolutions.

Classification Flaw Inflates Marital Property Value

One doctrinal flaw is that the valuation methodology adopted in O’Brien captures separate property elements that do not properly belong in the marital estate.

The valuation technique computes the present value of the likely future earnings of the professional spouse to an assumed retirement date. These are referred to as the “top-line” earnings. It also calculates the present value of the earnings that probably would have been realized without the license, referred to as “baseline” earnings. The difference between the two represents the enhanced earning capacity attributed to the license.[ii]

This valuation method fails, at least in part, to segregate separate property components of enhanced future earnings. There are two separate property elements that the valuation process fails to fully consider: (1) the innate talent and ability that the professional spouse brings to bear on the educational process, and (2) the post-commencement effort required to produce the post-commencement earnings. (click here to continue)