New Page 1
O’Brien Revisited: Impermissible
Separate Property Capture Exacerbates Reality Gap
Timothy M. Tippins, Esq.
Copyright 2001 by MatLaw Systems Corp.
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
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.
Everyone brings certain innate qualities to bear
upon their life activities. These are the talents, skills, energy and motivation
with which one is born or which one acquires early in life. These separate
property attributes are often brought to bear on activities that enhance one’s
earning capacity. Accordingly, they should be factored out fully from any
equitable distribution award based on an enhanced earning capacity claim.
While subtraction of the baseline earnings
ostensibly excludes premarital separate property elements, the assumption that
it does so fully is dubious at best. The baseline earnings stream is generally
based on database derived “averages”. For example, in O’Brien, the
husband was credited with having a Bachelor’s Degree as of the date of
marriage. His baseline was computed on what an “average” Bachelor’s Degree
holder would presumably have earned over the course of the husband’s
work-life. But is it fair to assume that someone who has proven himself
possessed of the intellect, the drive and the stamina to complete a medical
education is only “average?” Does not the fact of that accomplishment compel
the conclusion, a fortiori, that the professional spouse is above
Take another example. Suppose Bill Gates, one of
the wealthiest people on the planet, had not dropped out of college. Assume
further that after attaining a Bachelor’s Degree, he had married and then gone
on and received an advanced degree or professional license. Under O’Brien,
his baseline would have been predicated upon the projected earnings of the
average Bachelor’s Degree holder, yet he has proven himself to be anything but
average. By holding his baseline to such an average, the value of his innate
abilities, clearly his separate “property,” is suppressed. As a result of
this suppression, a separate property value is improperly included in the
valuation of the enhanced earning capacity attributed to the degree or license.
And, to the extent that the courts make no effort to adjust the value to account
for this suppression, they impermissibly classify it as marital property. It
stretches neither logic nor common sense to suggest that many who achieve
educational credentials would have achieved above average success if their
talents had led them in directions that did not require a degree or license.
This issue could be dealt with either in the
valuation process, by adjusting the baseline upwards, to reflect the above
average attributes the spouse brought to the educational endeavor, or by a
classification adjustment to factor them out of the marital estate.
The same is true with respect to
post-commencement factors. The O’Brien methodology makes no adjustment
for post-commencement efforts that should be classified as
separate property. In contexts other than enhanced earnings analysis, every
penny earned after commencement of a matrimonial action through
post-commencement effort is separate property.[iii] Because the O’Brien
computation embraces earnings that extend past the commencement of the action,
i.e., earnings actualized by post-commencement effort, it shepherds separate
property into the marital estate. Only if one were to indulge the fiction that
the license produces the earnings automatically, almost mystically,
without any post-commencement effort, would those earnings truly be
While one might argue that the post-commencement
separate property component is factored out because the baseline earnings are
also computed to retirement, the argument fails unless one is willing to assume
that the effort and risk assumption of generating baseline earnings is identical
to that required to realize the top-line earnings. This is not necessarily so.
The baseline “average” may well include government employees who generate
their earnings by working 37˝ hours per week, as well others who bask in
relatively secure employment. This is decidedly different from the time, effort
and risk assumption typically required to build and maintain the professional
careers that are included in the top-line earnings stream.
The optimal solution to this classification
anomaly is for the courts to carefully segregate the post-commencement earnings
attributable to the license, per se, from those that spring from
post-commencement effort. In other words, deal directly with the problem as the classification
issue that it is. To date, the courts have not done so, possibly because of the
failure of practitioners to diligently develop the record with respect to the
As most experienced practitioners and many
trial judges are aware, enhanced earnings cases present special challenges.
Because the valuation methodology is driven by work-life expectancy, it produces