When there is a change in marital status by reason of divorce or annulment, marital property is distributed “equitably,” in accordance with New York law (Domestic Relations Law §236 B.).
However, property, which is classified as “separate” property of the other spouse, is not equitably distributed under the statute. Such property includes property obtained prior to marriage or received by inheritance or by gift from a third party or acquired in a personal injury recovery. (The right of a spouse to share in the appreciation of the value of separate property, is a topic for another day.)
Although the divorce law is intended to be equitable, it is not always fair. For example, an unmarried couple (“Joe and Jane”) may purchase a home in Joe’s name, with funds contributed by both. If the couple then marry and divorce, the home is classified as “separate” property, as it was a pre-marital purchase. However, it is not unusual for one of the spouses to have made a substantial premarital contribution of funds to the purchase price, as well as paying the mortgage prior to and after marriage.
In one such case, the issue before the trial court was whether Jane’s pre-marital contributions should convert the separate property (home) into marital property which could then be equitably distributed by the court. The trial judge determined that as the wife had made substantial contributions of funds to the purchase and maintenance of the home, the result was to transform the home from separate property to marital property. The appellate court disagreed and held that the concept of equitable distribution did not permit the wife to recoup the funds she had contributed.
However, applying the “more than one way to skin a cat” analysis of legal issues, the appellate court pointed out that there is more than one way for the wife to recoup her contributions. Thus, the wife could recoup her equitable share of marital funds which she paid in reduction of the mortgage. In addition, the court pointed out that the wife could have asserted a claim against the husband for the imposition of a “constructive trust” to recover her contribution, on the theory that the husband would otherwise be “unjustly enriched”.
The moral is that unmarried couples who intend to purchase a home together should agree, in a properly drawn writing, to a formula for distribution of the value of the property, as well as purchase options and residency rights, in the event that the couple break up or marry and then divorce.