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Appreciation of Separate Property and Equitable Distribution Law

New York is an equitable distribution state. Meaning, that upon the dissolution of a marriage, New York courts typically distribute marital property equitably (but not necessarily equally) between the parties. Marital property is defined as “all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held….” Domestic Relations Law §236(b)(1). In equitably distributing marital property, the New York courts consider the fourteen factors identified in New York’s Domestic Relations Law § 236 (B)(5).

In contrast to marital property, separate property is not subject to equitable distribution. According to Domestic Relations Law § 236(B)(1).

Most people commonly understand that separate property that remains separate for the duration of the marriage, continues to be separate property at the dissolution of the marriage. While this is generally the rule, under New York law, the appreciation of that separate property can become marital property if the non-titled spouse can prove that the appreciation was due in part to their efforts. A showing of an indirect contribution to the appreciation of the property by the non-titled spouse is enough to cause the courts to treat that appreciation as marital property regardless of whether the titled spouse kept the asset or funds physically separated from marital property. See Hartog v. Hartog, 85 N.Y.2d 36 (1995).

New York courts have established a three-part test that the non-titled spouse must overcome when seeking to have the appreciation of the titled spouse’s separate property treated as marital property. Under that test, the non-titled spouse must show: (a) that the separate property appreciated in value; (b) that the appreciation was due in part to the efforts of the titled spouse; and (c) the efforts of the titled spouse were aided, directly or indirectly, by the non-titled spouse. See Price v. Price, 69 N.Y.2d 8 (1986). Note that the property must appreciate in value and only that appreciation may be subject to equitable distribution. Appreciation is calculated by contrasting the value of the property at the time of the marriage, or at the time of its acquisition, and its value at the time of commencement of the action. In determining whether appreciation was due to efforts of the titled spouse, the courts have used a “passive/active” test. In this test, the courts determine if an asset’s appreciation is attributable in part to efforts made by the titled spouse (active) or if appreciation is solely due to efforts made by third-parties or other market factors or circumstances beyond the titled spouse’s control (passive). And finally, to satisfy the third prong of the Price test, courts have found that spousal and homemaker services can be enough to give the non-titled spouse an interest in the appreciation of separate property. See Hymowitz v. Hymowitz, 119 A.D.3d 736 (2nd Dept. 2014).

When it comes to the Equitable Distribution Law in New York, distinguishing separate property from marital property requires thoughtful and tedious analysis dependent upon the specific facts and circumstances of your case. Whether you are the titled or non-titled spouse, William Guilford can help protect your rights to certain assets.