Should You Take Your Spouse to the Cleaners by Cheryl Stein

There is often a misconception that many divorcing parties want to milk their spouse dry, leaving them to be a homeless bum in a cardboard box on the street. The overwhelming majority of divorcing parties that I’ve encountered do not fall into this category; many are scared and just want to know that, at the end of the day, they’ll get what they need. For those who DO want to milk their spouse dry, the law may not be in their favor.

The maintenance legislation was revamped at the end of 2015 and became effective in January 2016. Under the new law, people who have been out of the workforce for a long time are typically at more of a detriment than they were under the old law. The law sets the maintenance cap at $178,000 of the payor’s income and imposes more stringent and often less generous caps on the duration of the pay-out.

A professional woman who left her high income, fast paced, quickly evolving career 8 years ago to get married and be a full time home-maker, upon the couple’s mutual agreement, may only be entitled to 2.4 years of maintenance under the law, which mandates the pay-out to be 15% – 30% the length of the marriage for marriages up to 15 years. Further, as has always been, the maintenance would be taxable to her as income and tax-deductible to him, netting her less than the designated amount after Uncle Sam’s helpings. This couple may have built themselves up to a comfortable lifestyle based on his income but did not acquire a lot of assets to allocate in equitable distribution. She may feel resentful that her husband now has a glorious career, which he was able to nurture and focus on due to her home-making efforts, and that she will never be able to catch up. Her killer instincts may kick in. She may feel that milking her spouse and hanging him out to dry is the only way she can level the field and get her needs met, especially when trying to spread the resources from one household into two. She may end up knocking her head against a lot of brick walls in such pursuit.

Under the new law, enhanced earning capacity, which was always a hot and controversial topic surrounding the valuation of licenses and degrees, is no longer considered marital property to be distributed in equitable distribution. We still account for the efforts and contributions the non-titled spouse made to the enhanced earnings of the titled spouse, but the non-titled spouse has the burden of proving what the value is and that their contributions were substantial and direct; if they fail to prove either, no can do! Overall, the distributive awards on enhanced earning claims are uniquely low.  

As for equitable distribution of businesses, 5% – 33% is the general range awarded to the non-titled spouse. The non-titled spouse has the burden of proving the value, as well as the direct contributions of the titled spouse and his/her own direct and indirect contributions as the non-titled spouse. Business valuations are often expensive and can significantly balloon the already hefty divorce expenses.

There is also the concept of double and triple dipping, where you’ve captured income too many times. Once an income stream is monetized and distributed towards one pay-out, it cannot be used for another pay-out.

Classic double dipping cases involve intangible assets, such as professional licenses, good will, and the value of a service business, and not tangible income producing assets, such as real-estate. Once the intangible asset has been monetized as an asset (via capitalization of the income to a future period) and distributed as such, it can no longer be counted towards maintenance.

Therefore, non-titled spouses try to argue that what’s on the table is a tangible asset, and the non-titled spouse tries to argue that it’s a service business and play up the goodwill factor involved. Classification of the asset is key. 

Surprise! There is also a common desire to want to share in the assets but not the debts. However, courts typically allocate the debt as well; you obviously can’t just take the assets and none of the debts. Once the debts are distributed, what is left of the assets may be nothing to write home about.

Before expending a lot of time, money, energy and resources in a quest to take your spouse to the cleaners, learn what’s involved. You may want to choose your battles carefully.

Feel free to contact The Law & Mediation Offices of Cheryl Stein with any questions.

Cheryl Stein, Esq.
The Law and Mediation Offices of Cheryl Stein
Offices in Manhattan and Brooklyn
Phone: (646) 884-2324
E-mail: cheryl@cherylsteinesq.com