“Knowledge is knowing that a tomato is a fruit; wisdom is not putting it in a fruit salad.” —Miles Kingston

Domestic Relations Law (DRL) §236B(d) provides us with the definition of “Separate Property”: “The term separate property shall mean: (1) property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse; (2) compensation for personal injuries; (3) property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse; (4) property described as separate property by written agreement of the parties pursuant to subdivision three of this part.” When this statute became effective on July 19, 1980, few attorneys or legislators could have envisioned the conundrums and contests that would envelope the disposition of claims concerning the characterization of property as either “marital” or “separate”; nor could anyone envision the multitude of published decisions addressing separate property claims that would be generated thereafter.

Generalized categories of separate property versus marital property court opinions were distilled by Joseph A. DeMarco and Alyssa Eisner, in their continuing education materials prepared for the New York Chapter of the American Academy of Matrimonial Lawyers, as follows: (1) “Commingling” consists of those cases where “separate property can lose its character as separate property during the course of the marriage due to the commingling of the separate property asset with marital funds”; (2) “Transmutation” were those where “separate property [could] lose its character as separate property during the course of the marriage due to the transmutation of the separate property into marital property as a result of the acts of the separate property holder”; (3) “Appreciation” cases related to subdivision 3 of DRL §236B (d) (see above) where it is claimed that marital property was the appreciation in value portion of separate property representing an increase in value that accrued over the course of the marriage was “due in part to the contributions or efforts of the other spouse”; (4) cases where the presumption of “marital property” was “rebutted” when the commingling occurred “solely as a matter of convenience” or when there was a “lack of donative intent”; (5) cases involving the “presumption of [a] joint tenancy” under Banking Law §675 (a); (6) cases involving an origination credit to the separate property contributor where there has been a commingling or a transmutation or appreciation in value of the separate property; (7) those cases involving the tracing of separate property from one asset to another and, possibly, on again into other assets; and (8) decisions that address the situation where there could be no other, alternative source for the asset other than one party's separate property. This brings us to three decisions of interest.

In O'Reilly-Morshead v. O'Reilly-Morshead, 163 A.D.3d 1479 (4th Dept. 2018), the parties “traveled to Vermont and entered into a civil union under the laws of that state” on June 9, 2003 and they were subsequently married in Canada exactly three years later on June 9, 2006. All of this predated the adoption of same-sex marriage in the state of New York under the Marriage Equality Act. The defendant moved in the Supreme Court for summary judgment declaring that the property acquired during the three years of the civil union preceding the marriage was “marital property” under DRL §236B. Of course, the plaintiff opposed that motion and cross-moved for an order determining that property acquired during the civil union period predating the marriage to be “separate property.” The lower court sided with the plaintiff and declared the property to be separate and not subject to equitable distribution, and the defendant appealed.

On appeal, the Fourth Department, while declining to treat the civil union as being the equivalent of a marriage, reversed the lower court and determined that the property acquired during the period of the civil union was “marital property” for equitable distribution purposes on the basis of comity accorded to the laws of Vermont where the civil union occurred, citing the Court of Appeals decisions in two custody cases (Debra H. v. Janice R., 14 N.Y.3d 576 (2010) and Matter of Brooke S.B. v. Elizabeth A.C.C., 28 N.Y.3d 1, 22 (2016)), along with the Vermont policy of granting the rights of divorcing spouses for a property division to those partners terminating a Vermont civil union (see DeLeonardis v. Page, 188 Vt. 94, 101, 998 A.2d 1072, 1076 (2010)).

The second decision, handed down in 2017, resonates with several of the issues identified by attorneys Demarco and Eisner and which overlap one another. In Nadasi v. Nadel-Nadasi, 153 A.D.3d 1346 (2d Dept. 2017), the Appellate Division, among other things, modified the determination of the trial court that a business apartment in Manhattan was the plaintiff-husband's separate property. The appeals court confirmed the determination below that the plaintiff had overcome the presumption of marital property by tracing a separate property contribution “with sufficient particularity” to his post-marriage acquisition of his initial 20 percent interest in that apartment through, to and from commingled funds contained in a joint bank account held with the defendant-wife. The Appellate Division also confirmed that the subsequent, post-acquisition appreciation in value of the husband's 20 percent interest was separate property because it related to “market forces.” However, the court then went on to find that the husband's purchase of an additional 13.33 percent of the business apartment at the time of a post-marriage refinancing was marital property because the additional interest was made “presumably with marital funds.”

Lastly, in Giannuzzi v. Kearney, 127 A.D.3d 1350 (3d Dept. 2018), the Appellate Division affirmed the lower court determination that the wife's IBM stock, which she had inherited from her grandfather before the marriage, remained her separate property. Throughout the marriage, the stock remained in accounts titled solely in the name of the wife. The husband argued, nevertheless, that the stock had been transmuted into marital property because the parties filed joint income tax returns on which the stock dividends had been reported (and presumably taxed), the dividends were used to supplement the marital standard of living, and the shares of stock constituted the collateral for a loan that the parties had taken in order to finance the purchase of some properties located in the State of Florida. The Third Department found that the filing of a joint return declaring the separate property income did not work a transmutation merely because the wife took advantage of the lower tax rates for married parties filing jointly. Likewise, the higher court concluded that using the dividend income from the separate property stock to pay marital expenses did not transform the stock into marital property. And, the Appellate Division analogized the pledge of the stock as collateral for the loan to those cases where a separate property asset is used to pay a marital debt thereby entitling the separate property title holder to a separate property credit of the use of separate property in order to acquire a marital asset.

These cases all illustrate the utilization of a common sense notion of equity when courts are called upon to determine the separate or marital character of property owned and utilized by married parties throughout the course of their marriage.

Alton L. Abramowitz limits his practice to matrimonial and family law. On Jan. 1, 2019 his firm will merge with Schwartz Sladkus Reich Greenberg Atlas, where he will chair the firm's family law department. He is a past national President of the American Academy of Matrimonial Lawyers and a past Chair of the New York State Bar Association's Family Law Section.