Divorce/photo courtesy of Shutterstock.com

A decision by the state's highest court this week affirmed that divorce judgments are entered, and therefore don't need to be docketed, in a case that had the potential to have long-reaching effects on property assets after the end of a marriage.

Attorneys for the defendant in the litigation said Wednesday that if the Court of Appeals had ruled differently, the decision would have opened a “parade of horribles” for both the state's domestic relations law and couples seeking divorce.

The case is actually before the U.S. Court of Appeals for the Second Circuit in Manhattan, which had asked the New York Court of Appeals to resolve, once and for all, whether a judgment of divorce needs to be docketed everywhere the couple owned property, rather than entered in a single location.

The litigation involves Andrea and John Lakian, a now-divorced couple who previously owned property in Suffolk County when they were married.

They bought the house for $4.5 million in 2002 and spent almost as much improving the property. The title was placed in John's name alone, but was later transferred to a trust in which he and Andrea each had a 50% interest.

Andrea filed for divorce in 2013, after which she and John agreed to a stipulation of settlement that increased her interest in the property to 62.5%, plus an additional $75,000. The judgment of divorce, which included the stipulation, was entered in June 2015.

Important to the case, Andrea did not docket the judgment of divorce in Suffolk County.

One year before Andrea filed for divorce, Pangea Capital Management sued John, who was its managing member. The company accused him of fraudulently diverting millions of dollars to himself. The litigation was submitted to arbitration, which ended with a confirmation judgment awarding $14.5 million to Pangea in 2016. That judgment was from federal court in Manhattan.

Pangea docketed that judgment in Suffolk County in 2016. The Suffolk County house sold the following year, and net proceeds of more than $5 million were deposited with the district court.

Pangea moved to collect that entire amount, but Andrea cross-moved that she was entitled to 62.5 percent of the sale, plus $75,000. The district court ruled that Pangea was only entitled to the share of the proceeds awarded to John in the divorce judgment. The court granted Andrea's motion and awarded her more than $3.2 million. Pangea was awarded $1.8 million.

That decision was appealed to the Second Circuit. Pangea argued on appeal that its interest in the property had priority over Andrea's because it had docketed the judgment in Suffolk County, while she had not.

The broader question was whether Andrea needed to docket the divorce judgment in Suffolk County, which would have made her a creditor to John, or if she was considered an owner of the property after the judgment was entered in Manhattan. The Court of Appeals said the latter in its decision this week.

“Marital assets are not owned by one spouse or another, and the dissolution of a marriage involving the division of marital assets does not render one ex-spouse the creditor of another,” Associate Judge Rowan Wilson wrote. “Andrea therefore cannot properly be considered a judgment creditor of John.”

The ruling also upended a previous decision from the Second Circuit in Musso v. Otashko, according to Andrea's attorneys. She was represented before the court by Judith Richman, a managing member at Sonnenfeld & Richman.

The federal appellate court in dicta in Musso suggested enforcement of a judgment of divorce was no different than enforcement of any other judgment, implying that to establish priority over the assets of real property, an ex-spouse — like a creditor — has to docket a judgment in the county where the property is located. The ruling was based on a section of the law in New York on docketing requirements.

The dicta in the case, according to Richman, has largely been ignored, which is why the Second Circuit asked the Court of Appeals to settle it, once and for all. The decision this week said that, contrary to the federal appellate court's previous ruling, a judgment of divorce only need to be entered, not docketed.

That means Andrea, according to the Court of Appeals, had satisfied her obligations in ownership of the property when her divorce judgment was entered in Manhattan. Otherwise, divorced couples would have to docket that judgment everywhere they owned property to protect their interest. For wealthy couples, such as the Lakians, that could be an arduous task.

“That is significant because, if for any reason they had said otherwise, that undoes basically what the equitable distribution law has said, and it would cause all sorts of havoc,” Richman said.

Richman, in a phone interview, said that if the New York Court of Appeals had ruled differently, it would have been a blow to how matrimonial law is currently viewed in New York.

“We thought the decision was correct and terrific,” Richman said. “Had they ruled that what has always been vested rights were converted back to creditors rights, It would undue equitable distribution, basically.”

The litigation will now head back to the Second Circuit for a final decision on the appeal from Pangea. The company was represented before the Court of Appeals by Caitlin Bronner from Ingram Yuzek Gainen Carroll & Bertolotti in Manhattan. Bronner was not immediately available for comment Wednesday.

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