Separating assets when you divorce can be complicated. Some assets are easier to divide than others. Most tangible assets can be valued somehow and divided accordingly. But what about intangible assets? In marriages where one spouse has contributed to the other’s financial success, what is the value placed on that?
Dividing assets during divorce can be complex. While tangible assets are often easier to split, intangible assets are not. When one spouse has contributed to the other’s financial success, determining that value is challenging.
Dividing assets during divorce can be complex. While tangible assets are often easier to split, intangible assets are not. When one spouse has contributed to the other's financial success, determining that value is challenging.
New York has long recognized the value of the efforts of one spouse in building the financial success of the other. In some ways, a marriage is viewed like a business partnership, and when it dissolves, the courts look at the totality of each person’s contributions.
New York courts have awarded spouses compensation when they’ve contributed directly or indirectly, such as working to put the other person through school or handling the other person’s household and parenting responsibilities. “Success” has value, and someone who has contributed significantly to their spouse’s success can see that returned in some form during the divorce settlement.
What Contribution is Considered?
New York law has long stated that during a divorce, each spouse is entitled to an equitable claim based on contributions to the “career or career potential of the other party.” In a landmark 1985 New York case, a court went further and declared that a spouse who contributed to that career's success was entitled to a share of the future value of that career.
The O’Brien v. O’Brien case considered the classic scenario of a wife who’d worked to put her husband through school, only for him to divorce her shortly after he finished. As the court put it, “…nearly all of the parties' nine-year marriage was devoted to the acquisition of plaintiff's medical license and defendant played a major role in that project. She worked continuously during the marriage and contributed all of her earnings to their joint effort, she sacrificed her own educational and career opportunities, and she traveled with plaintiff to Mexico for three and one-half years while he attended medical school there.”
Two months after he got his medical license, the husband filed for divorce. The court reasoned it was unfair that he has a higher income now because of her sacrifice, yet she gets no value from it. Based on expert analysis, the court determined that the wife contributed 76% of the costs of his medical education and also provided housework. The husband claimed his medical license shouldn’t be considered marital property to be divided, but was his personal acquisition of knowledge. The court found that ultimately the medical license was a “thing of value” and spouses have an equitable claim to things of value arising out of the relationship.
The court made the comparison to a business partnership. It found that New York’s “equitable distribution” law was based on the premise that a marriage is, among other things, an economic partnership in which both parties contribute as spouses, parents, wage earners, or homemakers. Ultimately, the court found that under New York’s law, the wife’s contributions in this case “represent investments in the economic partnership of the marriage and [that] the product of the parties' joint efforts, the professional license, should be considered marital property.”
In the O’Brien case, experts calculated the lifetime value of a medical license, and the court awarded the wife 40% of that value based on her contributions, along with a lump sum of $188,000. This case was a significant change, to label future career success and earnings as “property” to be divided. Since then, in 2016, the law has changed slightly.
In 2016, the Legislature amended the law so that if one spouse has contributed to the “enhanced earning capacity” of the other, that contribution shall be considered in the equitable distribution, but the degree itself will no longer be considered actual “property.” This makes a technical difference, but practically, the contributions are still valued. But that value is offset by other portions of the settlement, such as maintenance payments, and not as part of the property division.
New Law Values Contributions to “Enhanced Earning Capacity”
The 2016 change to the law recognized the “enhanced earning capacity” that arises from a “license, degree, celebrity goodwill, or career enhancement.” While stating that this enhanced capacity is not to be labeled marital property, the law clarified that the value of contributions made to that capacity is to be considered in arriving at an equitable division of assets.
Of course, factors like the nature of the contribution, the length of the marriage, etc., will be considered. The idea is fairness and equitable proportion. Winding up a marriage is not unlike winding up a business partnership. When a business partnership dissolves, the value of a business isn’t just the money in its accounts. One partner may have brought in most of the clients, while the other managed operations. Both roles contribute to the success of the enterprise, even if in very different ways. And there is often “value” beyond the market value of a partnership, in terms of reputation, which increased “goodwill” is also a tangible asset in business terms.
In a divorce, a court should consider the totality of the marriage and each partner’s contributions. With regard to one spouse’s “enhanced earning capacity,” a court will consider all of the “money, effort, and lost opportunity for employment expended in its acquisition”.
Some examples of the type of “enhanced earning capacity” a spouse has been considered to contribute to are:
- The "Supportive Student" Spouse – such as the O’Brien case, where one spouse works to pay household bills and tuition while the other attends school;
- The "Career Sacrifice" or Homemaker Spouse – where one spouse quits or downsizes a job/career to handle most or all of the couple’s household and parenting responsibilities;
- The "Celebrity Maker" Spouse – where one spouse has a successful brand or persona and the other helped with management and publicist duties;
- The "Business Seed" Spouse – where one spouse invested money in the other’s business, or worked for free in the early years, etc.
It’s hard to find actual examples because most cases settle out of court. There is an older example of a celebrity case that shows how a spouse’s contributions can be considered. The 1991 New York case, Elkus v. Elkus, involved a wife who became a world-famous opera singer. The husband had worked as her voice coach for years, and also traveled with her and offered advice. He claimed he sacrificed his own career.
The court likened the wife’s opera career to the O’Brien husband’s medical degree, finding that the husband in Elkus enhanced the value of his wife’s opera career with his partnership and support. Both people contributed to the growth of her career, and the husband actively helped build the celebrity itself. Therefore, the husband’s contribution to the value of the wife’s career is part of the things of value in the marriage to be equitably compensated for.
The Elkus case was before the 2016 change in the law, so today that wife’s opera career wouldn’t be valued and divided as marital property, but the court still has the power to adjust the overall settlement to account for the contribution. In modern cases, the court can adjust the settlement to reflect the contributing spouse’s "investment". The result can be a larger share of marital assets or higher alimony (spousal support) for the contributing spouse.
When one spouse helps build the other’s career, business, or earning power, those contributions may matter more than many people realize in a New York divorce. Whether you sacrificed career opportunities, supported a spouse through school, managed the household, or helped grow a business or public profile, those efforts can play a major role in equitable distribution and support awards.
If you’re facing a divorce involving complex financial issues, professional licenses, business interests, or disputes over spousal contributions, our team at Bikel Rosenthal & Schanfield can help protect your interests. Call us today at 212.682.6222 to schedule a confidential consultation and discuss your options under New York law.