Many clients of our firm have had matrimonial disputes that involve significant property that was acquired by one of the parties prior to the date of their marriage. Such cases often present complex legal and financial issues. Frequently, the premarital property is in the form of real estate or securities. In this month's edition New York Divorce Update, I will seek to clarify how New York's statutory (DRL 236(B)(1)(d)(3) and case law treats premarital property, and -- perhaps of even greater importance -- how New York's matrimonial judges have interpreted and applied such laws.

            (a) When Does the Issue of Premarital Property Arise?

            One fact to which any resident of the Tri-State region could attest is that the sun has shined brightly on New York City during the first seven years of the 21st Century. This was a period of unparalleled financial growth and success in nearly every sector of our region's economy. The resulting financial and material abundance led many New Yorkers to acquire valuable assets, such as cooperative apartments, securities, and business interests, oftentimes at relatively early stages of life. These assets, in turn, appreciated quickly and steeply. This has been particularly true in connection with real estate, which continued to appreciate in Manhattan as other parts of the country suffered disastrous real estate depreciation.

            In summary, because New Yorkers acquire wealth earlier than ever before, and often delay marriage much longer than ever before, there has been a tremendous rise in the number of New York divorce cases involving claims for equitable distribution of premarital assets.

            (b) Domestic Relations Law § 236(B)(1)(d)(1):

            Pursuant to New York's Domestic Relations Law, § 236(B)(1)(d)(1), property acquired by one of the parties before the parties' were married is "separate property." Therefore, such property is presumptively not subject to equitable distribution by the Court in a divorce action. However, pursuant to Domestic Relations law, § 236(B) (1) (d) (3), the appreciation of otherwise separate property is marital "to the extent that such appreciation is due in part to the contributions or efforts of the other spouse."

            In plain English, this means that if a property acquired prior the marriage increases in value merely because of market forces or fluctuations, the property remains exempt from distribution in divorce. It remains separate, as provided for under DRL 235(B) (5) (b), which succinctly states, "Separate property shall remain such."

            For there to be a valid claim for the increase in value of premarital property, it must first be shown that increase in value occurred as a result of the positive efforts by the titled spouse. In such circumstances, the non-titled spouse (the one who did not own the particular property prior to the marriage) can then assert that his or her indirect contributions, such as by contributing to the marriage as homemaker, entitle him or her to a share of the appreciation.

            In the case if Price v. Price, 69 NY 2d 8, (one of the watershed cases in New York divorce law) the New York Court of Appeals set forth a three-step formula regarding premarital property. First, it must be established that the property increased in value; second, that the appreciation was due in whole or in part to the efforts of the titled spouse; third, that the efforts of the titled spouse were aided, directly or indirectly, by the non-titled spouse.

            The efforts of the nontitled spouse may be in the form of intangible contributions, such as those made by a homemaker. However, such efforts will not be considered unless it is first established that the titled spouse took affirmative actions that led to the increase in value. This presents a challen1ging evidentiary burden to a spouse claiming an interest in the other spouse's premarital property. He or he must present testimony and evidence establishing that the appreciation was not passive but, rather, the result of conduct by the spouse. Oftentimes, this requires expert testimony regarding the valuation of the subject asset (both as of the date of marriage and the date on which the matrimonial action was commenced) and the factors that resulted in the increased value.

            Assuming that the claimant spouse succeeds in showing that the premarital asset increased because of some proactive conduct during the marriage, he or she must also establish their own contributions to the marriage.

            Recently, in the case Cheryl W. v. Harold W., (New York Law Journal, September 5, 2008, p. 29), JHO Stanley Gartenstein issued a decision in which he articulately summarized New York's divorce law regarding the appreciation of pre-marital property. The focus of JHO Gartenstein's analysis was on whether the plaintiff-wife was entitled to share of the appreciation of certain real estate of the husband that had been acquired before the marriage. The Court held that the defendant-husband established that the real estate properties were managed and controlled solely by his brothers, and that he had been completely uninvolved. Based on the foregoing, the Court determined that the plaintiff-wife had not satisfied the second step of the three-part Price formula.

            Clearly, New York is now entering a period in which rapid appreciation of assets will not longer be as common, there is no question that issues relating to premarital property will continue to play a prominent role in New York divorce cases.