Author: LegalEase Solutions
When a party purchases real estate in New York by having a friend (who is married at the time of purchase) “buy” the property, such that the friend’s name is on the mortgage and title, but that party spent all the funds to acquire the property (held in constructive trust), can the property be treated as the marital property of the friend?
Generally, property obtained during a marriage is considered to be marital property under N.Y. Dom. Rel. Law § 236 (B)(1)(c). However, certain property may be excepted as “separate property” under N.Y. Dom. Rel. Law § 236 (B)(1) (d). For example, where the property is rental property, the presumption of martial property does not apply.
Similarly, where a spouse did not contribute anything, directly or indirectly, to the property it may be considered “separate property.” Further, documentary evidence that shows the property was not purchased with marital assets may be sufficient to rebut the presumption of marital property. Finally, when the property is held by one spouse in a constructive trust for the benefit of third party, equity dictates that the presumption of marital property does not apply.
(I) Marital Property
In New York:
The term “marital property” shall mean all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held, except as otherwise provided in agreement pursuant to subdivision three of this part. Marital property shall not include separate property as hereinafter defined.
N.Y. Dom. Rel. Law § 236 (B)(1)(c).
Further, 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.
N.Y. Dom. Rel. Law § 236 (B)(1) (d).
“Unless proven otherwise, all property acquired by either or both spouses during the marriage is marital property, regardless of in whose name title to the property is taken.” Lolli-Ghetti v Lolli-Ghetti, 165 AD2d 426, 431 (1st Dept 1991). “There is an exception for separate property, which is defined to include property acquired by gift from a party other than the spouse”. Id. “The statute provides a bright line ‘cut off’ date in order to classify assets as either marital or separate.” McMahon v McMahon, 187 Misc 2d 364, 366 [Sup Ct 2001] (quoting Sullivan v. Sullivan, 201 A.D.2d 417, 607 N.Y.S.2d 937 (1st Dept.1994)). “In general, the matrimonial action referred to in the statute is the action in which claims of equitable distribution are actually determined.” Id.
“Marital property is a creation of statute and ‘there is no common-law property interest remotely resembling marital property’” Sinha v Sinha, 285 A.D.2d 801, 802 (3d Dept 2001) (quoting O’Brien v. O’Brien, 66 N.Y.2d 576, 583 (1985)). Therefore, the statute “provides that ‘the court, in an action wherein all or part of the relief granted is divorce * * * shall determine the respective rights of the parties in their separate or marital property’” Id. (citing Domestic Relations Law § 236(B)(5)(a)).
Although “[p]roperty acquired during the marriage is presumed to be marital property subject to equitable distribution”, the party seeking to overcome this presumption has the “burden of proving that the property in dispute is separate property” Tsigler v Kasymova, 73 A.D.3d 1159, 1159-60, 902 N.Y.S.2d 128 (2d Dept 2010) (quoting Farag v. Farag, 4 A.D.3d 502, 503, 772 N.Y.S.2d 368 (2004); see Judson v. Judson, 255 A.D.2d 656, 657, 679 N.Y.S.2d 465 (1998)). In Tsigler, “the plaintiff successfully rebutted the presumption by demonstrating, through testimony and documentary evidence, that his interest therein was purchased solely with funds separate and apart from marital assets, including the proceeds of the sale of his premarital residence.” Id.
Similarly, “equitable distribution was inapplicable to a former marital residence, a rental apartment, because the apartment was not owned by the parties.” Cudar v Cudar, 98 A.D.3d 27, 34; 946 N.Y.S.2d 630, 636 (2012). “A leasehold interest in a rental apartment, even one subject to the rent control law, which is not expected to be converted into a form of ownership such as a cooperative, is neither marital nor separate property as defined by the Domestic Relations Law.” Id. at 35; 946 N.Y.S.2d at 637.
In Mahlab v Mahlab, 143 A.D.2d 116 (2d Dept 1988), wife brought a divorce action and the appellate court held that the defendant was not entitled to any distribution because “[t]he defendant did not directly or indirectly contribute to the appreciation of the property”. Id. at 116. The court noted that, “[n]o proof of any contributions by the defendant was presented nor did the defendant even allege that he had contributed to the property’s appreciation.” Id. The court further noted that “[i]t appears that the appreciation was “passive”, that is, predicated solely on an improving real estate market” and found that “the trial court properly denied the defendant a share of the appreciation” Id.
Similarly, it has been held that a marital residence that was transferred to a wife by her parents, was solely the property of wife, where such transfer “was effected only to secure marital loan and did not reflect any intent on wife’s part to make husband a co-owner of the premises.” Fitzpatrick v Fitzpatrick, 43 A.D.3d 991, 992 (2d Dept 2007) (citing Maher v. Maher, 144 A.D.2d 343, 344, 533 N.Y.S.2d 961 (2d Dept 1988)).
(II) Documentary Evidence
“In the absence of a written contract, there was no evidence before the court that either plaintiff or defendant held the requisite “valuable property rights” in the former marital residence to render it marital property.” Mattioli v Mattioli, 48 A.D.3d 1143, 1144-45 (N.Y. 4th Dept 2008). “[W]ith respect to the subject real property, the plaintiff successfully rebutted the presumption by demonstrating, through testimony and documentary evidence, that his interest therein was purchased solely with funds separate and apart from marital assets, including the proceeds of the sale of his premarital residence” Tsigler, 73 A.D.3d at 1160.
Moreover, in Barber v Barber, 246 A.D.2d 781; 667 N.Y.S.2d 788, 789 (1998), the court observed that “defendant offered no documentary evidence to support any of his assertions, particularly the claim that marital funds were used to purchase the property.” Id. “Further, the Chiotti court noted in that case that there is no evidence that these funds were either commingled with marital property or placed in the joint names of the parties.” Chiotti v Chiotti, 12 A.D.3d 995, 996 (3d Dept 2004) (citing Zanger v. Zanger, 1 A.D.3d 865, 866–867, 767 N.Y.S.2d 489 (2003)).
The foregoing suggests that where documentary evidence has been submitted, showing that no marital assets were used to obtain a property, and neither spouse has obtained “valuable property rights” in the subject property, it cannot be treated as martial property subject to equitable distribution in a divorce.
(III) Constructive Trust
“A constructive trust has been defined as ‘the formula through which the conscience of equity finds expression’” Coco v Coco, 107 AD2d 21, 24 [2d Dept 1985] (quoting Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378). “The essential purpose of a constructive trust is to prevent unjust enrichment” Id. “Where property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.” Id. “Generally, four factors are considered in ascertaining whether a constructive trust should be imposed upon a property interest: (1) the existence of a fiduciary or confidential relationship, (2) a promise, express or implied, (3) a transfer in reliance on the promise, and (4) unjust enrichment.” Id.
In Peck v Mitchell, 43 Misc 3d 1219(A) (N.Y. Sup Ct 2014), plaintiff used name of decedent in the title to obtain mortgage for a property under a promise to transfer the ownership to the plaintiff. Despite having decedent’s name on the deed, the plaintiff paid all mortgage payments and carrying costs. Decedent breached the promise and transferred the property to defendant for which the plaintiff brought a suit. Based upon the foregoing, the court found that, “the plaintiff has asserted a claim for a constructive trust, in alleging a confidential relationship between the parties, a transfer in reliance upon a promise made, and has sufficiently alleged that the defendant will be unjustly enriched if a constructive trust is not imposed on the defendant’s one-half interest.” Id.
Likewise, in Pelletier v Pelletier, 242 AD2d 325 (2d Dept 1997), a divorce action was brought by the plaintiff and she claimed the sole ownership of the property which was transferred to her by her cousin during marriage. The Supreme Court Appellate division noted that “[t]itle to the . . . property was taken solely in the name of the plaintiff and the mortgage was also only in her name. The Court further noted that “[w]hile the defendant contends that joint funds were used to provide the down payment for the . . . property he did not provide any documentation to support this claim.” Id. Therefore, the court held that, “[s]ince the . . . property is the separate property of the plaintiff, the defendant did not establish his entitlement to any share” Id.
Based upon the foregoing research, a third party may be able to show that the property was held in constructive trust because the source of funds was a third party. Apart from that, if documentary evidence can show that the husband would only hold the property in a constructive trust, equity rules dictate that the property was not purchased with marital assets, neither spouse holds any right to the property, and, therefore, the property is likely not marital property.