Six Misconceptions About Divorce in New York

Divorce can be an emotional and complex undertaking. It is not unusual for prospective divorce clients to come to us with misconceptions about the process fueled by incorrect information and half-truths that may be provided by family and friends, questionable internet sources, and even television shows. These misconceptions, if not debunked, can result in unrealistic expectations as to the case outcome and disappointment if not realized.

Here are six of the most common misconceptions we see.

All Property is Subject to Division in Divorce

Many divorce clients believe that titling property in one spouse’s name or the other’s makes that asset separate property. Some even make a conscious effort during the marriage to keep certain property separate by placing funds in a bank account or brokerage account owned by one spouse or by titling vehicles separately. Others operate under the belief that everything acquired during the marriage is part of the proverbial “pot” and subject to division if there should ever be a divorce. Neither is true.

New York divides property into two buckets for purposes of divorce, marital property and separate property. All property acquired during the marriage is presumptively marital property and subject to division, without regard to how the property is titled. Property acquired prior to the marriage, by gift during the marriage from an unrelated third party, or by way of an inheritance or trust distribution falls into the separate property bucket. Separate property, if established, is not subject to division.

It’s also important to note that “acquired during the marriage” doesn’t mean that the property had to be in hand prior to the filing of a petition for divorce. For example, a commission check would generally be considered marital property if the sales generating the commissions were made during the marriage, even if the check came in after the divorce petition was filed. The same concept may apply to tax refunds, bonuses, back pay, or any other asset that one spouse had a right to or an interest in before they commenced their divorce action.

Equitable Distribution Means Equal Distribution

New York law provides for the equitable distribution of marital property in a divorce. But equitable distribution does not mean equal distribution. Rather, equitable actually means a fair division of marital property, which may not necessarily be an “equal” division.

DRL 236(B)(5)(d) sets forth the factors that determine how marital property is to be divided in a divorce case, including how long the parties have been married, relative earning capacity, tax consequences to either party, probable future financial circumstances, dissipation of assets by either party, and the nature of the property. Notably, courts in New York typically treat business interests differently than more “traditional” assets, such as a home, bank account, or retirement account. While the more traditional assets may skew towards an equal division, a review of the case law reflects that percentage division of business assets leans in favor of the owner/operator, depending on the factors outlined above, including a party’s economic and non-economic contributions to the marriage.

And while proven separate property is not subject to division, it may be transformed into marital property, especially after a long marriage. Some examples include a transfer of separate property to joint ownership through retitling or moving funds to a joint account. Whether and to what extent separate property has become marital property is a common point of contention in high-net-worth divorce cases.

Fault is a Factor in the Equitable Distribution of Property

Another common misperception of prospective clients in divorce is that an unfaithful spouse will be subject to some form of economic penalty in connection with the ultimate division of assets.  That is not true.

Until 2010, New York required fault grounds to be established in order to obtain a divorce. While those grounds still exist today (cruel and inhuman treatment, adultery, abandonment), with the advent of “no fault” divorce in New York (an irretrievable breakdown of the marriage for at least six months prior to commencement of an action), they are seldom invoked. And even when the fault causes of action were the sole bases upon which to obtain a divorce, unless the conduct was egregious (e.g., hiring a hitman to kill one’s spouse), fault did not impact the finances. This remains the case today. Fault, unless egregious or in the context of domestic abuse, is not a factor considered by the court in connection with the division of marital property.

Spousal Support Payments are Taxable Income to the Recipient

Until 2019, child support and spousal maintenance were treated differently for tax purposes. Child support was not and is not taxable income for the recipient, and is not tax deductible for the payor. In other words, the spouse who earns the income and pays child support from it pays tax on it, while the spouse who receives child support does not.

Spousal maintenance, on the other hand, used to be treated differently. The spouse who paid alimony could deduct the spousal support on their federal income taxes and not pay tax on that income. The receiving spouse would pay income tax on the support received. This rule remains in effect for divorce or separation agreements executed on or before December 31, 2018.

However, for agreements executed January 1, 2019 or later, spousal maintenance is treated like child support. The payor cannot take a tax deduction for the support, and the receiving spouse is not taxed on that income.

You Will Lose Health Insurance When You Divorce a Spouse Whose Plan You’re Covered By

 Health insurance is critical and expensive, so many people who depend on a spouse’s employer-sponsored health insurance are concerned about losing coverage during the pendency of a divorce proceeding or following its conclusion. These are really two separate issues: coverage while the divorce is pending, and coverage after the divorce is final.

The first is simple: Under New York’s Automatic Orders, one spouse cannot remove the other from health insurance coverage while the divorce is underway. That’s true whether the insurance coverage is employer-sponsored, military, privately purchased, or government subsidized or funded.

This changes when the divorce is final. The former spouse is no longer a dependent, so they may no longer be allowed to receive health coverage under his or her former spouse’s health insurance plan—even if the spouse carrying the insurance wants to keep them on the policy. However, there are other options, which depend on the type of coverage.

Federal law requires insurance carriers to offer continuation coverage pursuant to the conversion provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, Title X Pub. L. 99-272 effective April 7, 1986 (“COBRA”) if a spouse loses coverage due to divorce. However, this requirement applies only to group policies maintained by employers with over 20 employees. New York law provides greater protection by mandating continuation coverage regardless of the size of the employer and extending that coverage from 18 to 36 months. Continuation coverage is expensive, however, and New York courts consider the loss of health insurance benefits in determining the equitable distribution of marital property. Similarly, the availability and cost of medical insurance for the parties is a factor to be considered in determining spousal maintenance.

While continuation coverage offers a safety net for most people who will lose health insurance coverage due to divorce, it’s not the only option. Loss of coverage after divorce will trigger a special enrollment period for coverage through the federal health insurance marketplace, which may be less expensive. The spouse losing coverage may also have other options, such as insurance through their own employer, Medicaid, or Medicare.

Custody = Access

Many people equate “custody” with physical possession of their child. But legal custody has little to do with how much time children spend with each parent or where they sleep at night.

Instead, legal custody refers to the authority to make major decisions for the child, such as where they will go to school, what sports or other extracurricular activities they will take part in, and what type of medical care they will receive. One parent may have sole legal custody, but the parents split parenting time 50/50. Or, one parent may have the children 80% of the time, but the parents share legal custody.

In most cases, parents share legal custody. Ideally, that means they collaborate on making decisions for the children in much the same way they did during the marriage. But collaboration isn’t always possible. When parents cannot communicate effectively, courts will generally grant one party sole custody to avoid constant conflict and stalled decision making.

For parents who have difficulty working together or communicating effectively, a parenting coordinator may be helpful. Parenting coordination is a type of alternative dispute resolution process designed specifically for high-conflict co-parenting situations. This process moves more quickly than having to return to court to argue issues involving medical care, travel, or participation in after-school activities. If one parent strongly disagrees with the recommendation of the parenting coordinator, they can ask the court to rule on the issue.

Dispelling misconceptions makes for a smoother divorce process

Divorce can be complicated and contentious. Clients’ ill-informed expectations and decisions based on their mistaken beliefs about divorces in New York will only increase the complexity and contentiousness.

Ensuring that divorce clients aren’t burdened by misconceptions about their rights, what’s at risk, and what factors the court will consider can help avoid frustration, missteps that could hurt their case, and unnecessary conflict between the parties that can dial up the tension to unhealthy levels.

Michael Mosberg is a founding partner of Mosberg Sharma Stambleck Gross LLP, a leading Manhattan matrimonial law firm specializing in representing high-net-worth individuals and other professionals in their divorces. He can be reached at mosberg@mssglaw.com.

Reprinted with permission from the July 25, 2023, edition of the New York Law Journal © 2023 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.