Grunfeld v. Grunfeld, 94 N.Y.2d 696 (2000)
When calculating equitable distribution and maintenance in divorce cases involving professional licenses, courts must avoid double counting income streams already considered when valuing the license.
Summary
In a divorce action, the New York Court of Appeals addressed whether the Appellate Division improperly based both the equitable distribution of the husband’s law license and his maintenance obligation on the same projected professional earnings, thus engaging in prohibited double counting. The Court of Appeals held that the Appellate Division erred and remitted the case to the Supreme Court for further proceedings, clarifying that the same income stream cannot be the basis for both a distributive award and a maintenance calculation.
Facts
Rochelle and Harold Grunfeld married while Harold was in law school. Harold became a successful customs lawyer. Rochelle gave up her teaching career to raise their children. As Harold’s income grew, so did their lifestyle. The couple separated in 1991, and Rochelle initiated divorce proceedings in 1992.
Procedural History
The Supreme Court dissolved the marriage, granted Rochelle custody of their child, ordered child support, and awarded maintenance. The court determined the value of Harold’s law practice and license, excluding the license from marital assets to avoid double counting income already considered for maintenance. The Appellate Division modified, including one-half the value of Harold’s professional license in the distribution without adjusting maintenance. The Court of Appeals granted leave to appeal.
Issue(s)
Whether the Appellate Division erred by including the value of the husband’s professional license in the equitable distribution award without adjusting the maintenance award, thus resulting in an impermissible double counting of income.
Holding
Yes, because the Appellate Division double counted the husband’s income by ordering distribution of the value of the law license without adjusting the maintenance award, which was also based on the same income stream. This is inconsistent with the prohibition against double counting as articulated in McSparron v. McSparron.
Court’s Reasoning
The Court of Appeals emphasized the principle that professional licenses acquired during marriage are marital property subject to equitable distribution (O’Brien v. O’Brien). However, it cautioned against double counting income streams. The Court explained that a professional license’s value is tied to the future earnings it enables. If those same earnings are also used to determine maintenance, the licensed spouse is essentially being charged twice for the same asset. The Court stated, “To the extent, then, that those same projected earnings used to value the license also form the basis of an award of maintenance, the licensed spouse is being twice charged with distribution of the same marital asset value, or with sharing the same income with the nonlicensed spouse.” The Court noted that there are two ways to avoid this problem: reducing the distributive award based on the income already considered for maintenance or reducing the maintenance award itself. The Court remanded the case, instructing the Supreme Court to recalculate the distributive award, taking into account any income from outside sources used in setting maintenance. The court also found the trial court did not abuse its discretion in valuing the practice at the date the action was commenced, following the active/passive asset distinction. The court also affirmed the Appellate Division’s decision to order interest on the unpaid portion of the distributive award, as the husband had not been paying in a timely fashion.