Keane v. Keane, 8 N.Y.3d 122 (2006)
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In divorce proceedings, the prohibition against double counting income applies primarily to intangible assets like professional licenses and goodwill, not to tangible, income-producing assets such as rental properties, which can be considered both for equitable distribution and in determining maintenance awards.
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Summary
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This case clarifies the distinction between tangible and intangible assets in the context of divorce proceedings, specifically regarding the prohibition against “double counting” income. The husband owned a rental property and a mortgage note. The court distributed the rental property to the husband and considered the rental income when calculating maintenance payments to the wife. The Appellate Division reversed, arguing this was double counting. The Court of Appeals reversed the Appellate Division, holding that tangible assets like rental properties can be considered for both distribution and maintenance, unlike intangible assets such as professional licenses. The Court also addressed the distribution of marital home furnishings, remanding for clarification on whether some items were gifts to the husband.
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Facts
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The husband and wife were divorcing after a 30-year marriage. The wife had no outside employment during the marriage. The husband was the sole shareholder in a real estate entity (FMK Realty, Inc.) that owned a rental property leased to a car repair shop and a mortgage note, both generating monthly income. The husband also held title to a vacation property inherited with his siblings, considered his separate property except for any appreciation due to the wife’s efforts.
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Procedural History
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The Supreme Court granted the wife maintenance, a distributive award, and the marital home. The husband received the rental property and the vacation home. The Appellate Division modified the Supreme Court’s decision, deleting a portion of the maintenance award based on impermissible double counting of income from the rental property and adjusting the distribution of furnishings. The Court of Appeals then reviewed the Appellate Division’s order.
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Issue(s)
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1. Whether income derived from a tangible, income-producing asset (rental property) distributed as marital property can also be considered a source of income for determining maintenance.
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2. Whether furnishings in a marital residence that were gifts to one spouse should be considered marital property subject to distribution.
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Holding
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1. Yes, because the prohibition against double counting primarily applies to intangible assets like professional licenses, not tangible assets like rental properties. Tangible assets continue to exist separately from the income stream they generate.
2. No, because gifts received by one spouse are considered separate property and are not subject to equitable distribution.
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Court’s Reasoning
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The Court distinguished this case from prior rulings concerning professional licenses (O’Brien v. O’Brien, McSparron v. McSparron, Grunfeld v. Grunfeld). It emphasized that licenses are intangible assets, and their value is inextricably linked to the future earnings of the licensee. Allowing both distribution of the license’s value and maintenance based on the income derived from the license constitutes impermissible double counting. The court stated, “[W]here a professional license is at issue, ‘[t]he asset is totally indistinguishable and has no existence separate from the projected professional earnings from which it is derived’ (Grunfeld v Grunfeld, 94 NY2d 696, 704 [2000]).”
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In contrast, tangible assets like rental properties have an independent existence and market value separate from the income they generate. The Court reasoned, “In contrast to passive income-producing marital property having a market value, the value of a professional license as an asset of the marital partnership is a form of human capital dependant upon the future labor of the licensee” (id.). Therefore, considering rental income when determining maintenance after distributing the rental property does not constitute double counting.
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Regarding the furnishings, the Court found that the lower court had not addressed the husband’s claim that some items were gifts, which are separate property under Domestic Relations Law § 236 [B] [1] [d] [1], [3]. The case was remitted for further consideration of this issue.