Goldman v. Goldman, 95 N.Y.2d 120 (2000)

A mortgage taken on one spouse’s interest in a tenancy by the entirety during a pending divorce action survives the divorce judgment and award of the property to the other spouse, creating a tenancy in common subject to the mortgage.

Summary

In Goldman v. Goldman, the New York Court of Appeals addressed whether a mortgage placed on a spouse’s interest in property held as a tenancy by the entirety during a divorce proceeding survived the divorce decree, which awarded the property solely to the other spouse. The wife granted her attorney a mortgage on her interest in the marital home to secure legal fees. The husband, aware of the mortgage, did not disclose it to the divorce court. The Court of Appeals held that the mortgage survived the divorce, attaching to the wife’s former interest, which became a tenancy in common. This decision underscores that a spouse can encumber their interest in a tenancy by the entirety during a divorce, and the resulting encumbrance remains valid even after the property is awarded to the other spouse in the divorce.

Facts

Debra and Scott Goldman acquired a house as tenants by the entirety in 1985. In December 1990, Debra commenced a divorce action against Scott. During the pendency of the divorce, Debra granted her attorney, Phyllis Gelman, a $50,000 mortgage on the marital property as security for legal services, without Scott’s knowledge or consent. Gelman recorded the mortgage in August 1991. The Goldmans were divorced in October 1994, and the divorce judgment awarded exclusive title to the marital home to Scott. Scott knew of the mortgage but did not inform the divorce court.

Procedural History

After the divorce, Scott moved to discharge Gelman’s mortgage. Gelman moved to intervene and opposed the motion to discharge. The Supreme Court granted Scott’s motion, concluding the mortgage was extinguished by the divorce judgment. The Appellate Division reversed, reinstating the mortgage. Scott appealed to the New York Court of Appeals.

Issue(s)

Whether a mortgage taken on one spouse’s interest in a tenancy by the entirety during a pending divorce action survives the entry of a judgment of divorce that awards the property to the other spouse.

Holding

Yes, because the spouse had the right to mortgage her interest in the property as a tenant by the entirety during the pending divorce action, and the attorney acquired a contingent interest in all the rights the spouse possessed at the time of conveyance. Once the divorce was finalized, the attorney retained an interest in the tenancy in common that resulted from the severance of the tenancy by the entirety.

Court’s Reasoning

The Court of Appeals reasoned that a tenancy by the entirety is a form of property ownership available only to married couples. Each spouse has an equal right to possession and may sell, mortgage, or otherwise encumber their rights, subject to the other spouse’s continuing rights. “[E]ach tenant may sell, mortgage or otherwise encumber his or her rights in the property, subject to the continuing rights of the other” (V.R.W., Inc. v Klein, 68 NY2d 560, 565). Upon divorce, the tenancy by the entirety converts to a tenancy in common.

The Court emphasized that Debra had the legal right to mortgage her interest in the tenancy during the divorce action. Gelman acquired a contingent interest in Debra’s rights at the time of the conveyance. Once the divorce transmuted Debra’s interest into a tenancy in common, Gelman retained an interest in that tenancy in common. The distributive award divested Debra of her interest, but Gelman’s pre-divorce rights were not impaired.

The Court rejected Scott’s argument that reinstating the mortgage was inequitable, noting that Scott knew of the mortgage but failed to inform the divorce court, which could have considered it when distributing marital property. The Court stated that the Domestic Relations Law does not authorize courts to defeat the secured interest of a third-party mortgagee in marital property conveyed before a final divorce judgment. “[S]ection 234 was intended only as a procedural device to permit a court in a marital action to determine questions of possession and title * * * and was not intended to alter existing substantive property law principles” (Kahn v Kahn, 43 NY2d 203, 210).

The court also mentioned a rule enacted after the mortgage was created that requires attorneys to seek court approval and notify the other spouse before obtaining a security interest in marital property.