Since the Court of Appeals’ 1985 decision in O’Brien v. O’Brien, 66 N.Y.2d 576, it has been accepted that a professional license or degree earned by one spouse during the course of a marriage constitutes marital property, and is subject to equitable distribution. The O’Brien court determined that a professional license or degree “is a valuable property right, reflected in the money, effort and lost opportunity for employment expended in its acquisition, and also in the enhanced earning capacity it affords its holder,” and went on to explain that “few undertakings during a marriage better qualify as the type of joint effort that the Domestic Relations Law economic partnership theory is intended to address than the contributions toward one spouse’s acquisition of a professional license.” The court reasoned that the working spouse’s wage earning, sacrifice of personal educational and career goals, household work, and child rearing represented “investments” in both the economic partnership of the marriage, as well as the professional license or degree.
Further, the O’Brien court rejected the argument that even if a professional license or degree was considered marital property, the working spouse was only entitled to reimbursement of direct financial contributions. If such an argument were to be accepted, the court held, by extension one spouse’s down payment on real estate or a purchase of securities would be limited to the money contributed, for equitable distribution purposes, without any increase in value because of appreciation. The court found that such a result was clearly at odds with the intent of the statute. The court concluded that although fixing the present value of a professional license and the enhanced earning capacity may present problems, such problems are not insurmountable.
Despite the O’Brien court’s optimism on the valuation issue, in the aftermath of the decision, courts have struggled in making valuation determinations. Generally, the enhanced earning capacity analysis consists of establishing the baseline earnings of a spouse had the degree/license not been obtained, then deducting that figure from the enhanced earning capacity that the spouse realized as a result of the degree/license. This differential is then projected over the expected worklife of that spouse, and reduced to present net value.
For example, if one spouse attended law school, while the other spouse (the “working spouse”) supported the family during that time period, the enhanced earning capacity of the lawyer spouse would be subject to equitable distribution. An evaluator, typically an economist or an accountant, would be retained by the “working spouse” who would project the enhanced earning capacity of the lawyer spouse over that spouse’s average worklife, and then reduce that figure to net present value.
However, some courts and practitioners have adhered to an overly rigid application of the enhanced earning capacity analysis, sometimes resulting in inequitable distribution. A recent decision from the Nassau County Supreme Court is instructive in how to avoid such a result.
In A.Z. v. C.Z., the Hon. Robert A. Ross, J.S.C., held that a Bachelors degree in Marketing obtained by the defendant husband “did not, at all, enhance defendant’s earning capacity,” and as such, was not subject to equitable distribution. In his opinion, Justice Ross warned that a mathematical and rigid application of the enhanced earning capacity analysis, without an individual analysis that considers the “unique aspects” of a license/degree holder’s circumstances, reflects an “improbable and legally unsound expert theory.”
In that case, the plaintiff’s economic expert opined that the marketing degree obtained by defendant during the course of his marriage with plaintiff greatly enhanced his earning capacity. The court found that although the plaintiff’s expert competently provided an analysis of the average salary of individuals holding a Bachelors degree in the New York City area, the expert acknowledged that he did not know what the defendant’s responsibilities were; did not know whether the defendant secured clients for his employer; and did not know whether defendant’s employer had a marketing department. Further, the expert admitted that if the defendant were not utilizing the marketing degree, it would have no value.
In addition, defendant’s supervisor testified that he was not familiar with the nature of defendant’s degree, and that the job description did not necessitate a degree in marketing. While the degree was “helpful” to defendant in performing his responsibilities, it was neither a prerequisite nor professionally relevant. Based upon these facts, the court concluded that the argument that defendant’s enhanced earning capacity was based upon his degree in marketing secured during the marriage would be to disregard the facts and the individualized analysis upon which equitable distribution is premised.
Given the apparent move away from the rigid application of the enhanced earning capacity analysis, matrimonial practitioners would be well-advised to ensure that their economist do more than merely provide statistical data on the average value of a license or degree, but also narrow the analysis to the actual degree and individual at issue.