Alright, perhaps the title is a bit dramatic considering the fact that the topic is one area of the New York State Equitable Distribution Law.  However, if your name is Dr. Holterman, you might agree.  Dr. Holterman  is a licensed medical doctor.  Although he had an annual gross income of $182,000, he wound up taking home approximately $16,389 a year based on a marital award issued by the Court of Appeals.  The decision in this recent case is the natural (or perhaps supernatural) progression of a theory that was based in fairness and originally designed to remedy a specific inequity.  What has taken place in the courts since then appears to be anything but fair. 

The O'Brien Decision

            Some background concerning the theory is required.   Approximately twenty years ago, the New York State Court of Appeals created the notion of an “enhanced earning capacity.”  In 1985, the Court of Appeals in the O’Brien decision held that a person’s professional license, if acquired during the marriage, is marital property.  The significance of that decision is that since the license was now classified as marital property, it fell within the meaning of the Domestic Relations Law and more importantly, became subject to valuation and distribution between the parties.  Although that case has not been followed nationally, New York’s highest court addressed and remedied a situation it perceived to be unfair.  O’Brien involved what was then called “The Classic Student Spouse, Working Spouse Syndrome.”  In that case, the wife sacrificed to put her husband through medical school only to have the husband walk out of the marriage soon after graduation.  The O’Brien decision appeared to be a responsible assessment and equitable response to the situation.  O'Brien's Impact

            As always, however, theories in a vacuum and without room for  exception generally lead to problems.  Perhaps more problems than the original theory sought to remedy.   The significance of the decision is that based on the concept of enhanced earning capacity,  the court was going to project future income based on the economic capacity resulting from acquiring a professional license.  (Incidentally, the O’Brien decision and the enhanced earning capacity was thereafter  expanded by the courts to include not only licenses but post-marital education, certain certifications, and degrees earned during the marriage.)  Essentially, the court was now going to deal, at least  in some respect, with dividing up potential future income.  An income, that in some cases, may never be fully realized and in other cases, completely fiction.  For  example, what would happen to an individual who possessed the so-called “enhanced earning capacity,”  and then loses that capacity and license at some paint before the marital award is extinguished?  What happens to the value of a license if, at some time in the future,  it no longer is worth what the experts valued it at the time of trial or if an individual decides to pursue some other avenue of employment other than that which correlates to a degree that was earned? 

Enter Dr. Holterman

            The legacy of O’Brien becomes more complicated when  other variables are added to the mix.  For example, the crux of the problem in Holterman involved not only the enhanced earning capacity theory, but also the application of the Child Support Standards Act.  If the court was to calculate child support and maintenance based on a payor spouse's income, should the payor spouse’s available income be reduced by the amount that the court attributed to the professional license?  In several decisions issued between 1995 and 2000 (e.g., McSparron and Grunfield),  the Court of Appeals essentially warned against double counting the income of a payor spouse when making an award of maintenance.   More specifically, it cautioned against calculating different payments from the same income stream.  The Court warned that this would be an impermissible double dipping.  Therefore, the Court, in effect, stated that once it considered the license holder's future income and distributed that income in the form of a distributive award or other asset, then that stream of income was not to be considered again in the calculation of a maintenance award.

The Complications of Holterman

            The parties in the Holterman case had been married for nineteen years and had two children.  The case involved the valuation and distribution of the husband’s medical license and therefore the amount of enhanced earning capacity attributable to his license.  More importantly, however, the court in Holterman now had to also address the issue of child support and whether the double dipping analysis previously used in maintenance cases would apply.  

            The wife was awarded approximately 35% of the husband’s enhanced earning capacity.  That award was calculated at approximately $21,000 per year for a 15-year period.  The wife was also granted maintenance at $35,000 per year for the first five years after divorce, and a smaller amount thereafter.  The remaining issue involved the calculation of child support.

            Dr. Holterman argued that in order to avoid the double dipping problem that the same Court had warned against in its earlier decisions, then the distributive award base payment of $21,000 should be deducted from his gross income for purposes of calculating child support.  The Court of Appeals then revisited the theory of the O’Brien case and analyzed the double dipping problem as it pertained to child support.  The majority of the Court of Appeals rejected Dr. Holterman’s argument by holding that the statutory language of the Child Support Standards Act does not allow for such a deduction.  Further, the Court stated that a distributive award is purposely not deemed deductible to the payor, nor  income to the recipient under the Internal Revenue Code.  Therefore, the majority held it should not be treated as a deduction from income under the provisions of the Child Support Standards Act.  The result was that Dr. Holterman would now have to pay child support based on monies never realized and already distributed to his wife in the form of equitable distribution.

The Inequity of Holterman

            The dissent argued that the “unjust or inappropriate”  language in the Child Support Standards Act should have been considered by the majority in order to avoid the financial burden to Dr. Holterman and to further avoid the perils and injustice of double dipping.  The dissent also argued that the majority of the Court of Appeals did not exam or evaluate the totality of the circumstances.  Further, in analyzing the O’Brien decision, the dissent argued that O’Brien was devised almost exclusively for the “Classic Student Spouse, Working Spouse Syndrome.”  The dissent's arguments have merit.  Since the Child Support Standards Act allows the courts to deviate from the mandate of that Act where a result would be unjust or inappropriate, then it would appear that Dr. Holterman would fit in that category as a result of being left with less than $17,000 per year.  In addition, in Holterman, the parties were married for nineteen years. Clearly not the same fact pattern as O’Brien.  Here the parties were married for nineteen years before the divorce action was brought and therefore the dissent stated that the party’s achievements and benefits had already been enjoyed by both of them for some time and were therefore already reflected in the husband’s current income.

            It appears that the Court of Appeals missed an opportunity to add a dose of reality to the O’Brien legacy.  Perhaps doing away with the entire theory of an enhanced earning capacity  is drastic or premature.  However, there is little doubt that the result in Holterman was clearly not by the O’Brien court.  In any event, recent lower court decisions and discussions among various matrimonial attorneys suggests that changes to the O'Brien theory of enhanced earning capacity are indeed on the horizon.