DIVORCE - DIVIDING ASSETS WHEN ONE SPOUSE COMMITS CRIME

LINDA G. v. James G., 2017 NY Slip Op 7968 - NY: Appellate Div., 1st Dept. 2017:

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In 2010, the husband was indicted on charges of conspiracy and insider trading. At trial, the husband maintained his innocence and claimed that a woman with whom he was having an affair stole his BlackBerry and used the information to engage in insider trading. He was found guilty and served a one year and one day sentence in federal prison from May 2010 through January 2011. The SEC investigation and criminal trial depleted the joint assets of the parties. The divorce proceedings started on January 26, 2010.
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Section 236(B)(5)(d) of the Domestic Relations Law, which specifies the factors to be considered in making an award of equitable distribution, includes a catch-all provision that empowers a court to look at "any other factor which the court shall expressly find to be just and proper" (DRL § 236[B] [5][d][14]). However, marital fault may not be considered as "just and proper" except in "a truly exceptional situation, due to outrageous or conscience-shocking conduct on the part of one spouse, that will require the court to consider whether to adjust the equitable distribution of the assets" (Howard S. v Lillian S., 14 NY3d 431, 436 [2010] [adultery, by itself, is not egregious conduct]; Havell v Islam, 301 AD2d 339 [1st Dept 2002] [malicious assault of a spouse in the proximity of children amounts to egregious conduct]; Pierre v Pierre, 145 AD3d 586 [1st Dept 2016] [stabbing and physically assaulting wife is egregious conduct]).

Supreme Court took into account the husband's "adulterous and criminal behavior" in awarding the wife 75% of the marital home. The husband's adulterous conduct is not sufficiently egregious and shocking to the conscience to justify making an unequal distribution of the marital home. However, we hold that the impact of the husband's criminal conduct on the family may be considered in making an unequal distribution. In Kohl v Kohl (6 Misc 3d 1009[A], 2004 NY Slip Op 51759[U], *24 [Sup Ct, NY County 2004], affd 24 AD3d 219 [1st Dept 2005]), the wife sought an unequal distribution of the marital estate based on the husband's criminal conviction. The trial court denied the request as the father supported his family by borrowing money from friends and business acquaintances until such time that he was able to resume his career (id. at *25). The husband accepted a plea that allowed him to resume his career and business (id.). Within a few years after his indictment, he was earning as much income as he had prior to the criminal proceeding (id.). Also, the parties' standard of living did not change as a result of the husband's actions (id.). On that record, we affirmed the distribution of the value of the parties' residences at 50%/50% (id. at *25, 26, 27).

Unlike Kohl, the record in this case supports an unequal distribution. The parties were required to spend down their savings from 2007 through 2010 when the husband was forced to resign due to the SEC investigation. He refused to take a plea bargain and insisted on going to trial, blaming a woman with whom he had an extramarital affair for his insider trading. He was convicted of a felony and lost his license to practice law. The husband's post-incarceration earnings at the time of the trial dropped significantly to less than 20% of his prior income. His income never returned to the level he earned prior to the conviction. As a result of the husband's criminal actions, the wife, who had left a lucrative career to raise their children, was compelled to return to work after being out of the work force for almost a decade. This meant that the wife could no longer remain at home with the children. During this time, the younger son suffered from psychiatric issues and the older son from significant emotional issues.

In short, the husband's insider trading, and ensuing criminal trial, conviction and incarceration caused the family to undergo financial losses and a substantial decrease in the standard of living. These events also significantly disrupted the family's stability and well-being. Based on our review of the record, we find that a 60%/40% equitable division of the value of the marital estate is just and proper when taking into account the hardship that the husband put his family through as a result of his volitional and irresponsible behavior."