In The Absence of a License or Advanced Degree, Should the Special Skills and Knowledge of a Spouse Acquired On the Job, Which Creates Enhanced Earnings, Be Valued As a Marital Asset?

Notes and comments by Elliot D. Samuelson, Editor

A most interesting and comprehensive decision by Justice Drager in New York County, J. C. vs. S.C., that appeared in the New York Law Journal on October 31, 2003 (page 20, col. 1), has caused us to revisit the ongoing vexatious problem of whether we should treat all marital litigants equally, or are we to insulate spouses who hold no license or advanced degrees, from awards for enhanced earnings. Necessarily, such review must include reflections of the holdings in O'Brien, DeJesus, Gollub, Hougie, Grunfeld, Elkus and the like.

Briefly stated, the facts of this case are relatively simple. The parties were married for 23 years, and were both 48 years old at the commencement of the action. The husband acquired before marriage, but did not utilize, a CPA license in his employment as the CFO of an investment banking firm. During the marriage he acquired a Series 27 license that required one day of study to obtain, and was needed to certify certain reports in his business. (This license was not valued separately but was considered in the enhanced earnings calculation). The children were 20 and 18, and the wife was a stay at home Mom for most of the marriage, and had recently returned to work, earning approximately $25,000 annually, while the husband earned $600,000.

The progeny of all litigation in this field stems from the Court of Appeals decision in O'Brien vs. O'Brien, 66 N.Y.2d 576 (1985), which few legal scholars would deny, created a clever new remedy for marital litigants by either judicial legislation or utilizationof a legal fiction, possibly to right a wrong the court perceived prejudiced the Wife. It is to be remembered that Loretta O'Brien was the long-suffering wife who had worked two jobs in order to permit her husband to attend medical school in a foreign country, and then was cast aside as an old shoe for another woman when her husband finally became a medical doctor. In order to give her a share in the husband's future earning prospects as a physician, the court reasoned that there had to be something of value to be evaluated. It then explained that such thing of value could be either tangible or intangible property, and went on to carve out a remedy for Mrs O'Brien to receive the value of her husband's medical license based upon the skill he obtained at medical school that would afford enhanced earning potential for the rest of his professional career, albeit that the license could not be sold and had no extrinsic value.

Our high court had the opportunity to revisit this determination that a medical license was such a thing of value to create enhanced earning capacity in both DeJesus (holding that marital property should include a wide range of intangible assets), and the Grunfeld case (permitting both a license and a law practice to be evaluated, reaffirming its position in O'Brien), but held fast to its initial determination. Since O'Brien the evaluation of a professional license which produces enhanced earnings has been expanded to include advanced degrees, goodwill, celebrity status, and recently Series 7 licenses, all categories sharing the common thread that the recipient acquired special skills and knowledge while attending school, that provided the basis for obtaining enhanced earnings i.e., the ability to generate greater income than a similar employee without such special skills and training.

Justice Drager recognized these concepts when she mused, "Moreover, even if the court where to find that he acquired something of value that can be translated into property, the wife failed to prove the value of such property." However, later in the decision, specifically finding that the husband was an exceptional wager earner, the court determined that such holding does not automatically result in the finding of the existence of an asset which must be valued and distributed. Put another way, the court seemed to be hedging its bets, suggesting that the court might be willing to find the husband enjoyed substantial enhanced earnings, but it could not do so because the expert witness failed to give sufficient testimony to justify such conclusion. In this regard, telling is her conclusion that "... the court finds that the husband is an exceptional wage earner, but further finds that there is no component of his career, derived during the marriage, that constitutes a thing of value affording him an enhanced earning capacity." ... and therein lies the rub.

Justice Drager reviewed at length the decision in Golub vs. Golub, 139 Misc.2d 440, noting that Justice Silberman called for an even more expansive view of O'Brien when she wrote that, "... the skills of an artisan, actor, professional athlete or any person whose expertise in his or her career has enabled him or her to become exceptional wage earners should be valued as marital property subject to equitable distribution .", tacitly acknowledged this was the right direction to be followed and she left little doubt of such feelings when she included in her decision the following observation:

Finally, although this court found the husband's career did not create an enhanced earning capacity, the husband will benefit for years to come from the progression of his career that occurred during the marriage. The wife may receive some of the benefit of his career in the form of maintenance. However, this court finds that, in equity, it is appropriate to take this fact into account in the distribution of the assets of the marriage. (DRL 236 (B) (5) (d) (13).

It appears that the court was conflicted by the prejudice that would befall the wife since she failed to value his enhanced earnings, and the corresponding benefit to the husband whose enhanced earnings were not distributed in equitable distribution. The court earlier noted that the wife's forensic accountant failed to specify the skills that enhanced the husband's earning capacity. Yet, the accountant did testify that the husband had gained knowledge during his 20 year work history and on the job training, and that it was such skills and training that should be valued. The accountant then concluded, despite the court's opinion that such conclusion constituted circular reasoning, that it was the husband's ability to earn a greater income than others holding a similar position that really constituted the asset. In reaching this conclusion, the accountant considered the Series 27 license "implicitly" in the calculation of enhanced earnings, but this was not an integral part of his evaluation, or even necessary to reach the conclusion that the absence of a license or advanced degree was not a deterrent to reach his findings.

Interestingly, before finishing its decision, the court acknowledged the holding in Hougie vs Hougie, 261 AD2d 161 (1st Dept. 1999), that seemed to rule that a license or advanced degree was unnecessary to value an investment banker's skills and experience that created enhanced earning capacity. Justice Drager seemed to imply that it was not the investment banker's skills that created the asset, but rather the enhanced earning capacity, and concluded that:

The determination that a spouse is an exceptional wage earner should raise a warning flag that there may be something of the person's career subject to evaluation, irrespective of whether that person holds a license or not. However, the determination that a spouse is an exceptional wage earner or does not automatically result in the finding of the existence of an asset subject to distribution.

It is time that the courts should recognize that to deny evaluation of the skills and knowledge that produce enhanced earnings by the spouse who did not sit in a classroom for a year or more in acquiring and MBA degree, for example, but nevertheless acquired the same education, skills and knowledge from on- the-job training and exposure in the work place, denies justice to such litigants. The spouse of such persons must not be treated differently than the spouse of a license or degree holder, otherwise, a person married to such a spouse will be severely prejudiced financially as long as the O'Brien doctrine remains the law in New York State. And, this is true apart from the constitutional equal protection argument that can be made. Why should knowledge acquired by the reading of books and the listening to lectures by professors, be favored over knowledge obtained by the reading of books outside the classroom, the discussions with superiors and participation in actual business activities and commercial transactions in the workforce. It would seem to this writer that the latter experience is far superior to the academic one, and if the degree and license must be valued, then too must the skills, experience, and on-the-job training acquired during the marriage which produces enhanced earnings, which must similarly be valued. That is the thing of value that O'Brien required.

We look forward to the Court of Appeals next opportunity to either rectify the injustice to the husband or wife of an unlicensed or non-degree exceptional wage earner, or the reversal of O'Brien and elimination of the enhanced earning doctrine.

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