Decisions of Interest

'Egregious Conduct' Leaves Husb and with Tax Bill

A husband who filed amended tax returns just before the trial of his divorce, admitting to having underreported his income by $1.6 million, will have to pay the additional tax on his own, as the timing of his admission was deemed a malicious attempt to keep marital assets from his wife. Marcia C. v. Dominick C., 04775/08 (Sup. Ct., Suffolk Cty., 7/16/10) (Crecca, J.).

The parties were married for more than 10 years and had four children together when the wife filed for divorce in 2008, claiming constructive abandonment. The husband runs a home improvement company. Just before the case went to trial, the husband, without his wife's consent or signature, filed amended marital tax returns for the years 2004 to 2007, admitting that he had earned $1.6 million more in those years than previously reported. On the cover page sent to the Internal Revenue Service, he listed various marital assets that the government could seize to make good on the arrears, including the couple's home. He included information about the home's mortgage, the bank that held it and its estimated value of $1.2 million.

The court held a hearing on the issue, taking testimony from several witnesses, including the husband's accountant and the wife's forensic accountant. Following this, the court came to a conclusion about the husband's coming forward at this time, without any threat of audit: 'The court sees no legitimate reason for this outrageous and despicable conduct, which the court finds is based solely on malice and revenge, with no other goal than to prevent his wife from any recovery in equitable distribution.' Calling this 'shocking and egregious conduct,' the court declared that the husband alone would be held responsible for the additional tax liability, out of his share of the marital property.

Wife Fails to Investigate, Loses Pension Rights

An ex-wife was found not entitled to seek half her ex-husband's pension because although the parties believed at the time of the divorce that the pension's funding had disappeared, the wife knew the pension existed and she could readily have ascertained from information in the public domain that the fund was covered by insurance. Jill S. v. Marc S., 28 Misc.3d 1210(A) (Sup. Ct., Nassau Cty., 7/16/10) (Falanga, J.).

The parties, who had been married for 27 years, obtained a divorce in 2007. Their stipulation of settlement, dated Aug. 1, 2007, was incorporated but not merged into the judgment. On March 19, 2010, the wife moved for a judgment to modify/ reform the parties' judgment of divorce because she had learned that her husband's pension, which both parties thought had been extinguished when the company he worked for went out of business, was in fact protected by the U.S. Government Pension Benefit Guarantee Corporation (PBGC). Therefore, the husband would still be able to receive pension benefits. The ex-wife claimed that their settlement contract should be reformed because of mutual mistake. The husband countered that, among other things: 1) the wife listed the pension on her affidavit of net worth in the parties' divorce action; 2) the husband's affidavit of net worth also listed the pension, stating the value was 'unknown'; 3) the wife was obligated under the terms of the parties' stipulation of settlement to make 'independent inquiry and investigation' with respect to the pension; 4) the wife was represented by counsel prior to and at the time of the execution of the stipulation of settlement; 5) the wife was in a better position than the husband to ascertain whether the pension had value as the business was owned by her father; and 6) the wife had received more than adequate financial benefits in the divorce.

The court noted that to vacate a stipulation of settlement on the ground of mutual mistake a party must demonstrate that the mistake existed at the time the stipulation was entered into and that it was so substantial that the stipulation failed to represent a true meeting of the parties' minds. Gro-Wit Capital Ltd. v. Obigor LLC, 33 AD3d 859. In this case it was undisputed that both parties were aware at the time they negotiated and executed their stipulation of settlement that the husband had earned pension benefits during the marriage. Although the wife claimed that the mutual mistake she complained of was that both parties were unaware that the pension was insured by the PBGC, that information was readily ascertainable in the public domain, had the wife chosen to make the appropriate inquiries. Because 'a party may not challenge the validity of a settlement agreement based on a claim that she undervalued assets which, the record showed, were disclosed by [her] former spouse and known to [her] at the time' (Kojovic v. Goldman, 35 AD3d 65), the wife here was not entitled to relief.

'Egregious Conduct' Leaves Husb and with Tax Bill

A husband who filed amended tax returns just before the trial of his divorce, admitting to having underreported his income by $1.6 million, will have to pay the additional tax on his own, as the timing of his admission was deemed a malicious attempt to keep marital assets from his wife. Marcia C. v. Dominick C., 04775/08 (Sup. Ct., Suffolk Cty., 7/16/10) (Crecca, J.).

The parties were married for more than 10 years and had four children together when the wife filed for divorce in 2008, claiming constructive abandonment. The husband runs a home improvement company. Just before the case went to trial, the husband, without his wife's consent or signature, filed amended marital tax returns for the years 2004 to 2007, admitting that he had earned $1.6 million more in those years than previously reported. On the cover page sent to the Internal Revenue Service, he listed various marital assets that the government could seize to make good on the arrears, including the couple's home. He included information about the home's mortgage, the bank that held it and its estimated value of $1.2 million.

The court held a hearing on the issue, taking testimony from several witnesses, including the husband's accountant and the wife's forensic accountant. Following this, the court came to a conclusion about the husband's coming forward at this time, without any threat of audit: 'The court sees no legitimate reason for this outrageous and despicable conduct, which the court finds is based solely on malice and revenge, with no other goal than to prevent his wife from any recovery in equitable distribution.' Calling this 'shocking and egregious conduct,' the court declared that the husband alone would be held responsible for the additional tax liability, out of his share of the marital property.

Wife Fails to Investigate, Loses Pension Rights

An ex-wife was found not entitled to seek half her ex-husband's pension because although the parties believed at the time of the divorce that the pension's funding had disappeared, the wife knew the pension existed and she could readily have ascertained from information in the public domain that the fund was covered by insurance. Jill S. v. Marc S. , 28 Misc.3d 1210(A) (Sup. Ct., Nassau Cty., 7/16/10) (Falanga, J.).

The parties, who had been married for 27 years, obtained a divorce in 2007. Their stipulation of settlement, dated Aug. 1, 2007, was incorporated but not merged into the judgment. On March 19, 2010, the wife moved for a judgment to modify/ reform the parties' judgment of divorce because she had learned that her husband's pension, which both parties thought had been extinguished when the company he worked for went out of business, was in fact protected by the U.S. Government Pension Benefit Guarantee Corporation (PBGC). Therefore, the husband would still be able to receive pension benefits. The ex-wife claimed that their settlement contract should be reformed because of mutual mistake. The husband countered that, among other things: 1) the wife listed the pension on her affidavit of net worth in the parties' divorce action; 2) the husband's affidavit of net worth also listed the pension, stating the value was 'unknown'; 3) the wife was obligated under the terms of the parties' stipulation of settlement to make 'independent inquiry and investigation' with respect to the pension; 4) the wife was represented by counsel prior to and at the time of the execution of the stipulation of settlement; 5) the wife was in a better position than the husband to ascertain whether the pension had value as the business was owned by her father; and 6) the wife had received more than adequate financial benefits in the divorce.

The court noted that to vacate a stipulation of settlement on the ground of mutual mistake a party must demonstrate that the mistake existed at the time the stipulation was entered into and that it was so substantial that the stipulation failed to represent a true meeting of the parties' minds. Gro-Wit Capital Ltd. v. Obigor LLC , 33 AD3d 859. In this case it was undisputed that both parties were aware at the time they negotiated and executed their stipulation of settlement that the husband had earned pension benefits during the marriage. Although the wife claimed that the mutual mistake she complained of was that both parties were unaware that the pension was insured by the PBGC, that information was readily ascertainable in the public domain, had the wife chosen to make the appropriate inquiries. Because 'a party may not challenge the validity of a settlement agreement based on a claim that she undervalued assets which, the record showed, were disclosed by [her] former spouse and known to [her] at the time' ( Kojovic v. Goldman , 35 AD3d 65), the wife here was not entitled to relief.