Stay-at-home spouse gets 20% of value increase in husband’s separate business

BVWireIssue #261-1
June 5, 2024

marital dissolution/divorce
divorce, appraisal, child support, appreciation, trial court

In New York, the appreciation in value of a business started before marriage may be treated as marital property, but not all the appreciation is included. The courts use an active/passive test that carves out the passive appreciation (e.g., from market forces), so only the active appreciation of the business owner spouse would be subject to distribution to the nonowner spouse. But, in a recent divorce case, it appears that this analysis was not done, and the nonowner spouse got a share of the total appreciation of the business.

Bigger pie: The husband owned an electrical and mechanical contracting business and was married in 1999. The action for divorce was filed in 2011. A court-appointed business valuation expert was used, but the wife also had her own expert. The trial court awarded the wife 20% of the appreciation of the business during the marriage for her contribution as a mother and homemaker. The percentage was applied to the appreciation in the business value from the date of marriage to the date of commencement of the divorce action. The court used the court-appointed expert’s valuation in making the 20% award. It does not appear that any active/passive analysis was done in this case, so the wife received 20% of the total appreciation in the business. There was also no detail given as to how the 20% was calculated. On appeal, the award was upheld.

An active/passive analysis would have separated out the appreciation in value related to factors outside the control of the business owner, and, thus, it would not be included as marital property. This could include the impacts of other possible owners or key employees as well as market forces, such as the effects of inflation or other changes in economic indicators that drive value in a business of this type. Assuming that part of the appreciation was passive in this case, the wife got more than what she was entitled to under the New York rules.

The case is Rigas v. Rigas, 2024 N.Y. App. Div. LEXIS 2883; 2024 NY Slip Op 02829, and a case analysis and full court opinion are on the BVLaw platform.

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