Equitable Distribution of Professional Licenses, Enhanced Earnings and Maintenance

One of the critical categories of assets to be divided in the course of divorce is professional degrees acquired during the marriage. Typical issues involving the distribution of such licenses involve the distribution of the license itself and also an evaluation of how that asset impacts the title spouse’s income for computation of a potential maintenance award

In O’Brien v. O’Brien, 66 N.Y.2d 576 (1985), the Court of Appeals stated that the Domestic Relations Law should be given a liberal interpretation and held that a professional degree or license was “marital property,” subject to equitable distribution.

In McSparron v. McSparron, 87 N.Y.2d 275 (1995), the Court of Appeals held that, even after a professional degree or license has been used by the licensee to establish and maintain a career, it does not “merge” with the career or ever lose its character as a separate, distributable asset. In eliminating the concept of “merger,” the Court of Appeals acknowledged that a professional license has an intrinsic value that it brings to the party who holds it and addressed the issue of valuing such an asset in a way that avoids duplicative awards. The Court was concerned with making sure that the monetary value assigned to the license does not overlap with the value assigned to other marital assets derived from the license, such as the licensed spouse’s professional practice. It stated that “courts must be meticulous in guarding against duplication in the form of maintenance awards that are premised on earnings derived from professional licenses.”

In Grunfeld v. Grunfeld, 94 N.Y.2d 696 (2000), the Court of Appeals, while upholding the valuation concepts set forth in McSparron, reversed the Appellate Division’s decision. The reason for the reversal was based on the lower court’s full distribution of the value of the law license as a marital asset, without a corresponding adjustment in the maintenance award. On its face, the lower court engaged in double counting inconsistent with McSparron and was therefore incorrect. The Supreme Court did not, however, explain how it considered the defendant’s income from outside sources in determining the amount that the license distribution award should be reduced. For this reason, the case was remitted for further proceedings.

The above cases are critical in establishing values of professional licenses, enhanced earnings, and potential maintenance awards. The post-Grunfeld cases are deeply concerned with the issues of valuation and need to be carefully reviewed each time a professional license is to be valued and distributed in a divorce action.

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