Marshak v. Marshak: Shifting Divorce-Related Tax Liability and Awarding Fees Where One Spouse Controls Corporate Cashflow and Litigation Conduct

Introduction

In Marshak v Marshak (2025 NY Slip Op 04281 [240 AD3d 1094] [3d Dept July 24, 2025]), the Appellate Division, Third Department reviewed a Supreme Court judgment of divorce that centered on equitable distribution and litigation expenses after a short marriage layered on top of a long romantic and business relationship.

The parties—Wendy Marshak (wife) and Harvey Marshak (husband)—built and operated a business together, International Pathways, Inc. (IPI), and accumulated significant assets, including a marital residence (originally purchased by the wife in 2007 and placed in joint title in 2015) and adjacent real property held through retirement accounts tied to IPI. After the wife moved out in October 2020, she commenced an irretrievable breakdown divorce under Domestic Relations Law § 170 (7).

At trial, the central disputes were (i) how to equitably distribute assets where one spouse controlled a closely held company’s finances, (ii) whether the wife should receive a credit for separate funds used to acquire the marital residence, (iii) whether the husband should receive credit for unilateral expenditures improving adjacent property during the action, (iv) responsibility for the wife’s 2020 income tax liability arising from the husband’s unilateral filing choices and cash-withholding, and (v) counsel and expert fees in a document-heavy business-divorce context.

Summary of the Opinion

The Third Department largely affirmed Supreme Court’s equitable distribution and fee determinations, emphasizing deference to the trial court’s credibility findings. It upheld:

  • a directive requiring the husband to pay $223,807 to cover the wife’s 2020 income tax liabilities where his unilateral tax filing decision and control of corporate distributions contributed to her delinquency, penalties, and inability to pay timely;
  • a credit to the wife for $50,000 in separate inherited funds used to purchase the marital residence, awarded out of sale proceeds;
  • denial of any credit to the husband for $400,000 in unilateral improvements to adjacent property during the action because he failed to prove use of separate funds;
  • an award of counsel and expert fees to the wife due to the statutory presumption, the parties’ financial circumstances, and the husband’s litigation tactics.

The Appellate Division modified the judgment solely to correct a clerical inconsistency between the decision and the entered judgment: the court reduced the counsel fee amount to $549,962.37 and increased the expert fee amount to $122,951, conforming the judgment to the decision.

Analysis

Precedents Cited

1) Appellate standard and equitable distribution discretion

  • Robinson v Robinson, 133 AD3d 1185, 1187 [3d Dept 2015]
    Cited for the principle that an equitable distribution award will not be disturbed absent an abuse of discretion or failure to consider statutory factors. The court used this framework to emphasize that Supreme Court considered relevant Domestic Relations Law § 236 (B) (5) factors and that the appellate role is limited.
  • DeSouza v DeSouza, 163 AD3d 1185, 1190 [3d Dept 2018]
    Reinforced both the abuse-of-discretion standard and the deference owed to trial-level credibility determinations. This was crucial because the Third Department’s affirmance turned heavily on Supreme Court’s view that the wife’s financial testimony was credible and the husband’s was not.

2) Tax liability allocation in divorce

  • Cusumano v Cusumano, 96 AD3d 988, 989 [2d Dept 2012] and Cooper v Cooper, 84 AD3d 854, 857 [2d Dept 2011]
    Cited as comparative support for imposing responsibility on a spouse where circumstances justify allocating tax consequences in equitable distribution. The Third Department used these cases to underscore that a court may shift tax burdens when one party’s conduct meaningfully causes the other’s tax exposure or penalties.
  • Greenberg v Greenberg, 162 AD3d 870, 873-874 [2d Dept 2018]
    Cited as a contrast case, signaling that tax allocation is not automatic and depends on the specific proof of causation, control, and fairness. By distinguishing Greenberg, the court implied that the record here showed a tighter nexus between the husband’s actions (filing separately without notice; controlling distributions) and the wife’s inability to file/pay timely.

3) Credits for separate property contributions to marital assets

  • Beardslee v Beardslee, 124 AD3d 969, 969 [3d Dept 2015]
    Cited for the proposition that separate funds used toward acquisition of the marital residence may be credited when crafting an equitable distribution of sale proceeds. The court relied on this authority to uphold the wife’s $50,000 inheritance-based contribution credit.
  • Hughes v Hughes, 200 AD3d 1404, 1410 [3d Dept 2021]
    Supported the same principle: separate contributions can be recognized in the distribution of a marital residence, even where title later becomes joint, so long as the proof supports tracing and the equitable outcome.

4) Denial of credit for unilateral spending absent proof of separate funds

  • Cassara v Cassara, 1 AD3d 817, 819-820 [3d Dept 2003]
    Used to support the trial court’s discretion to deny credits where a spouse unilaterally expends funds and fails to prove the expenditures were separate (or otherwise warrant reimbursement). Here, the husband’s claimed $400,000 improvements did not translate into a credit because he failed in proof.
  • DeSouza v DeSouza, 163 AD3d at 1191-1192
    Again reinforced that equitable distribution rulings turn on evidentiary showings and credibility, and that reimbursement/credits require substantiation.

5) Equitable distribution need not be item-by-item 50/50

  • Arvantides v Arvantides, 64 NY2d 1033, 1034 [1985]
    Cited for the well-known rule that equitable distribution does not require each asset to be split equally. The Third Department used this to reject the husband’s arguments about vehicle value differences and gifts to adult children.
  • Vantine v Vantine, 125 AD3d 1259, 1261 [3d Dept 2015]
    Reinforced Arvantides and supported Supreme Court’s discretion to resolve “small-balance” disputes without mechanical equalization.

6) Counsel fees, financial control, and litigation tactics

  • Redgrave v Redgrave, 22 AD3d 913, 914 [3d Dept 2005] and Ferraro v Ferraro, 257 AD2d 596, 597 [2d Dept 1999], lv denied 93 NY2d 803 [1999]
    Cited for assessing the parties’ relative financial positions, including the practical reality of control over business income and access to corporate assets. These cases supported the conclusion that the husband was in a stronger position despite the overall distribution.
  • Angello v Angello, 237 AD3d 1318, 1323 [3d Dept 2025]
    Applied the Domestic Relations Law § 237 (a) framework and the “rebuttable presumption” that counsel fees should be awarded to the less-monied spouse. The court found the husband failed to rebut the presumption.
  • Kaprov v Stalinsky, 145 AD3d 869, 874 [2d Dept 2016], lv denied 29 NY3d 913 [2017]
    Supported awarding fees where one party’s tactics prolong and complicate the litigation. The Third Department used it to validate Supreme Court’s focus on the husband’s resistance to mediation and disclosure about IPI.
  • DeCabrera v Cabrera-Rosete, 70 NY2d 879, 881 [1987]
    A seminal Court of Appeals authority emphasizing that counsel fees can be used to level the playing field and to prevent the monied spouse from wearing down the other. This undergirded the propriety of a substantial fee award in a corporate-finance-heavy divorce.
  • Culen v Culen, 157 AD3d 930, 933 [2d Dept 2018] and Conway v Conway, 29 AD3d 725, 726 [2d Dept 2006]
    Further supported fee shifting based on relative means and litigation conduct, reinforcing the conclusion that Supreme Court acted within its discretion.

7) Conforming judgment to decision where inconsistent

  • Verdrager v Verdrager, 230 AD2d 786, 787-788 [2d Dept 1996] and Matwijczuk v Matwijczuk, 290 AD2d 854, 855 [3d Dept 2002]
    Cited for the rule: where a judgment conflicts with the decision it is based on, the decision controls. The Third Department relied on this to correct the counsel/expert fee figures.
  • Lake George Park Commn. v Salvador, 72 AD3d 1219, 1221 n 2 [3d Dept 2010] and CPLR 5019 (a)
    Confirmed the court’s ability to correct the judgment to accurately reflect the decision, treating the discrepancy as a correctable error.

Legal Reasoning

1) Credibility as the engine of equitable distribution review

The decision is a reminder that in financially complex divorces, appellate outcomes often track credibility findings. Supreme Court found the wife’s evidence credible and the husband’s testimony “largely uncorroborated” and filled with misrepresentations. The Third Department explicitly anchored its affirmance in that credibility determination, citing DeSouza v DeSouza.

2) Tax liability shifted based on control, notice, and causal connection

The court upheld making the husband responsible for the wife’s 2020 tax liability where the record showed:

  • the husband historically handled tax decisions and typically filed jointly;
  • he unilaterally decided to file separately for 2020 and gave late notice close to the deadline;
  • he controlled IPI finances and failed to timely pay the wife shareholder distributions needed to pay taxes on income attributable to her;
  • the wife missed the deadline and incurred penalties while still paying down the liability at trial;
  • even the husband’s expert conceded she lacked funds until September 2021.

The reasoning is equitable rather than mechanistic: the court focused on fairness and causation—i.e., whether one spouse’s unilateral decisions and financial control created the other’s tax delinquency and penalties.

3) Separate-property tracing credited for the marital residence

The wife proved she used $50,000 of inherited funds in 2007 to purchase the residence. Even though the residence later became jointly titled, the court treated the separate contribution as a factor warranting a credit out of sale proceeds, consistent with Beardslee v Beardslee and Hughes v Hughes. The key was proof and tracing of the separate source.

4) No reimbursement for unilateral improvements without proof of separateness

The husband’s claimed $400,000 improvement spending on adjacent property during the pendency of the action did not yield a credit because he failed to prove the expenditures were made from separate funds. The decision signals that unilateral spending—especially mid-litigation—does not automatically translate into a distributive “offset” absent credible documentation and a persuasive equitable rationale.

5) Counsel and expert fees: leveling the field plus sanctioning “prolonging” tactics

The Third Department affirmed the fee awards under Domestic Relations Law § 237 (a) by combining:

  • relative means: the husband remained better positioned due to control of IPI and access to corporate resources; and
  • litigation conduct: Supreme Court found he refused mediation to avoid disclosure, forcing protracted discovery, expert forensic work, and an extended trial.

This reflects a dual function of fee awards in New York matrimonial practice: (i) ensuring parity and access to counsel (DeCabrera v Cabrera-Rosete), and (ii) addressing tactics that drive up costs (as echoed in Kaprov v Stalinsky).

6) Correction of the judgment to match the decision

The modification is doctrinally modest but practically important: it reiterates that the written decision controls over an inconsistent judgment (Verdrager v Verdrager), and that courts may correct the record under CPLR 5019 (a). This protects parties from enforcement confusion and prevents clerical drift from altering substantive rights.

Impact

  • Tax allocation as equitable accountability: The opinion strengthens the practical lesson that a spouse who controls business cashflow and makes unilateral tax-filing choices risks being saddled with resulting tax liabilities/penalties when the other spouse is deprived of notice or funds needed for compliance.
  • Corporate-control divorces: The decision underscores that “control” of a closely held company can matter as much as formal distributions in determining who is the more-monied spouse for counsel fee purposes.
  • Proof-driven reimbursement claims: Parties seeking credits for expenditures—especially during litigation—must document the source of funds and establish an equitable basis for reimbursement.
  • Litigation behavior affects fee exposure: Refusal to mediate and strategic non-disclosure can convert ordinary fee-shifting into very large awards, particularly where experts must reconstruct business records.
  • Clerical consistency safeguards: The case provides a clean procedural roadmap for correcting discrepancies between a trial decision and the entered judgment.

Complex Concepts Simplified

  • Equitable distribution (Domestic Relations Law § 236 [B] [5]): Dividing marital property fairly, which does not necessarily mean equally item-by-item.
  • Separate property credit / tracing: If a spouse can prove (trace) that a contribution came from separate property (like an inheritance), a court may credit that spouse when dividing sale proceeds of a marital asset.
  • Distributive award: A payment ordered to achieve a fair overall division when assets are not divided perfectly in kind.
  • Rebuttable presumption of counsel fees (Domestic Relations Law § 237 [a]): Courts generally presume the less-monied spouse should receive counsel fees; the other spouse must prove why a fee award would be unjust.
  • CPLR 5019 (a) correction: A procedural tool allowing courts to correct mistakes in judgments/orders so they accurately reflect what the court decided.

Conclusion

Marshak v Marshak is a credibility-anchored affirmance that illustrates how New York courts handle financially complex divorces involving closely held businesses. Its most consequential teachings are practical: when one spouse controls corporate distributions and unilaterally changes tax filing strategy without timely notice, a court may equitably assign tax liabilities and penalties to that spouse; separate-property contributions to marital assets can yield credits when proven; and fee-shifting under Domestic Relations Law § 237 (a) is strongly influenced by both financial control and litigation tactics. Finally, the decision reinforces a procedural safeguard—when a judgment conflicts with the underlying decision, the decision governs and the judgment can be corrected.