Sykes v. Sykes

MATTHEW F. COOPER

Mayerson Abramowitz & Kahn, LLP, New York, for the Plaintiff. Cohen Clair Lans Greifer & Thorpe LLP, New York, for the Defendant.

In this matrimonial proceeding, defendant-wife seeks to have the court use its civil contempt powers to punish plaintiff-husband for a violation of orders that are automatically triggered by the commencement of an action for divorce. The automatic orders, which became part of New York State divorce procedure in 2009 with the enactment of Domestic Relations Law (DRL) section 236(B)(2)(b) and the promulgation of 22 New York Codes, Rules and Regulations (NYCRR) 202.16–a, prohibit the unauthorized transfer of marital assets during the pendency of the case.

Here, there is little question that plaintiff violated the automatic orders by using close to $4 million in marital funds to purchase a house in Connecticut after he started this proceeding. As will be explained, the court finds that although civil contempt is an available remedy when a party transfers assets in violation of the automatic orders, it is not an appropriate remedy on these facts.

Plaintiff commenced this divorce action on November 3, 2010, by filing a summons with notice. On or about December 3, 2010, defendant was served with the summons. Included with the summons was the “Notice Re: Automatic Orders,” which recites verbatim the language of the automatic orders as provided in DRL § 236(B)(2)(b) and 22 NYCRR 202.16–a and sets forth their applicability to both parties. The parties exchanged Net Worth Statements on March 10, 2011. Plaintiff's Net Worth Statement was sworn to on February 11, 2011, but reflected assets as they existed on November 1, 2010, two days before the commencement date of the action. From plaintiff's Net Worth Statement and from his affidavit in opposition to defendant's motion for contempt, it appears that the parties are fortunate enough to have a marital estate worth in excess of $16 million, with approximately $12 million in liquid assets.

Plaintiff admits that after the commencement of the action he wrote checks totaling $49,409.34 from the parties' joint account to his fiancée, his fiancée's divorce attorney, and another individual. He also admits to having purchased his fiancée a diamond engagement ring for over $70,000. Plaintiff contends, however, since the time the divorce action began he has earned more than $10 million as a hedge fund manager, and therefore whatever he has spent on his fiancée should be viewed as having come from his current income and not from marital funds. On the other hand, plaintiff fully acknowledges that the Connecticut house, which he purchased on April 18, 2011 for $3,795,000, was bought with marital funds.

Defendant contends that the automatic orders of DRL § 236(B)(2)(b) and 22 NYCRR 202.16–a constitute an unequivocal mandate of the court and that plaintiff is charged with knowledge of such orders as the party who commenced the action. In light of plaintiff's unilateral expenditure of marital assets since the commencement of this action, and in particular his use of marital funds to buy himself an expensive house, defendant asserts that her equitable distribution rights have been prejudiced. Defendant further contends that plaintiff willfully failed to disclose in his Net Worth Statement the transfer of assets to his fiancée and that the court relied on this misstatement in awarding interim counsel fees to defendant. As a remedy for these alleged breaches of the restraint on the transfer of assets and compulsory disclosure found in the automatic orders, defendant moves to have plaintiff held in contempt of court and to have him fined, imprisoned, and restrained from making any further transfers of marital assets. Defendant also seeks attorney's fees in excess of $20,000 for having to bring the motion. Finally, with the request being made for the first time in defendant's reply affidavit and then by her attorney at oral argument, defendant seeks an order directing plaintiff to deposit $8 million of the $12 million in liquid marital assets in escrow until resolution of this action.

Plaintiff opposes defendant's application, specifically a finding of contempt, on the grounds that defendant's rights have not been prejudiced—a prerequisite to a contempt finding—and that effective remedies alternative to contempt are available. Though admitting to having used marital funds to purchase the Connecticut house, plaintiff argues that he has not dissipated the marital estate but merely converted a liquid asset into real property. Plaintiff further asserts that the funds spent on his fiancée were from his personal post-commencement earnings, that the Net Worth Statement was a true and accurate reflection of his financial information as of the date of its completion on November 1, 2010, and that defendant has not demonstrated that plaintiff attempted to dispose of marital assets so as to prejudice defendant's entitlement to equitable distribution. Legal Analysis I. Contempt Based on Plaintiff's Alleged Dissipation of Marital Funds

The court need not delve into a lengthy analysis as to whether civil contempt is an available remedy for a violation of the automatic orders. This past year, Justice Ellen Gesmer held in P.S. v. R.O., 31 Misc.3d 373, 916 N.Y.S.2d 755 (Sup. Ct., New York County 2011), that the promulgation of DRL § 236(B)(2)(b) as a court rule in 22 NYCRR 202.16–a constitutes a “lawful mandate[ ] of the court” and that the legislative history of DRL § 236(B)(2)(b) clarifies “that the Legislature intended that a violation of the automatic orders would be redressed by the same remedies available for violations of any order signed by a judge.” Id. at 376, 916 N.Y.S.2d 755. This court agrees fully with Justice Gesmer's sound reasoning and it concludes as she did that a party who violates the automatic orders is subject to being punished for contempt of court.

In order to adjudge a party in civil contempt, a court must conclusively determine three things: 1) the existence of a lawful order expressing an unequivocal mandate of which the party had knowledge; breach of the automatic orders prejudiced defendant's rights in this ongoing action ( see Judiciary Law § 753[A]; McCormick, 59 N.Y.2d at 583, 466 N.Y.S.2d 279, 453 N.E.2d 508 [“prejudice to the right of a party to the litigation must be demonstrated”] ) and whether alternative remedies to a finding of contempt are unavailable or would be ineffectual. See Farkas v. Farkas, 201 A.D.2d 440, 607 N.Y.S.2d 945 (1st Dept. 1994).

Prior to determining whether plaintiff's conduct rises to the severity of a contempt, it is useful to examine the legislative history leading to the enactment of the law establishing the automatic orders. In the Assembly's Memorandum in Support of Legislation, it is stated that the automatic orders are needed “to prevent both parties from dissipating assets, incurring unreasonable debts, or removing a party or the children from health or life insurance policies.” Mem. in Support of 2009 N.Y. Assembly Bill A2574, Bill Jacket, L. 2009, ch. 72; see also Introducer's Mem. in Support, 2009 N.Y. Senate Bill S2970. Despite the fact that the word “dissipating” is not used in the automatic orders, it is clear from the history that one of the Legislature's prime concerns in enacting the law was to provide a means to remedy an all-too-common problem: that one of the parties to a divorce would undermine the equitable distribution process by spending, transferring or concealing marital property. Thus, a court, in considering an alleged violation of the automatic orders, must look not only to the actual text of the orders themselves, but it should view the violation from the perspective of the Legislature's articulated concern for preventing the dissipation of assets.

Dissipation has a specialized meaning within the context of matrimonial law. It has often been characterized as having a nefarious or devious undertone carrying the implication that the party transferring the funds did so with the intent of impeding the economic rights of the other spouse and preventing the court from making a fair and equitable distribution of the marital estate. See Blickstein v. Blickstein, 99 A.D.2d 287, 293, 472 N.Y.S.2d 110 (2d Dept. 1984); Hartog v. Hartog, 1992 WL 695903 (Sup. Ct., New York County 1992). In some cases, the dissipation consists of the transfer of marital funds to a secret bank account ( see e.g. Maharam v. Maharam, 245 A.D.2d 94, 666 N.Y.S.2d 129 [1st Dept. 1997] ), or a spouse's use of marital property to pay for personal expenses and debts ( see e.g. Dewell v. Dewell, 288 A.D.2d 252, 733 N.Y.S.2d 114 [2d Dept. 2001] ). In other cases, the dissipation takes the form of transfer of funds without fair consideration to third parties. See e.g. Davis v. Davis, 175 A.D.2d 45, 573 N.Y.S.2d 162 (1st Dept. 1991). In almost all cases, it involves during the pendency of a divorce action.

In this case, there can be no dispute that plaintiff's purchase of the Connecticut house with marital funds—alternatively characterized by plaintiff as a conversion of marital funds from cash into real property—violated the plain language of the automatic orders.