The Ties That Might Not Bind: Oral Agreements with Your Spouse

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The determination of how marital property will be distributed pursuant to New York’s “equitable distribution” scheme seemingly continues to evolve year after year. More specifically, how the marital property will be distributed requires, at least under New York law, a closer look at the intricacies of each marital unit—which may well include how a couple lived their lives in the ordinary course.

While that type of analysis may seem unduly cumbersome, the Second Department’s recent decision in Jean Marie Potvin v. Guy Potvin, 2021 NY Slip Op 02429 (2d Dep’t 2021) is further proof that courts will, if necessary, take the deep dive into how a married couple conducted themselves—even in social situations—to evaluate the appropriate manner in which to distribute marital property equitably.

In the Potvin matter, the parties married in 1974. In 2015, the wife commenced an action for a separation and the husband counterclaimed for divorce. Meanwhile, at trial, testimony was elicited that back in 1991, the parties separated, and the wife had commenced a prior action for divorce in 1996 which she later discontinued in 1998, at which time the husband moved back into the marital residence.

The wife claimed that the parties entered into an oral agreement “that they were not reconciling and that each waived any right to the other’s assets.” The husband denied any such oral agreement, and claimed that he understood the parties had reconciled.

The trial court found that no “economic partnership” existed between the parties “at any time following their separation in 1991” and accordingly held that each party would retain ownership of the assets “under his or her dominion and control, including cash accounts, stocks, stock options, pension and retirement accounts, life insurance policies, and deferred compensation plans.”

The Second Department began its analysis as follows: “Where a prior action for divorce is withdrawn or discontinued, and the parties either reconcile or continue the marital relationship, and continue to receive the benefits of the relationship, property acquired after the withdrawal or discontinuance of the prior divorce action may be deemed marital property … [I]n order to determine whether this standard has been met, inquiry must be made into the nature of the marital relationship within the context of the statutory scheme for equitable distribution.”

The Second Department remitted the matter to the trial court for a “new determination of the issue of equitable distribution,” finding that the trial court erroneously directed the parties to retain “sole ownership of certain assets in their own names.”

The rationale behind the Second Department’s conclusion that the parties functioned as an “economic partnership” (and did not lead “separate financial lives”) was as follows: (1) the parties resided in the marital home from 1998 until the commencement of the divorce action in 2015, and for most of that time shared the home with their two children; and (2) the parties “visited relatives and attended social functions together, went on vacations together, and periodically engaged in sexual relations. Although the parties maintained separate bank accounts and credit cards, the parties filed joint tax returns and shared many of the family’s expenses, including the children’s college tuition and home renovations. Moreover, the parties named each other as executors and beneficiaries in their wills.” If upon a first read no aspect of the quoted language gives you pause, then this author urges you to re-read it again, as it illustrates the extent to which conduct might play a role in how marital assets are distributed.

Secondarily, the Potvin decision notes that the parties never entered into a “written agreement to keep [their] finances separate … Marital partners may agree that property they acquire during the marriage will be divided in a particular manner, but that agreement must be in writing.”

The Potvin decision begs the question whether and to what extent the requirement of a “writing” is in tune with how married couples conduct their day-to-day lives. Oral agreements—as simple as one spouse agreeing to go grocery shopping while the other spouse agrees to take a child to a doctor’s appointment—are made between spouses ad infinitum.

The Potvin decision is a reminder, and perhaps a harsh reminder, that in the absence of a formal written document that opts out of the equitable distribution scheme set forth in the Domestic Relations Law, one should not expect to proceed outside the bounds of that scheme—notwithstanding that the marital history includes the prior commencement of a divorce action, albeit one that was discontinued.

“The Ties That Might Not Bind: Oral Agreements with Your Spouse,” by Alan R. Feigenbaum was published in New York Law Journal on July 26, 2021. Reprinted with permission. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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