Enhanced Earnings as a Marital Asset
Did you know that your educational degree or professional license can be considered marital property within the meaning of the Domestic Relations Law of New York State?
It’s true, if acquired during your marriage and before the commencement of a divorce action or the execution of a separation agreement, your degree or license can be subject to equitable distribution. This simply means that your spouse may be entitled to share in part of the value that your license or degree represents, or in other words, the value of your enhanced earning capacity.
This may seem counter intuitive or even unfair at first. In fact, it was the subject of much controversy in New York trial courts for many years. Yet, consider the 1985 case of O’Brien v. O’Brien, where the wife had supported the husband for over nine years while he earned his college degree, medical degree and medical license. Just a few months after being licensed, the husband filed for divorce. Thereafter, the wife sought to be compensated for her contributions towards the husband’s enhanced earning ability. The New York State Court of Appeals agreed with the wife’s position and held that a medical license can be considered marital property within the meaning of New York Domestic Relations Law and can be subject to equitable distribution despite the fact that it does not “fall within the traditional property concepts.”
Similarly, the court in McGowan v. McGowan held that if an educational degree was acquired during a marriage, and it is proven that the degree has value, then it can be considered marital property subject to equitable distribution in a matrimonial action. The court held that there is “no valid basis upon which to distinguish such degrees from the professional licenses which pursuant to O’Brien are subject to equitable distribution.”
Of course, an educational degree or professional license cannot be divided, sold or transferred for value. Therefore, a valuation must be completed to determine the extent of the enhanced earning capacity that the license or degree represents. Valuation is completed by an expert witness as it is rare for two parties to agree on the value that a license or degree represents. The expert calculates what the licensed spouse is projected to earn with the license over the course of their lifetime, and what the licensed spouse would have earned without the license over the course of their lifetime. The difference between these two amounts is considered the enhanced earnings.
Equitable distribution of the enhanced earning capacity will usually be in the form of a distributive award (a lump sum of money) after valuation is complete. It can be paid over an extended period of time or can be awarded in the form of other assets as agreed upon by the parties. If the degree or license does not enhance the spouse’s earning ability, then no award will be made.
The valuation of a degree or license can range from the very simple to the complex. For example, valuation is simple in a case where the licensed spouse is just starting out in their profession. Valuation will be far more complex when the licensed spouse has been working in his or her profession for over twenty years and is well established in his or her career.
Of course, a Judge will not always divide the value of such an asset. As New York is an equitable distribution state, a non-licensed spouse will have to prove that they somehow contributed toward the earning of the degree or obtaining the license in order to be awarded any value.