Bloch v Bloch

[*1] Bloch v Bloch 2005 NY Slip Op 52021(U) [10 Misc 3d 1058(A)] Decided on November 30, 2005 Supreme Court, Kings County Sunshine, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 30, 2005
Supreme Court, Kings County

Basya Bloch, Plaintiff,

against

Baruch Jacob Bloch, Defendant.



16252/04

Jeffrey S. Sunshine, J.

Introduction

Upon the foregoing papers, defendant Baruch Jacob Bloch moves, by way of a motion in limine, for a judgment declaring that the property located at 8520 Foster Avenue (the Foster Avenue property) is his separate property for purposes of the instant divorce action. Plaintiff Basya Bloch opposes the motion on the ground that defendant has not met his burden of proving that the Foster Avenue Property is separate property and so is not entitled to a judgment declaring same.

Background

The parties were married in Brooklyn on March 4, 1980. Plaintiff commenced the instant action for divorce on May 21, 2004 and seeks equitable distribution of the marital estate which she alleges includes the Foster Avenue Property.

In an affidavit submitted in support of his motion, defendant claims that he [*2]purchased the Foster Avenue Property solely with funds which originated from a corporation that he had owned prior to the parties' marriage. Specifically, defendant avers that on April 10, 1979, a corporation known as B & W Car Leasing Corp. (B & W), of which he was the sole shareholder, purchased a property known as 1269 36th Street in Brooklyn. Defendant submits a copy of the bargain and sale deed for said property which lists B & W as the grantee of the property.

On August 14, 1980, title to 1269 36th Street was deeded from B & W to Cosmo Car Sales, Inc. (Cosmo), another corporation owned by defendant as the sole shareholder. Defendant submits a copy of the bargain and sale deed for the transaction. Allegedly, Cosmo was created to hold title to 1269 36th Street and to handle all transactions associated with ownership of the property.

On March 15, 2000, Cosmo entered into a "like-kind"transfer, as defined by 26 U.S.C. § 1031, by selling the property located at 1269 36th Street and simultaneously purchasing another property located at 1149 36th Street in Brooklyn. Allegedly, the purchaser for the property located at 1269 36th Street was the Talmudical Academy of Borough Park (the Academy). Defendant submits a contract of sale listing Cosmo as the seller, The Academy as the purchaser of the property and the purchase price as $800,000. The contract also states that the closing was to take place on March 15, 2000 and that "seller is accomplishing a tax-free exchange [and] acquiring on even date premises 1149 36th St[reet] . . . ." Defendant also submits a bargain and sale deed with regard to the subject transaction.

Although a formal closing binder apparently was not prepared for the transaction, defendant has submitted a copy of a letter from his attorney which details the distribution of the $800,000 purchase fee for 1269 36th Street to both creditors of 1269 36th Street and the sellers of 1149 36th Street, as well as for various other closing costs related to the transaction. Defendant also submits copies of three cancelled cashier's checks evidencing payments to two individuals who defendant states were the owners of 1149 36th Street and an additional payment of $19,000 which allegedly was used for the purchase of 1149 36th Street. The total amount of proceeds from the sale of 1269 36th Street which are accounted for by plaintiff equal a sum of $732,741.00.

With regard to the purchase of 1149 36th Street, it appears that there also was no formal closing binder, but defendant submits a "Tentative Closing Statement" showing that 1149 36th Street was purchased for $625,000. The $625,000 used to purchase said property was allegedly obtained from the following sources: a down payment of $20,000 which was borrowed from plaintiff's brother-in-law, $137,741 from the proceeds of the sale of 1269 36th Street and a $475,000 purchase money mortgage issued to Cosmo.

In September of 2003, Cosmo sold the property located at 1149 36th Street for $995,000. Defendant submits a bargain and sale deed reflecting this transaction. He also submits copies of checks which he states represent the disbursement of the proceeds of the sale. The checks show that a total of $443,544 was used from the sale of 1149 36th Street to pay off the outstanding purchase money mortgage on 1149 36th Street, that [*3]$5,000 was used toward legal fees associated with the sale, and that $502,000 was placed into escrow toward the purchase of 8520 Foster Avenue. Defendant is unable to account for $44,456 of the proceeds, however, he believes that this amount was also used toward miscellaneous expenses related to the sale of 1149 36th Street.

Although the "like-kind" exchange of 1149 36th Street for 8520 Foster Avenue was not immediately made upon the sale of 1149 36th Street, Cosmo entered into an exchange agreement with Sutton Land Services which was to act as a qualified intermediary and to hold funds earmarked for the purchase of 8520 Foster Avenue until such exchange could be made at a later date. Pursuant to the exchange agreement, Cosmo had no right to receive, borrow or otherwise obtain the benefits of money or other property constituting the proceeds from the sale of 1149 36th Street and such proceeds remained in escrow pending the purchase of 8520 Foster Avenue.

With regard to the purchase of 8520 Foster Avenue, the property at issue here, said property was purchased on March 4, 2004 for a total sale price of $1,050,000. Defendant submits a contract of sale, real property transfer tax return, real property transfer report, combined real estate transfer tax return, credit line mortgage certificate, certification of exemption from the payment of estimated personal income tax and the bargain and sale deed evidencing the purchase of 8520 Foster Avenue by Cosmo.

Defendant states that at the time of the purchase, Sutton Land Services wire-transferred the sum of $518,103.69, representing the amount which it had held in escrow from the sale of 1149 36th Street, to be used at the closing. Defendant submits correspondence and an account statement reflecting this transfer. The remaining amount of the purchase price was satisfied by defendant's assumption of a mortgage on the property in the amount of $499,000. Defendant submits the contract of sale for the Foster Avenue property which states that there was an existing mortgage on the property on this amount.

With respect to the three properties owned by Cosmo at different points during this series of exchanges, defendant avers that each property was leased to commercial tenants pursuant to a "net-lease" arrangement. Under these "net-lease" agreements, the tenants agreed that, in addition to paying monthly rent, they would be responsible for any maintenance and/or expenses associated with the property in question. Defendant alleges, therefore, that his role as commercial landlord was limited almost exclusively to the collection of rent. Defendant also avers that he did not make or cause to be made any improvements, renovations or other activity increasing the value of any of the properties at any time during which he held an ownership interest.

In opposition to defendant's motion, plaintiff argues that because Cosmo was created subsequent to the parties' marriage, any property acquired by it is presumed to be marital. She also contends that the property located at 1269 36th Street was refinanced multiple times throughout Cosmo's ownership of same and that defendant has not accounted for the proceeds of such refinancing transactions. With respect to the alleged "like-kind" property exchanges claimed by defendant, plaintiff argues that defendant has [*4]failed to account for all of the proceeds of such sales or to adequately demonstrate that the sums allegedly received for the sale of such properties was actually paid to defendant or used to purchase subsequent properties.

Plaintiff also contends that defendant had an interest in the Foster Avenue property prior to Cosmo's purchase of same. She submits a copy of an affidavit by defendant, dated prior to Cosmo's purchase of the Foster Avenue property, which states that defendant is a "managing member" of Foster Avenue Realty Corp., the corporation which owned the property prior to Cosmos' purchase of same, and also the president of the corporation. She also submits portions of affirmations and hearing testimony which she purports evidences defendant's concession that the Foster Avenue property is marital in nature or was purchased, in part, with marital funds.

Finally, plaintiff argues that defendant has failed to provide any evidence to the court demonstrating that the alleged commercial tenants of the subject properties entered into net-lease arrangements with Cosmo which rendered them responsible for all maintenance and/or expenses related to the properties.

Discussion

Domestic Relations Law § 236 (B) (1) (c) defines marital property as follows:

The term marital property' shall mean all the property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action regardless of the form in which title is held . . . . Marital property shall not include separate property as hereinafter defined.

Separate property is defined, in part, as either "property acquired before marriage or property acquired by bequest, devise or descent, or gift from a party other than the spouse" (Domestic Relations Law 236 [B] [1] [d] [1]) or "property acquired in exchange for or the increase in value of separate property" (Domestic Relations Law 236 [B] [1] [d] [3]; see also Rossi v Rossi, 137 AD2d 590, 591 [1988] [finding that real property was separate property where such property was "purchased by the defendant in exchange for separate property acquired by him before the marriage"]; Adams v Adams, 129 AD2d 661, 662 [1987][automobile deemed separate property where it was purchased with insurance proceeds from car which was received as a gift and was therefore also separate property]; Pacifico v Pacifico, 101 AD2d 709, 710 [1984][business considered to be separate property where it had been acquired in exchange for another piece of separate property].

"In identifying nothing less than all property' acquired during the marriage as marital property [Domestic Relations Law § 236 (b) (1) (c)] evinces an unmistakable intent to provide each spouse with a fair share of things of value that each helped to create and expects to enjoy at a future date" (DeLuca v DeLuca, 97 NY2d 139, 144 [2001]). Given that the law favors the inclusion of property within the marital estate (see Burns v Burns, 84 NY2d 369, 374 [1994]; Majauskas v Majauskas, 61 NY2d 481, 489 [1984], "the party seeking to establish that a particular item is indeed separate property bears the burden of proof" (see LeRoy v LeRoy, 274 AD2d 362, 362 [2000][internal quotation [*5]marks and citation omitted]; Heine v Heine, 176 AD2d 77, 83 [1992], lv denied 80 NY2d 753 [1992]). Accordingly, when determining the status of contested property in a matrimonial action, the court must construe the term "marital property" broadly and the term "separate property" narrowly (see Price v Price, 69 NY2d 8, 15 [1986]). Moreover, a party's inability to trace the source of funds claimed to be separate (see Nasca v Nasca, 302 AD2d 906, 907 [2003]; Boardman v Boardman, 300 AD2d 1110, 1110 [2002]; Corasanti v Corasanti, 296 AD2d 831, 832 [2002]; Haas v Haas, 265 AD2d 887, 888 [1999]; Galachiuk v Galachiuk, 262 AD2d 1026, 1027 [1999]; Matwijczuk v Matwijczuk, 261 AD2d 784, 785 [1999]; Pullman v Pullman, 176 AD2d 113, 114 [1991], lv dismissed 84 NY2d 850 [1994]; Verrilli v Verrilli, 172 AD2d 990, 992 [1991], lv denied 78 NY2d 863 [1991]; Foppiano v Foppiano, 166 Ad2d 550, 551 [1990]; Lischynsky v Lischynsky, 120 AD2d 824, 826 [1986]) or the existence of evidence that the allegedly separate property was ultimately commingled with marital property (see Geisel v Geisel, 241 AD2d 442, 443 [1997]; Cerretani v Cerretani, 221 AD2d 814, 816 [1995]; Dunn v Dunn, 224 AD2d 888, 890 [1996]; Glazer v Glazer, 190 AD2d 951, 953 [1993]; Carney v Carney, 202 AD2d 907, 908 [1994]), will serve to defeat a party's separate property claim.

Here, defendant has traced the source of the funds used to acquire the Foster Avenue property with sufficient particularity to establish that such property should be classified as separate for purposes of the instant divorce action. It is undisputed that B & W was a corporation created by defendant, as its sole shareholder, prior to the parties' marriage. Defendant has presented sufficient evidence, in the form of a deed, to demonstrate that B & W owned title to 1269 36th Street before the parties were married. Defendant has also proffered a deed to corroborate his claim that such title was transferred from B & W to Cosmo subsequent to the parties' marriage. There is no evidence that marital funds were utilized to effect such a change in title, nor is there any evidence that additional funds of any sort would have been necessary, given that the property had already been purchased by B & W and the title for 1269 36th Street was merely transferred from one corporation to another, both of which were solely owned by defendant. As no proceeds were generated from such a transfer which could have been commingled with marital funds or otherwise transmuted into marital property, the court finds that 1269 36th Street retained its identity as separate property, despite its transfer from a corporation which was created prior to the marriage to one which did not exist until subsequent to the marriage.

Although plaintiff argues that absent a closing statement and other additional transfer documents demonstrating that no marital funds were used for the acquisition of the property in question it must be deemed marital, the court finds that there is sufficient evidence to support the conclusion that title to the property was transferred from one corporation to another without the need to resort to any outside fund sources, including marital. Moreover, given that the transfer was from one corporation to another, both of which shared defendant as the sole shareholder, and was effected approximately 26 years [*6]ago, the dearth of additional documentation appears to be more a function of the nature of the transaction itself than an indication that marital funds were utilized to acquire the subject property or that proceeds were generated from the transfer which could have been transmuted into marital property.

In addition, although plaintiff states that the 1269 36th Street property was re-financed numerous times, she makes no allegations with regard to the utilization of the proceeds from such re-financing. In any event, even if the proceeds were transformed into marital assets by their deposit in, for example, a joint account or by their use to purchase marital assets or pay off marital debt, 1269 36th Street would not be transformed from separate property to marital property. Rather, plaintiff would merely be entitled to equitable distribution of any proceeds which had demonstrably transmuted into marital assets. Moreover, even if marital funds were used as payments toward a mortgage on the subject property, plaintiff would only be entitled to a credit for such use of the marital funds and the property itself would retain its separate identity (see Markopoulos v Markopoulos, 274 AD2d 457, 458-459 [2000][finding that property purchased before marriage was separate, not marital property, but that plaintiff was nonetheless entitled to receive a sum equal to one-half of the marital funds used to reduce the indebtedness and pay for improvements to the property]; accord Burgio v Burgio, 278 AD2d 767, 769 [2000]). Accordingly, although plaintiff remains eligible to receive credits for any marital funds which were used to pay off mortgages on 1269 36th street, as well as on any of the other properties in question, to the extent that she ultimately can demonstrate the use of such funds for that purpose, the mere utilization of marital funds to pay off an existing mortgage on separate property is not sufficient to transform the property from separate to marital.

Defendant has also demonstrated that the Foster Avenue property was acquired in exchange for separate property and therefore should also be designated as a separate, as opposed to marital, asset. Defendant purchased the Foster Avenue property in a "like-kind" commercial property exchange whereby a property owned by Cosmo, namely 1149 36th Street, was exchanged for the Foster Avenue Property. The 1149 36th Street property itself was acquired through a similar like-kind exchange with 1269 36th Street, the property originally owned by Cosmo pursuant to the previously discussed transfer from B & W. Although it is true that "[a] court is not bound by a party's own account of his or her finances, and where a party fails to trace the sources of money claimed to be separate property, the court is justified in treating it as marital property" (Saasto v Saasto, 211 AD2d 708, 709 [1995], the court finds that defendant's account of the subject transactions is adequately bolstered by correspondence with attorneys, cancelled checks, contracts of sale, deeds and other transactional and tax documents related to the property exchanges. Accordingly, by documenting such exchanges to the court, defendant has demonstrated that the Foster Avenue property, having been acquired in exchange for separate property, should be considered separate property as well. Although plaintiff argues that there is inadequate documentation to support defendant's claim that the 1269 [*7]36th Street property was sold and the proceeds were used to acquire 1149 36th Street which was, in turn, subsequently sold to finance the purchase of the Foster Avenue property, the court finds that the evidence adduced by defendant, when considered in its totality, sufficiently demonstrates that the alleged property transfers took place as described.

Moreover, to the extent that plaintiff argues that not all of the proceeds of such transfers were accounted for by defendant, the court notes that the sums which were not specifically traced are minimal when compared with the purchase and sale prices for the properties in question and, in any event, even if it could be demonstrated that the proceeds in question had been commingled with marital property or otherwise transmuted into same and were therefore subject to equitable distribution, the property itself, having been purchased with separate funds, would nonetheless retain its separate identity. To the extent that plaintiff argues that 1149 36th Street was perhaps purchased with funds other than the proceeds from the sale of 1269 36th Street, or that the Foster Avenue property may have been purchased with funds other than the proceeds of the sale of 1149 36th Street, the court finds, as previously discussed, adequate evidentiary support for defendant's contention that such transfers were exchanges of separate property for other property, and plaintiff has not rebutted this substantiated finding with any specific evidence that marital funds, as opposed to the proceeds from the sale of separate property, were used to purchase either 1149 36th Street or the Foster Avenue property. Accordingly, defendant has met his burden of demonstrating that the Foster Avenue property was acquired through the exchange of separate property.

Plaintiff's contention that defendant had a prior interest in the Foster Avenue property is similarly unavailing. Although plaintiff submits an affidavit in which defendant states that he is a "member" and "president" of the corporation which previously owned the Foster Avenue property, there is no evidence that he actually was a shareholder in the corporation or held any other tangible interest in the property prior to the purchase of said property by Cosmo. Given that the documents submitted to this court evidencing the purchase of the Foster Avenue property by Cosmo do not reveal any prior interest in the property on the part of defendant, and defendant has adequately traced the funds utilized for the purchase to defendant's separate property, the court finds that the mere existence of the affidavit is insufficient to demonstrate that any interest in the Foster Avenue property was obtained through the use of marital funds.

Moreover, to the extent that the Foster Avenue property was characterized as "marital" at any time during prior proceedings in this action, or in affirmations, affidavits or other documents submitted to the court, the court finds that these characterizations are not binding for purposes of the instant property status determination, particularly in light of the affidavit and documentary evidence proffered by defendant on this motion and, in any event, such characterizations are contradicted by other statements contained in the record which indicate that the Foster Avenue property was considered as separate property by the defendant and was being claimed as such by him. Accordingly, defendant [*8]has established that the Foster Avenue property is separate property and plaintiff has not succeeded in rebutting the evidence demonstrating same.

Plaintiff also argues that the separate nature of the Foster Avenue property, as well as the other properties at issue here, is in doubt due to defendant's failure to provide any evidence to this court concerning the "net-lease" agreements pursuant to which commercial tenants allegedly leased the subject properties. It is true that the appreciation of separate property is considered marital property where the "appreciation was due in some measure to the time and efforts of the titled spouse" (Price, 69 NY2d at 18). However, the existence of such appreciation does not transform the separate property into marital property, but merely allows the amount of the appreciation, and not the underlying separate property itself, to be considered as marital property subject to equitable distribution. Also at least one court has held that where property is leased to a commercial tenant, pursuant to a net-lease agreement, and the titled spouse's activities with regard to the property are limited to periodic visits to collect rent and inspect the premises, that any appreciation of such property is due largely to market forces and remains the titled spouse's separate property (see Feldman v Feldman, 194 AD2d 207, 217 [1993]). The court finds, however, that on the record before it, it cannot determine whether or not the Foster Avenue property has appreciated in value or whether such appreciation is in any way attributable to the actions fo defendant. Accordingly, although the court finds that the Foster Avenue property is separate property, such finding does not encompass a determination that the appreciation of the Foster Avenue property, if any, is also separate property. Therefore, plaintiff is not precluded by this determination, to the extent that she alleges that the Foster Avenue property has appreciated in value, from proving such appreciation at trial and thereby it be subject to equitable distribution (see Tzanopoulos v. Tzanopoulos, 18 AD3d 464 795 NYS2s 254 [2005]).

Conclusion

As a result, defendant's motion in limine for an order declaring the premises known as 8520 Foster Avenue separate property is granted. The foregoing constitutes the decision and order of the court.

E N T E R

J. S. C.