Robbins v RobbinsAnnotate this Case
Decided on April 19, 2013
Supreme Court, New York County
Sarah Robbins, Plaintiff,
Cory Robbins, Defendant.
For the Plaintiff
Cohen Clair Lans Greifer & Thorpe, LLP
By Bernard E. Clair, Esq.
885 Third Avenue
New York, NY 10022
For the Defendant
Aronson Mayefsky & Sloan, LLP
By Pamela M. Sloan, Esq.
485 Lexington Avenue
New York, NY 10017
Matthew F. Cooper, J.
With the divorce rate in the United States hovering between 40 and 50 percent, a prenuptial agreement has become almost de rigueur for wealthy people planning to marry. By insisting on a "prenup," the "spouse-to-be" with the greater assets or income can insure that, in the event the marriage ends in divorce, he (for even in today's world that person is still more likely to be a he) will not have to share those assets through equitable distribution or part with that income by the payment of spousal maintenance. Moreover, a prenuptial agreement can prevent much of the costly litigation that would otherwise ensue over these core financial issues.
This, of course, does not mean that the existence of a prenuptial agreement guarantees that a divorce will remain immune from litigation. To the contrary, litigation over the validity, [*2]enforceability and interpretation of prenuptial agreements is one of the mainstays of matrimonial practice. In most cases, that litigation centers on the wife's claim that the prenuptial agreement is invalid or otherwise unenforceable, or that for some other reason she should receive more than what the agreement would appear to entitle her to receive.
In this case, a prenuptial agreement is at issue, but the litigation surrounding that agreement is strikingly different from the more typical scenario. Although the plaintiff-wife ("plaintiff") is leaving the marriage with relatively little in the way of income or assets, and even though the prenuptial agreement deprives her of maintenance and restricts her equitable distribution rights to a share of the proceeds from the sale of the marital residence, she is not the one disputing the terms of the agreement. Instead, it is the defendant-husband ("defendant"), an investor and business owner who entered the marriage already wealthy and is leaving it far wealthier still, who wants this court to reinterpret the prenuptial agreement so as to reduce plaintiff's share of the proceeds by allowing him a credit for certain loans used to purchase the residence.
The issue is before the court by way of plaintiff's application for a judgment declaring that the loans incurred by defendant in connection with the purchase of the marital residence remain his own separate debts rather than marital debts. Plaintiff has also made an application for attorneys' fees that she alleges she is entitled to under the prenuptial agreement as a result of defendant having breached his obligation to timely sign the listing agreement needed to place the marital residence on the market.[FN1]
The parties executed the prenuptial agreement in question on October 6, 2005. They were married two days later on October 8, 2005. In November of 2011, plaintiff commenced the instant divorce action. During the course of the marriage, the couple had two daughters, who are now ages five and three. Commendably, during the course of these proceedings the parties were able to resolve the issues concerning their children by entering into a Custody and Parenting Agreement. As a result, the only issues left to be resolved in the divorce are financial.
Defendant is a successful recording executive and the head of Robbins Entertainment, a business he established well before the parties were married. During his long career he has "discovered," signed, and produced records for successful hip-hop and dance artists, most notably Run-D.M.C. Defendant also came to the marriage owning 92,000 shares of Apple stock. The shares, held in accounts at Citigroup, have grown in value exponentially over the course of the marriage. The prenuptial agreement provides that both defendant's interests in Robbins Entertainment and his Apple stock are separate property, not subject to equitable distribution in the event of divorce. Prenuptial Agreement ¶ 1A, at 2.
When the marriage began, the parties lived in an apartment on Laight Street ("the Laight Street apartment") in downtown Manhattan. At some point thereafter, they purchased an apartment on nearby Warren Street ("the Warren Street apartment") in a building still being [*3]constructed. Only after that construction was completed, over a year later, did the parties sell the Laight Street apartment and move into the Warren Street apartment. As part of the purchase of the Warren Street apartment, defendant borrowed $6.3 million from Citigroup against the accounts that he has there, the accounts in which his shares of Apple stock are held. Defendant also took out a loan for $1.476 million from his company, Robbins Entertainment. Although these loans were used in the purchase of the apartment, neither of them were secured by the apartment. Thus, the Warren Street apartment itself is owned free and clear as it is not encumbered by a mortgage, equity line of credit, or any other sort of lien.
The prenuptial agreement specifically provides for distribution of the marital residence, stating that in the event of divorce plaintiff is entitled to 50% of the Laight Street apartment — then the marital residence — after defendant receives a $1 million separate property credit. In relevant part, the agreement states as follows: In the event of the sale of the Laight Street Residence, and the purchase of another marital residence, the new marital residence shall be purchased in joint name. If there is a termination event subsequent to the purchase of the new residence, Sarah shall be entitled to receive 50% of any equity in such residence, subject to Cory first receiving a separate property credit of $1 million. In addition, Cory will be entitled to an additional credit for any portion of any mortgage principal or equity line principal that Cory pays down with his separate property, for either the Laight Street Residence or any subsequent primary
Prenuptial Agreement ¶ 5B, at 8.
In mid-2012, defendant sought a judgment declaring that, because the Warren Street apartment was purchased well before the Laight Street apartment was sold, the Warren Street apartment did not qualify as "the new residence" or "subsequent primary residence" under Paragraph 5B. Defendant instead argued that the Warren Street apartment was his separate property, it having been purchased using sources deemed to be defendant's separate property by the prenuptial agreement.
In a decision from the bench set forth on August 30, 2012, this court found that the Warren Street apartment constituted "the new residence" under Paragraph 5B and was therefore subject to equitable distribution in accordance with that paragraph. At oral argument on that same day, defendant's attorney anticipated the issue that is now before the court, stating: "then we get to the issue that . . . if the apartment is marital, and not separate as we say, then the debt is not covered under this agreement, and the debt was accumulated during the marriage, directly related to buying the apartment." August 30, 2012 Tr. at 23.
As expected, plaintiff subsequently made the instant application for a declaratory judgment that the debts incurred by defendant when he borrowed against his Citigroup accounts and from Robbins Entertainment constitute his obligations alone as opposed to being marital debts. Defendant argues that the court should determine that the money that was loaned to him by Citigroup and his company in connection with the purchase of the marital residence is actually marital debt that should be split between the parties. Underlying these arguments is the irony that the tables have turned: defendant, who once maintained that the Warren Street apartment was separate property, now argues that if the apartment is marital property then the debts must be [*4]too, while plaintiff, who before argued the apartment was marital, now wants the debts incurred to buy the apartment to be deemed separate.
DiscussionI. The Loans Incurred by Defendant: Separate or Marital Debt?
A. Relevant Procedural and Substantive Legal Principles
Defendant seeks an order "summarily declaring" that the loans that defendant incurred in connection with the purchase of the Warren Street apartment constitute separate debt and not marital debt. If the debt is separate, then defendant will not be entitled to a credit reducing plaintiff's share of the proceeds when the apartment is sold. The first course of business is for this court is to determine whether it is proper, in the context of divorce proceeding, to render the type of summary declaration that plaintiff seeks. The law in this regard has long been stated as follows:
The Supreme Court has the power in any action to declare rights and other legal relations on request for such declaration and by statute such declaration shall have the force of a final judgment. A declaratory judgment may be resorted to when the circumstances render it useful and necessary, and where it will serve some practical end in quieting or stabilizing an uncertain or disputed jural relation either as to present or prospective obligations.
Long v Long, 281 AD 254, 256 (1st Dept 1953)(citing Civ. Prac. Act § 473; Somberg v Somberg, 236 NY 1, 4, 5 ). Accordingly, a declaratory judgment resolving the issue laid out above is appropriate here.
Next, it is necessary to examine statutory and case law concerning the scope and interpretation of prenuptial agreements. Domestic Relations Law ("DRL") § 236B governs the division of assets upon divorce and defines marital and separate property for purposes of such a division. Nevertheless, individuals may agree to opt out of this statutory framework. DRL § 236B(3)("An agreement by the parties, made before or during the marriage, shall be valid and enforceable in a matrimonial action if such agreement is in writing, subscribed by the parties, and acknowledged . . . . Such an agreement may include . . . provision for the ownership, division or distribution of separate and marital property . . . ."). Specifically, the DRL contemplates prenuptial agreements that "designate as separate property assets that would ordinarily be defined as marital property subject to equitable distribution under [DRL § 236(B)(5)]. Such property would then remain separate property upon dissolution of the marriage." Van Kipnis v Van Kipnis, 11 NY3d 573, 578 (2008).
Our courts have recognized that a party giving up the right to share in the gains of the marriage through the signing of a prenuptial agreement is of great moment. Thus, case law instructs that "the intent to override the rules of equitable distribution — . . . by designating as separate property assets that would otherwise be marital property under New York law — must be clearly evidenced by the writing." Tietjen v Tietjen, 48 AD3d 789 (2d Dept 2008)(citing Vendome v Vendome, 41 AD3d 837 [2d Dept 2007]; Kalousdian v Kalousdian, 35 AD3d 669 [2d Dept 2006]; Spilman-Conklin v Conklin, 11 AD3d 798, 800-801 [3d Dept 2004]).
Nevertheless, "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Van Kipnis,11 NY3d at 578 [*5](citing Greenfield v Philles Records, 98 NY2d 562, 569 ). However, when it is necessary to interpret a prenuptial agreement to determine how distribution of assets was intended, "the court should arrive at a construction that will give fair meaning to all of the language employed by the parties to reach a practical interpretation of the expressions of the parties so that their reasonable expectations will be realized." Matter of Schiano v Hirsch, 22 AD3d 502, 502 (2d Dept 2005); see also Kass v Kass, 91 NY2d 554, 566 (1998); Noach v Noach, 53 AD3d 602 (2d Dept 2008). As the Court of Appeals instructed in Kass: "Particular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought." 91 NY2d at 566 (citing Atwater & Co. v Panama R.R. Co., 246 NY 519, 524 ).
In the absence of a properly drawn and executed prenuptial agreement, the property acquired during a marriage is, of course, marital. Likewise, courts have held that the debts accrued against or secured by marital property are also marital. In Rubin v Rubin, 262 AD2d 390 (2d Dept 1999), the Appellate Division, Second Department affirmed the lower court's Order that the husband pay half of the mortgage, which he had argued amounted to spousal support in violation of the prenuptial agreement. The court held that "the agreement also provided that all property acquired by either party after the date of the marriage and prior to the commencement of an action for divorce is marital property, and that any debts acquired during the marriage are joint obligations of the parties." Id. at 391; see also Monier v Monier, 20 AD3d 537, 538 (2d Dept 2005)("[T]he mortgage constitutes a joint obligation of the parties acquired during the marriage.").
B. Analysis of the Parties' Contentions
In this case, the parties agreed in the prenuptial agreement that almost all of their assets would remain separate, requiring the court to now determine whether a debt taken against separate property but for the purposes of purchasing marital property is a separate debt or a marital debt. Plaintiff, taking the position that the debt is separate, argues that because the loans defendant took against his separate property do not encumber the Warren Street apartment, they do not fall within the Paragraph 5B provision that "Cory will be entitled to an additional credit for any portion of any mortgage principal or equity line principal that Cory pays down with his separate property." Prenuptial Agreement ¶ 5B, at 8. Since the loans are outside the scope of Paragraph 5B, being neither mortgages nor equity lines, they are, according to plaintiff, merely personal loans taken by defendant against his separate property and are therefore his separate debt.
Defendant takes the position that the debts are marital only becausethe court found that the Warren Street apartment was marital; if the court had determined the apartment was separate property, he would seemingly agree that the debts were separate. His argument is twofold, with a third argument, based on general principles of equity and fairness, underlying his overall position.
Defendant's initial argument is that the debt is marital because it was incurred for the purpose of purchasing the Warren Street apartment. As his counsel stated during oral argument: "We said yes, we know it's not a mortgage. We know it's not an equity loan, but . . . it is equivalent to one because he borrowed the money, and for all intents and purposes, on the day he [*6]borrowed the money, he went and he closed on his condominium." November 19, 2012 Tr. at 16. Likewise, during argument on the earlier motion in which the court determined that the Warren Street apartment was marital property, defendant's attorney noted, "if he took a mortgage out, your Honor, and three days later he borrowed against his stock and paid down the mortgage, we're in the same exact position we are in today. But . . . he gets credit for the 6 million in debt." August 30, 2012 Tr. at 23.
Unfortunately for defendant, he took a loan from this separate property rather than take out a mortgage or some other form of financing secured by the equity in the Warren Street apartment. The reason for this is unclear, but it is also irrelevant. Had he taken out a mortgage and paid the mortgage down using loans from his separate property, Paragraph 5B would ensure that he received credit for those payments. Defendant cannot now successfully broaden the scope of the parties' marital property because he did not follow the agreement to the letter.
This is not putting form over substance (see Kass, 91 NY2d at 566), as defendant's attorneys argue. Choosing to include mortgages and equity loans but not other loans is a substantial decision. Had he or his former attorneys intended to protect him in the event that it was simply easier to take out a loan from his separate property instead of obtaining a mortgage, they could have drafted a broader agreement. In a case from our neighboring state of Connecticut, Peterson v Peterson, 37 A3d 173 (Conn App Ct 2011), the Appellate Court was asked to interpret the meaning of a prenuptial agreement's "sunset provision," which provided that the agreement would become null and void on the parties' seventh wedding anniversary. This date occurred after the husband had filed for divorce, but before the issues were resolved and the divorce finalized. The court held that the sunset provision was not preempted by the husband's filing for divorce, stating:
If, as this plaintiff argues, the parties' use of the words "upon the seventh (7th) anniversary of the parties' marriage" was meant to convey their intent that the sunset provision should only be effective if the parties were in fact still happily married and actually celebrating their seventh wedding anniversary, the parties could have chosen language that indicated such intent. For example, they could have added that the agreement would become unenforceable on the parties' seventh wedding anniversary provided that the parties remained married and living together and there was no pending separation or divorce action.
Id. at 177. The court also noted that the agreement accounted for potential separation and divorce in other areas of the agreement.
Here, the prenuptial agreement specified that defendant would receive credit for mortgage and equity loan principal payments he made. The agreement could have also included loans from other sources, or loans not secured by the residence itself. It could even have specifically included loans from the parties' separate property. However, it simply refers to principal from mortgages and equity loans. As in the Peterson case, the parties are similarly very specific elsewhere in the agreement to insure that the division between separate and marital is never blurred. For example, Paragraph 1C states: "Each party shall have the absolute and unrestricted right to dispose of his or her separate property free from any claim that may be made by the other by reason of the marriage, and with the same effect as if the marriage had not occurred." [*7]Prenuptial Agreement ¶ 1C, at 3. Paragraph 1D states: "Each party hereby acknowledges that each may from time to time make certain monetary expenditures which may be for the direct or indirect benefit of the separate property of the other . . . in no event shall such expenditures serve to confer any ownership interest in the maker of such expenditures in the separate property of the other." Prenuptial Agreement ¶ 1D, at 3. As will be discussed in greater detail, these provisions were clearly included for defendant's benefit only. Just as defendant contracted to keep any and all future upside to his business and his Apple stock to himself in the event of the divorce, so too must he now keep to himself liabilities against these assets that are not specifically deemed marital by the same contractual agreement.
Defendant's second argument is that, since the prenuptial agreement is silent on distribution of debts, it does not control. Specifically, in Paragraph 1A and its subsections, along with the two annexed schedules, the parties define in great detail and waive rights to one another's separate property, but debts and liabilities are not mentioned. Paragraph 1B then states, "Marital Property shall be defined as any property that is not Separate Property . . . ." Prenuptial Agreement ¶ 1B, at 3. Therefore, defendant argues, because debts are not mentioned in the prenuptial agreement's broad delineation of separate property, and since under DRL § 236B debts acquired between the date of the wedding and the date of commencement of the divorce are marital debts, the debt is marital. Plaintiff's response is simply that as a general matter of matrimonial law, "property" does not just include assets but also liabilities, and therefore the prenuptial agreement's division of separate property and marital property includes both assets and debts.
Case law supports plaintiff's position insofar as courts use DRL § 236B to divide debts in the same way they use it to divide assets. In Savage v Savage, the Appellate Division, First Department held "[t]he court may allocate liability for debts incurred for marital benefit in the same manner as to achieve an equitable distribution comparable to that of assets." 155 AD2d 336, 337 (1st Dept 1989)(citing Grunfeld v Grunfeld, 123 AD2d 64 [3d Dept 1986]), see also Werther v Werther, 9 Misc 3d 1114(A), (Sup Ct Nassau County 2005)("DRL § 236 governs the allocation of marital assets and debts insofar as equitable distribution is concerned."). Although the agreement does not specifically reference DRL § 236B, it does generally address New York's statutory framework. Prenuptial Agreement ¶ 5A, at 8 ("[E]ach party hereby relinquishes and waives any right of equitable distribution of Separate Property under the laws of New York or any other state as such terms are now defined or may in the future be defined thereby . . . ."). Thus, the parties clearly intended only to change the bounds of what is separate and what is marital, not to create a different definition of the word "property" than that which is used by courts determining issues of equitable distribution. In other words, property in the matrimonial context includes both assets and liabilities, regardless of whether the nature of that property — be it marital or separate — is modified by a prenuptial agreement.
Defendant's last argument is actually a point that permeates his overall position with regard to construing the terms of the prenuptial agreement. He contends that it would be grossly unfair to interpret the agreement so as to declare that the debt related to the apartment is his alone, a holding that would prevent him from obtaining a credit towards the selling price and in turn would result in plaintiff receiving more than what defendant believes she should upon the division of the proceeds from the sale. At oral argument, defendant's attorney referred to this as [*8]being "a horribly inequitable result, because this wife, who contributed nothing financially to the acquisition of this apartment, will end up . . . $5 million in the black." November 19, 2012 Tr. at 17.
In seeking to summon basic fairness as a compelling reason for this court to construe the agreement the way defendant wants it to be construed, defendant is going down a slippery slope both in terms of prenuptial agreements in general and this agreement in particular. Indeed, one would be hard pressed to find anything especially fair — at least in the ordinary, as opposed to the strictly legal, sense — about agreements, often foisted on a bride-to-be on the eve of the wedding, that eliminate some of the most basic rights stemming from the institution of marriage. Nevertheless, prenuptial agreements of this kind are routinely upheld. See, e.g., Barocas v Barocas, 94 AD3d 551 (1st Dept 2012); Cohen v Cohen, 93 AD3d 506 (1st Dept 2012); Colello v Colello, 9 AD3d 855 (4th Dept 2004).
The prenuptial agreement in this case provides a striking example of an agreement that was intended to benefit one party at the expense of the other. Executed just two days before the parties were married, the agreement was drafted by defendant's attorneys, and it provides much greater protection for his assets. By deeming those assets separate, the agreement insures that plaintiff, in the event of divorce, could never claim entitlement to any of the assets that defendant had prior to the marriage or, more importantly, any of the amount by which those assets increased during the marriage — which in terms of the Apple stock alone is millions upon millions of dollars. Additionally, plaintiff is foreclosed from seeking maintenance even though her service as a mother and homemaker allowed defendant to devote his energies to increasing his wealth through his business activities and his investments.
The only provision of the prenuptial agreement to bestow any significant benefit on plaintiff is that which designates the marital residence as marital property and allows her to receive 50 percent of the equity in that residence after defendant has been given a credit for $1 million. But pursuant to that provision, Paragraph 5B of the agreement, defendant would still receive an additional credit for any mortgage principal or equity line principal that he paid down with his separate property. Again, this is clearly to protect defendant from having to part with anything greater than one half of the equity in the marital residence.
Defendant cannot be heard to complain that it is he who is being treated unfairly simply because he chose to borrow funds used to purchase the Warren Street apartment in a way that does not entitle him to avail himself of the credit so clearly set forth in Paragraph 5B for payments of mortgage principal or equity line principal. After all, it is defendant who has invoked the terms of the prenuptial agreement in order to emerge from the marriage giving up so little in the way of equitable distribution and paying nothing in the way of maintenance. In the final analysis, if there is an underlying principle here it would seem to be this: One who decides to live by the prenup must be prepared to die by the prenup.
II. Plaintiff's Request for Attorneys' Fees for Defendant's Default
Plaintiff also seeks $32,925 in counsel fees pursuant to the default clause in the prenuptial agreement. When this court, in its decision on August 30, 2012, found that the Warren Street apartment was the marital residence, it also granted the portion of the motion seeking an order to place the apartment on the market. The court stated, "I direct that the premises be placed on the market forthwith. Forthwith could be interpreted as 30 days from today's date." August 30, 2012 [*9]Tr. at 42. According to plaintiff, when defendant had not signed the listing agreement by September 29, 2012, her attorneys sent a notice of default pursuant to the prenuptial agreement on October 1, 2012. Defendant signed the listing agreement on October 15, 2012.
The default clause, Paragraph 26A of the prenuptial agreement, states:
In the event either party defaults with respect to any obligation under this Agreement, and said default is not remedied within fifteen (15) days after the sending, by certified mail, return receipt requested, of a written notice to the defaulting party specifying such default, such defaulting party shall indemnify the other party against, and shall reimburse him or her for reasonable attorney's fees, disbursements, and court costs incurred by the non-defaulting party in bringing suit or other proceeding to enforce any of the terms, covenants, or conditions of this Agreement to be performed or other proceeding in the even the proceeding results in a judgment, decree or order in favor of the moving party.
Prenuptial Agreement ¶ 26A, at 15. Because defendant signed the listing agreement within 15 days of plaintiff sending the notice of default, there is no default for which defendant is obligated to indemnify plaintiff. Accordingly, this branch of the motion must be denied.
For the reasons stated above, that branch of plaintiff's motion seeking a declaratory judgment is granted. Accordingly, it is ordered, adjudged, and declared that the loans that defendant took against his separate property for the purpose of purchasing the Warren Street apartment are his separate debt and not marital debt. As a result, defendant will not be entitled to a credit or an offset for those loans when determining the amount each party receives when distributing the proceeds from the sale of said apartment. Also for the reasons stated above, that branch of plaintiff's motion seeking counsel fees pursuant to the default provision of the prenuptial agreement is denied.
This constitutes the decision and order of the court.
Dated: April 19, 2013Enter:
MATTHEW F. COOPER, J.S.C.
Footnote 1: Plaintiff's applications for a declaratory judgment and attorneys' fees were actually brought by a cross-motion filed in response to defendant's motion for a stay of an earlier ruling made by this court concerning the marital residence. Defendant withdrew his motion prior to oral argument on the cross-motion, leaving only plaintiff's cross-motion to be decided.