Chapter 13 DEATH, SETTLEMENT AGREEMENTS, AND PROPERTY DISTRIBUTION

• Jurisdiction: New York

Chapter Thirteen

Death, Settlement Agreements, and Property Distribution

I. Introduction

As a general principle, once the legal relationship between husband and wife is judicially altered through divorce or annulment, when real property is involved, tenancy-by-the-entirety converts, by operation of law, to a tenancy-in-common,²⁷⁰⁷ which gives each co-tenant the right to use and enjoy the entire property as would a sole owner, whether or not they are in actual possession of the premises.²⁷⁰⁸ In Marshall v. Bonica, a cause of action for the partition of the parties' former marital residence was dismissed because an action for partition does not lie with respect to property held as tenants-by-the-entirety.²⁷⁰⁹ However, the general rules governing tenancies-in-common, including, but not limited to, the rule that absent an ouster, tenants-in-common equally bear the costs incurred in maintaining the property,²⁷¹⁰ will not control where there is a contrary agreement.²⁷¹¹

The estate of a spouse, whose decedent entered into a settlement agreement which distributed real property held as tenants by the entirety, can find enforcement rebuffed if the decedent died prior to the judgment of divorce or transfer of the property. Although the Legislature has not required any catechistic formulae, case law from the Court of Appeals, In re Estate of Violi,²⁷¹² below, has made this area unduly formulaically sensitive and arduously unforgiving far beyond the scope of statutory authority. In Beudert-Richard v. Richard²⁷¹³ and in In re Estate of Shatraw,²⁷¹⁴ below, the First and Third Departments parted with the Court of Appeals and breathed sensibility into this quicksand. While the Second Department has been aligned with the Court of Appeals, In re Barabash,²⁷¹⁵ below, points to the Second Department's openness to a broader review of the issue.

This subject area is critical because it can readily fall into the law of unintended consequences, as evidenced by Estate of Violi. If it is the intent of the parties that the proceeds of the sale of a marital residence, or any real property held as tenants-by-the-entirety, go to the estate of the deceased spouse, then that language should be spelled out as clearly as possible and without leaving any room for doubt. N.Y. General Obligations Law § 3-309 (GOL) lies at the heart of this issue.

II. In Re Estate Of Violi

In re Estate of Violi²⁷¹⁶ is a critical decision in this domain. The parties' separation agreement provided that the marital residence held as tenants- by-the-entirety would be sold within four years at the prevailing market price, with the proceeds to be equally divided. The wife would have exclusive possession of the residence and could determine if and when it would be sold.²⁷¹⁷ The wife brought an action for divorce. Before termination of the marriage, and before any sale, the wife died. The administrators of her estate commenced an action to recover half the proceeds from the subsequent sale of the house.

The majority opinion in the Court of Appeals, followed by a compelling dissent, held that the separation agreement had not transformed the tenancy-by-the-entirety into a tenancy-in-common, and, consequently, the surviving husband alone was entitled to the proceeds. The reasoning strains the principles of equity and contract doctrine. First, the majority observed, the fundamental principles of tenancy-by-the-entirety state that where real property is held as a tenancy-by-the-entirety, husband and wife own the property as if they were one person. Should either spouse die, the surviving spouse takes the entire estate, not because of any right of survivorship, but because that spouse remains seized of the whole.²⁷¹⁸

Violi noted that the Legislature allowed spouses to terminate a tenancy- by-the-entirety in one of three ways,²⁷¹⁹ including under GOL § 3-309,²⁷²⁰ none of which the majority found present. At most, the majority held, the agreement "constituted an executory contract," given that an executory sales contract does not ordinarily constitute a partition or division of the property, it follows that an agreement to seek a buyer and convey the entirety's interest at some time in the future does not transform the tenancy to one in common; even if the agreement sets forth a fixed time, it does not satisfy the GOL.²⁷²¹ The troubling language in the decision is the majority's statement that absent in the Violi agreement was any language expressing a clear intent to alter the form of ownership.

The majority emphasized that the provision in the agreement for the waiver and relinquishment of "any and all rights [each party] may now have or hereafter acquire . . . to share in the property of the estate of the other as a result of marriage" did not require a contrary conclusion, since in the case of a tenancy by the entirety the estate of a deceased spouse would not in any event have an interest in the property.²⁷²² The majority concluded by noting its mindfulness of public policy favoring certainty in title to real property both to protect bona fide purchasers and to avoid conflicts of ownership, which may engender needless litigation. Title to estates in land should be altered only by clear expressions of intent, which was not found in the Violi agreement. Nevertheless, the Court talked about the availability of a constructive trust to prevent unjust enrichment, although none had been alleged in the case.

The constructive trust theory allows two perspectives, both of which require a reversal of the dismissal of the estate's complaint. The first is that a constructive trust requires four elements: "(1) a confidential or fiduciary relation, (2) a promise, (3) a transfer in reliance thereon and (4) unjust enrichment."²⁷²³ Plainly, while the confidential relationship and unjust enrichment components were satisfied, neither was there nor could there have been a promise to transfer or a transfer in reliance of the promise, because when parties acquire property by the entireties each is seized of the whole; they do not each receive an undivided one-half interest in the property, which is then transferred to the unit.

Second, the more expansive examination of the constructive trust doctrine compels a different conclusion. In Beatty v. Guggenheim Exploration Co.,²⁷²⁴ the Court of Appeals stated that (1) "[a] constructive trust is the formula through which the conscience of equity finds expression; when property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee"; and (2) "[a] court of equity in decreeing a constructive trust is bound by no unyielding formula. The equity of the transaction must shape the measure of relief." The constructive trust doctrine is a "fraud-rectifying" rather than an "intent-enforcing" remedy.²⁷²⁵ Beatty makes a constructive trust more flexible, thus liberating it from any formulaic constraints ("[a] court of equity in decreeing a constructive trust is bound by no unyielding formula") such as the four-step analysis in Sharp. This suggests that any time, irrespective of the circumstances, property finds its way into the hands of anyone who ought not profit from it that the doctrine of constructive trust may intervene to rectify the wrong.

Applying this theory directly to Violi, the decedent's estate should have received the 50% net proceeds from the sale of the property. The inescapable conclusion that the majority could have reached in fashioning this recommendation was that the separation agreement to divide the property was, at a very minimum, sufficiently clear to satisfy GOL § 3-309, to direct the surviving spouse to pay the wife's estate her 50% share of the proceeds.

In a cogent dissent, Judge Bernard S. Meyer distinguished each decision cited in the majority opinion, concluding that (1) the effect of the separation agreement was to terminate the tenancy by the entirety, subject only to the wife's right to occupy the property as a licensee until the mandated sale; (2) the majority had rewritten GOL § 3-309; and (3) no harm would come to the public policy concerns expressed by the majority.

III. In re Barabash

In In re Barabash,²⁷²⁶ a turnover proceeding pursuant to N.Y. Surrogate's Court Procedure Act 2103 to recover certain real property on behalf of a decedent's estate, the Appellate Division affirmed a decree of the surrogate's court, which directed the wife to turn over certain real property to the petitioners as co-administrators of the decedent's estate, pursuant to a prenuptial agreement. The foundation of the decision is unclear because the Appellate Division did not recite the operative language, which language was obtained through the gracious assistance of the estate's counsel: "Wife agrees that for estate purposes the property acquired during the marriage shall be in the decedent's name or be considered as being in his name alone."²⁷²⁷

Upon the decedent's death, the appellant-wife obtained sole title to the marital residence pursuant to the terms of the deed granting title to her as a tenant-by-the-entirety with the decedent (citing Violi). However, the law required her, as sole owner, to fulfill her contractual agreement with respect to the property. That she had acquired sole title upon the decedent's death did not absolve her of her contractual obligations. Significantly, the Appellate Division's extreme displeasure with the appeal was properly expressed in its order awarding respondents one bill of costs payable by her personally.

The language in the prenuptial agreement was clear. The Appellate Division's reference to Violi must only be construed as consistent with the prenuptial agreement, that the parties' intent was sufficiently clear, within the ambit of GOL § 3-309, to wit, that the title and manner of subsequent acquisition did not govern the right to dispose any of the contemplated assets in a manner inconsistent...