By Michael L. Moskowitz and Melissa A. Guseynov
In a recent decision of interest, the New York Court of Appeals, the highest court in New York State, held that if a divorce judgment grants a spouse an interest in real property and the spouse fails to docket the judgment where the property is located, the spouse’s interest is not subject to attachment by a subsequent judgment creditor that docketed its judgment and seeks execution against that real property. Pangea Capital Mgt., LLC v. Lakian, 2019 N.Y. Slip Op. 05059 (June 25, 2019). See link here.
In Lakian, a judgment creditor sought to execute against real property that, in a divorce settlement, was to be sold. The divorce settlement specified the wife was to receive a certain portion of the sale proceeds. Prior to this, however, the husband’s former employer commenced an action against him for, among other things, defrauding the company, and subsequently obtained a substantial judgment against him, which the creditor promptly docketed.
The judgment creditor argued that because it docketed its judgment prior to the wife, the creditor had obtained priority over the wife with respect to the property at issue. The federal district court held the judgment of divorce did not convert the wife into a judgment creditor of the husband, but instead acted as an equitable distribution of the couple’s marital assets. The judgment creditor appealed to the United States Court of Appeals for the Second Circuit, which certified the following question of law to the New York Court of Appeals:
If an entered divorce judgment grants a spouse an interest in real property pursuant to Domestic Relations Law § 236, and the spouse does not docket the divorce judgment in the county where the property is located, is the spouse’s interest subject to attachment by a subsequent judgment creditor that has docketed its judgment and seeks to execute against the property?
The Court of Appeals answered the question in the negative. It began its analysis by citing section 5203 of the NY CPLR, which discusses lien priority and docketing of judgments. Next, the Court examined the relevant provisions of section 236 of Domestic Relations Law, which states that, among other things, a court determines the respective rights of divorcing parties and provides for disposition of marital property in a final judgment. Thus, legal rights to marital property vest upon the final divorce judgment of divorce, “with ‘inchoate rights’ becoming ‘actual ownership interests by virtue of [an] equitable distribution judgment.’” (internal citations omitted). Based on the above analysis, the Court of Appeals concluded the dissolution of marriage did not render one spouse a creditor of the other and the divorce judgment did not render the wife a judgment creditor of the husband. As a result, the wife was not subject to the docketing requirements of N.Y. C.P.L.R. § 5203, and her interest was not subject to attachment by the judgment creditor.
This case emphasizes yet again how vital it is for a judgment creditor to understand its rights with respect to judgment execution, particularly when marital property is involved. Creditors should consult with experienced counsel with respect to executing and satisfying a judgment. The attorneys at Weltman & Moskowitz help their clients make informed decisions every day to avoid costly mistakes. Feel free to reach out to our attorneys with your bankruptcy and creditors’ rights questions.
About Weltman & Moskowitz, LLP, A New York and New Jersey Business, Bankruptcy, and Creditors’ Rights Law Firm:
Founded in 1987, Weltman & Moskowitz, LLP is a highly regarded business law firm concentrating on creditors’ rights, bankruptcy, foreclosure, and business litigation. Michael L. Moskowitz, a partner with the firm, focuses his practice on business and bankruptcy litigation, as well as creditor’s rights, foreclosure, adversary proceeding litigation, corporate counseling, M&A, and transactional matters. Michael can be reached at (212) 684-7800, (201) 794-7500 or mlm@weltmosk.com. Melissa Guseynov is an associate of the firm. Melissa can be reached at mag@weltmosk.com.
