NEW YORK: Babbio v.Babbio: Husband loses millions due to wording in prenup

Lawrence Babbio  and Sheri Lee Babbio’s divorce case was heard on appeal after NY Supreme Court Judge Laura Drager allowed Mr Babbio to recoup millions as “separate property” pursuant to a prenup the parties had executed. But the Appellate Division said “not so fast.”

The parties’ prenuptial agreement provides, in pertinent part, that “[i]n the event of an Operative Event, Marital Property [as defined elsewhere in the agreement] shall be distributed equally between [the parties] in accordance with the following provisions, except that if the parties have been married for ten (10) years or less and either party is able to identify One Million ($1,000,000) Dollars or more of Separate Property that was used for the acquisition of the Marital Property, that party shall first receive the amount of his or her contribution of Separate Property prior to the division of the remaining value of such property, if any” (¶ 6[e]). “Operative Event” is defined as, inter alia, “the delivery by [either party] to the other of written notification … of an intention to terminate the marriage” (¶ 5[a]).
Construing the parties’ prenuptial agreement in accord with the plain meaning of its terms, and interpreting every part of the agreement “with reference to the whole” (see Beal Sav. Bank v Sommer, 8 NY3d 318, 324 [2007]), we find that eligibility for a separate property credit upon the distribution of marital property in the event of an “Operative Event” is determined at the time of the “Operative Event” and that the party seeking the credit must have contributed $1 [*2]million or more of his or her own separate property directly to the acquisition of the particular item of marital property at issue. more

The short of it is that the Appellate court’s reasoning seemed to turn on the word “the.” Neil Cahn, a NYC Divorce attorney, explains it this way:

The First Department concluded that for the husband to recoup his separate property contributions, the husband was required to show that he contributed $1 million or more of separate property to the acquisition of each item of marital property for which he sought credit. The husband was not entitled to recoup all of his separate property contributions to all acquired assets upon his demonstration that he contributed $1 million or more either in the aggregate or to any one asset.
To ascertain the parties’ intentions in regard to the operation of the separate property credit, the First Department considered the phrasing of the separate property credit exception; interpreting it with reference to the apparent purpose of the paragraph and the general purpose of the entire agreement as a whole. The general purpose of the agreement was to provide a degree of protection to both parties. In the event the marriage lasted less than 10 years, the agreement protected the husband from the absolute loss of large amounts of separate funds he contributed to the marriage. However, the appellate court also held the purpose of the paragraph was to protect the wife from having everything that was purchased for their use as a married couple reclaimed by the husband.
The use of the definite article “the” before “Marital Property,” and the later reference to “such property,” reflect an intent to apply the credit to each piece of marital property as it is being divided. The First Department held that view was supported by the subparagraphs that immediately follow, which specifically contemplate an item-by-item consideration of the marital property for purposes of its division. more