SUPREME COURT OF THE STATE OF NEW YORK

Appellate Division, Fourth Judicial Department

94 

CA 11-01041 

PRESENT: CENTRA, J.P., FAHEY, PERADOTTO, CARNI, AND MARTOCHE, JJ. 

 

NICHOLAS B. BOSWORTH, JR., PLAINTIFF-APPELLANT, 

V MEMORANDUM AND ORDER

MARYROSE W. BOSWORTH, DEFENDANT-RESPONDENT. 

 

DAMON MOREY LLP, BUFFALO (CHRISTOPHER A. CARDILLO OF COUNSEL), FOR

PLAINTIFF-APPELLANT. 

PAUL A. VANCE, BUFFALO (JAMES P. RENDA OF COUNSEL), FOR

DEFENDANT-RESPONDENT. 

 

Appeal from an order of the Supreme Court, Erie County (John F.

O’Donnell, J.), entered January 31, 2011. The order directed

plaintiff to pay certain tax liabilities. 

It is hereby ORDERED that the order so appealed from is affirmed

without costs.

Memorandum: Plaintiff’s sole contention on appeal is that

Supreme Court erred in concluding that the terms of the parties’

separation agreement, which was incorporated but not merged into the

judgment of divorce, rendered him responsible for the tax liability of

defendant arising from defendant’s status as a shareholder of PMC

Gage, Inc. (PMC), a subchapter S corporation. Pursuant to the

separation agreement, defendant’s shares in PMC were transferred to

plaintiff in approximately June 2006. The separation agreement also

provided that, in exchange for the transfer of defendant’s interest in

PMC to him, plaintiff would “indemnify and hold [defendant] harmless

from any claim or liability associated with or arising out of PMC . .

. .”

According to defendant, the transfer of her shares in PMC caused

her to incur federal and state income tax liability in the amount of

$227,915. By order to show cause, defendant sought, inter alia, to

enforce that part of the separation agreement requiring plaintiff to

indemnify defendant for any claim or liability associated with or

arising out of PMC. The court granted the motion, and we affirm. 

“ ‘[A] separation agreement that is incorporated into but not merged

with a [judgment of divorce] is an independent contract binding on the

parties’ ” (Makarchuk v Makarchuk, 59 AD3d 1094, 1094, quoting Merl v

Merl, 67 NY2d 359, 362; see Matter of Gravlin v Ruppert, 98 NY2d 1,

5). After giving effect and meaning to every term of the separation

agreement (see Village of Hamburg v American Ref-Fuel Co. of Niagara,
-2- 94 

CA 11-01041 

284 AD2d 85, 89, lv denied 97 NY2d 603), we conclude that the broad

language of that agreement required plaintiff to indemnify defendant

for the federal and state income tax liability at issue. 

All concur except CENTRA, J.P., and CARNI, J., who dissent and

vote to modify in accordance with the following Memorandum: We

respectfully disagree with the conclusion of our colleagues that the

terms and conditions of the parties’ separation agreement, when read

as a whole, require plaintiff to indemnify defendant for her personal

income tax liability. We therefore dissent.

There are two provisions in the separation agreement that control

our analysis. The first requires defendant “to indemnify and hold

[plaintiff] harmless from any liability arising out of her income or

any joint tax return.” The second requires plaintiff “to indemnify

and hold [defendant] harmless from any claim or liability associated

with or arising out of PMC Gage, Inc. . . .” In 2006, defendant owned

100% of the shares of PMC Gage, Inc. (PMC), a subchapter S

corporation, for approximately 45% of the tax year. Pursuant to the

separation agreement, defendant transferred all of her shares of PMC

to plaintiff, who then owned 100% of the shares for approximately 55%

of the 2006 tax year. As a result of her ownership of the shares of

PMC, defendant received a Schedule K-1 from PMC reflecting business

income of $669,752. That income resulted in a personal income tax

liability to defendant of $227,915 for the 2006 tax year. It is

undisputed that such tax liability does not constitute a claim by the

federal and state government against PMC, and it cannot be said that

it is a liability of PMC. Instead, it is a personal income tax

liability of defendant for the 2006 tax year in which defendant filed

individually and not jointly with plaintiff. Notably, plaintiff also

received a Schedule K-1 from PMC for his pro rata share of the income,

and he reported that income on his 2006 tax return. It is further

worth noting that defendant was employed by PMC in 2006 and received

wages. Thus, in applying the interpretation of the separation

agreement set forth by defendant and the majority, we would be led to

the untenable conclusion that plaintiff was responsible for the

personal income tax on the wages paid to defendant by PMC simply

because they were “associated with or aris[e] out of PMC . . . .” 

The separation agreement unequivocally requires defendant “to

indemnify and hold [plaintiff] harmless from any liability arising out

of her income or any joint tax return.” The majority fails to explain

how defendant’s personal income tax liability is not expressly

encompassed by that provision of the agreement but, rather, the

majority concludes, without analyzing or referencing that provision,

that the “broad language” of the separation agreement requires

plaintiff to indemnify defendant for her personal income tax

liability. We cannot agree and conclude that Supreme Court erred in

granting that part of defendant’s motion seeking to enforce the

separation agreement insofar as it allegedly requires plaintiff to

indemnify defendant for her personal income tax liability. We 
-3- 94 

CA 11-01041 

therefore would modify the order accordingly. 

Entered: March 23, 2012 Frances E. Cafarell

Clerk of the Court