Opinion
08098/03.
Decided October 3, 2006.
"One form of estoppel, quasi estoppel,' forbids a party from accepting the benefits of a transaction or statute and then subsequently taking an inconsistent position to avoid the corresponding obligations or effects" ( Matter of Davidson, 947 F.2d 1294, 1297 [5th Cir. 1991]). In this case, in order to resolve a family dispute by obtaining a tax benefit for an entity owned by his father, defendant represented in a Federal Income Tax return that a $1,800,000 payment received by him constituted business income. Having obtained that benefit for a third-party, he is estopped from asserting a separate property claim as to that payment or any property obtained with those funds ( see Zemel v. Horowitz (11 Misc 3d 1058[A], 815 NYS2d 496 [Sup. Ct. NY Co. 2006]), which "has cost h[im] a much larger benefit" in this matrimonial action ( see Meyer v. Insurance Co. of America, 1998 WL 709854 *1 [S.D.NY 1998]).
I. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff and defendant, ages 47 and 63, respectively, were married in the State of New York on September 24, 1993. They have two daughters, Tiffany and Rian, who were born on November 27, 1985 and December 27, 1986. Both daughters reside with plaintiff in the marital home (the Home) at 125 Underhill Street, in the City of Yonkers, while defendant resides in a rental apartment in Yonkers.
Prior to the parties' marriage, plaintiff was in a relationship which resulted in the birth of a daughter, Christina, who is now married. Defendant was married once before, and has two adult children from that marriage.
This action was commenced on May 19, 2003. Four months later, on September 15, 2003, plaintiff filed an order to show cause to bring on a motion seeking various forms of pendente lite relief (the First Motion). On October 22, 2003 Justice Robert A. Spolzino rendered a bench decision on the First Motion (the October 2003 Decision). Based upon his determination that plaintiff had no earned income and that defendant was earning $300,000 annually, Justice Spolzino awarded plaintiff pendente lite child support in the amount of $5,000 per month retroactive to the date of the First Motion, with payments to commence on November 1, 2003.
In addition, Justice Spolzino addressed the issue of interim counsel fees, as follows:
"With respect to the issue of counsel fees, that request is granted to the extent that the defendant will pay to the plaintiff's attorneys from marital funds the sum of $25,000 which will be a charge against the plaintiff's share of equitable distribution ultimately. Similarly, any sums the defendant takes from marital funds to pay for counsel fees will be charged against his equitable distribution at the conclusion of the case. The defendant will account to the plaintiff for any sums he has paid from marital funds or does pay from marital funds for attorney's fees. That doesn't mean you have to turn over the bills. It simply means you have to notify the plaintiff as to whatever amounts are charged or paid from marital funds for your attorney's fees.And similarly should any attorney's fees be required in the future to be paid, they should be paid from marital funds subject only to the requirement that the plaintiff approve the fee and then it should be paid promptly. Again, subject to an ultimate accounting." (Ct. Exh.15, Transcript, p. 22-23 [hereinafter "the Interim Fee Order"] [emphasis added]).
Citations to "Ct. Exh." refer to the trial exhibits admitted as Court exhibits.
The October 2003 Decision also included a mutual financial restraining order in the following terms:
". . . both parties are enjoined from selling, transferring, conveying, hypothecating, assigning or otherwise disposing of their individual or marital assets except in the ordinary course of business or for ordinary and usual living expenses." (Ct. Exh.15, Transcript, p. 20-21).
Finally, insofar as relevant, at that same proceeding the parties agreed to share joint custody of their two children, with residential custody to plaintiff.
On July 28, 2004, the parties appeared before Justice Margaret Garvey on the return date of further cross-motions filed by them. With respect to plaintiff's application for an increase in child support, Justice Garvey observed that the parties' income tax return "showed an additional one hundred thousand dollars" (Ct. Exh.25, Transcript, p. 8). Based upon that increase in income, Justice Garvey "increase[d] the child support one thousand dollars a month, retroactive to the [May 27, 2004] date of the filing of th[e] application", thereby setting "the child support . . . [at] six thousand dollars a month" ( id., p. 8-9).
Justice Garvey also addressed plaintiff's application for defendant to be required to pay college tuition and expenses for the two daughters. Insofar as relevant, she observed that: (1) defendant "clearly has a greater income and greater assets and greater earning capacity" than plaintiff; (2) "[t]his is not a case with [sic] the parties put aside money for the education of their children"; and (3) "the tuition here is not exorbitant" and "[t]here are no additional room and board charges" because the children reside at home" ( id., p. 9-10). Based upon those factors, Justice Garvey ordered defendant "to pay the cost of tuition, books, registration, et cetera, for both the daughters" ( id., p. 10 [the College Expense Order]).
However, Justice Garvey denied plaintiff's request for the relief she sought from the Interim Fee Order. As explained by Justice Garvey:
"Regarding Plaintiff's application for the legal fees not to be credited towards his [sic] share of equitable distribution, I went through the file and saw that that was an order by Judge Spolzino. And since it's the law of the case I am not prepared now to change it.I will, however, consider a reapportionment at the time of equitable distribution or, at the very least, take it into consideration if I decided to deviate from the normal fifty-fifty. I will do that especially if I find that the Defendant is prolonging this litigation, as the Plaintiff has alleged, to get her to agree to an unfavorable settlement" ( id., p. 7-8).
Thus, since its issuance, the Interim Fee Order has controlled the payment of pendente lite counsel fees to plaintiff's attorneys.
The trial of this action commenced on October 11, 2005, and continued on October 18, 20, 21, 25, 27 and 28, November 1, 3, 4, 10, 17, 18, 21, 22, 29 and 30, and December 6 and 8. On December 13, 2005, the final day of the trial, an inquest was conducted on grounds for divorce, and a divorce was granted to plaintiff on her cause of action alleging constructive abandonment by defendant.
At the conclusion of the trial, a schedule was established for the parties to serve and file their post-trial submissions. Subsequently, while this matter was sub judice, the Court directed the parties to file limited supplemental submissions addressing the issues of judicial estoppel and quasi-estoppel. With all of those submissions before this Court, it now considers the specific financial issues in dispute. The relevant facts established by the credible evidence presented during the trial, as well as the pertinent stipulated matters, shall be discussed in connection with the Court's analysis of each financial issue.
The Court received the supplemental submissions from defendant and plaintiff on August 1 and August 4, 2006, respectively, as it directed.
II. SEPARATE PROPERTY CLAIMS
The first of the issues to be addressed is defendant's claim that a substantial settlement received by him after the parties married is his separate property. The decision on this issue is significant for the parties since, in turn, it controls the determination of the distribution of several of the parties' assets.
A. BIG APPLE SETTLEMENT FUNDS
Defendant and his father, David Buntzman, founded Arol Development Corp. (ADC) in March 1971. ADC was a real estate development company whose main asset was a 99-year lease it entered into with the City of New York for a property known as the Bronx Terminal Market. In turn, ADC subleased the market to various tenants who paid rent to ADC.
Although defendant was named President of ADC at its formation, he held no stock in the corporation, but rather his father owned 100% of the stock because he had financed ADC entirely. In 1978, defendant obtained 2000 shares of Class A non-voting stock in ADC, and in 1983 he obtained 90 shares of Class B voting stock.
Also in 1983 defendant founded Big Apple Industrial Buildings Inc. (BAIB), an entity whose only asset was a five-acre parcel of property located on the upper west side of Manhattan (the Washburn Wire Property). Seeking to construct a studio for filming its daytime television programs, Proctor Gamble (PG), together with a related entity, Riverview Productions (Riverview), entered into two agreements (together hereinafter "the PG Contract") with BAIB for the development of the Washburn Wire Property, pursuant to which BAIB would receive rent in the amount of $400,000 per month for a ten-year period.
During the first year of the project, PG ceased the construction work and commenced a lawsuit against BAIB, defendant (individually) and several other parties, claiming that it was fraudulently induced into entering into the PG Contract (the PG Action). In turn, BAIB, defendant and other parties interposed counterclaims against PG, including those sounding in breach of contract.
Thereafter, the parties to the PG Action engaged in motion practice and pretrial discovery, all of which was completed prior to the parties' marriage. Because he was the sole shareholder and President of BAIB, and the person who was principally involved in negotiating the PG Contract, defendant played a major role in the pretrial discovery phase of the PG Action, including meeting with the attorneys representing the defendants and organizing and explaining thousands of documents obtained from PG.
Since it was not receiving income from the Washburn Wire Property, BAIB faced significant difficulties paying its litigation expenses in the PG Action. Consequently, by 1989, when defendant was still the owner of 90% of the non-voting shares of ADC, BAIB borrowed $4,400,000 from ADC and ADC's subsidiary, Cromwell Maintenance (Cromwell) to meet those expenses. In order to satisfy BAIB's entire debt to ADC and Cromwell, in 1989 defendant sold ADC an 80% interest in BAIB for $4,400,000, leaving him with the remaining 20% interest in that entity.
While the PG Action continued, family disputes arose between defendant and his father, David Buntzman, resulting in defendant's filing of a Federal action against his father. David Buntzman then commenced an action against defendant and others alleging that defendant had obtained control of ADC through fraud. At a jury trial of the liability issues in the two actions (together hereinafter "the Stanton Litigation") conducted by United States District Judge Louis J. Stanton, a verdict was rendered in favor of David Buntzman and a preliminary injunction was entered requiring defendant to immediately surrender his position as President of ADC and its related entities, transfer control of those entities to David Buntzman, and surrender his shares of ADC to David Buntzman. Defendant complied with the preliminary injunction in all respects.
No damages trial was ever held in the Stanton Litigation, no appeal was taken from the verdict against defendant, and the action was subsequently discontinued with prejudice, because negotiations ensued between defendant and his father. Those negotiations culminated in a settlement, which was reflected in three documents (the Stanton Litigation Settlement Documents) that are central to the separate property issue.
The first of these documents was a one-page memorandum to defendant dated February 12, 1992 and signed by Stephen R. Segrue, Esq. (the Segrue Memorandum), the attorney who represented BAIB in the Stanton Litigation. Therein, Segrue stated:
"Dear Arol:
I have asked you to sign and deliver to me the attached release of any claim you may have to the stock of Big Apple and any other entities related to Arol Development Corporation. At this time a Stipulation of Settlement in the action between you and your father has not been signed and submitted. I understand that the attached will be deemed null and void unless the Stipulation of Settlement is executed and filed.Further, the attached is to be held by me, even after the Stipulation of Settlement is executed and filed." (Def. Exh.J, p. 1).
Citations to "Pl. Exh." and "Def. Exh." refer to the trial exhibits of the respective parties.
The release (the BAIB Release) referred to in the Segrue Memorandum and signed by defendant recites in full:
"I hereby relinquish and release all of my claims to ownership of any stock of any class or kind in Arol Development Corporation and in any other entities, corporate or otherwise, including Big Apple Industrial Buildings, Inc., that were formed during my employment at Arol Development Corporation in which I have or may have an interest.This constitutes a present release of any and all such interests, but I will execute in the future documents reflecting such release, such as stock certificates, etc." (Def. Exh.J, p. 3 [emphasis added]).
In consideration of the BAIB Release, David Buntzman signed a letter to Segrue dated February 10, 2002 (the Payment Letter) stating:
"You are hereby authorized as attorney for Big Apple Industrial Buildings, Inc. to allocate out of the sums recovered in the Proctor Gamble litigation to Arol I. Buntzman, upon Arol's continued participation and cooperation, at least 10% of the net sums recovered after allowances for all costs and expenses." (Def. Exh.J, p. 2 [emphasis added]).
This letter, bearing David Buntzman's signature as President of BAIB, is the last of the Stanton Litigation Settlement Documents.
Following the settlement of the Stanton Litigation, defendant availed himself of an offer to use an office at the law firm then representing BAIB in the PG Action. While present at the office, he was sometimes asked, and he answered, questions posed by the attorneys or their experts with respect to that lawsuit, but he did not act as a consultant and had no consulting agreement.
Ultimately, in 1997, the PG Action settled, with a payment to BAIB exceeding $19,000,000. However, notwithstanding the agreement previously entered into by defendant and David Buntzman, no payment was made to defendant as provided for in the Payment Letter. Instead, a dispute arose between defendant and his father which involved the latter's assertion that there were certain outstanding loans made to defendant that were offsets against any payment that defendant was entitled to receive. Consequently, defendant sought legal advice as to how he could enforce his claims to an interest in the stock of ADC which, by then, had been re-named Strategic Development Concepts (SDC).
Following extensive negotiations, the dispute between defendant and his father was resolved by an agreement as to the manner in which the payment to defendant would be reported for income tax purposes so that it would be most favorable to SDC. Specifically, defendant and his father agreed that a payment would be made to defendant that would be reported on a 1099 Form issued to him by SDC. In order to account for the increased tax liability that defendant would have as a consequence of treating the payment in that manner, rather than as a sale of an interest in stock, the payment would be increased by approximately 17 per cent.
As part of the settlement of the dispute between defendant and his father, a written settlement agreement was signed on February 27, 1998 (the 1998 Settlement), which provided in relevant part:
"Whereas Big Apple agreed to compensate Arol Buntzman in February 1992 for consulting services in an amount equal to at least 10% of the net sums recovered after expenses in a certain litigation then pending with Proctor Gamble after allowances for all costs and expenses;Whereas the litigation with Proctor Gamble has been resolved and any compensation payable for the consulting services may now be due; Whereas SDC claims that Arol Buntzman incurred certain debts to SDC both prior to August 1991 and thereafter, Whereas Arol Buntzman contests his obligation on these debts on the grounds, inter alia, that any debt arising out of a transaction prior to 1992 is barred by the applicable statute of limitations, Whereas the parties wish to resolve these matters, NOW THEREFORE, the parties hereto agree as follows: 1. In full consideration of any claim that Arol Buntzman may have arising out of his consulting services in the Proctor Gamble litigation, Arol Buntzman shall be entitled to and accepts compensation in the amount of $1,800,000, which shall be paid by Big Apple delivering to Arol Buntzman $1,500,000, Big Apple remitting to SDC on behalf of Arol Buntzman $300,000 in full satisfaction of the post 1992 debt referenced above. It is agreed that Big Apple and SDC will not continue to pursue their claims to the pre-1992 debt." (Def. Exh.V-1, p. 1 [emphasis added]).
The other four numbered paragraphs of the 1998 Settlement related to the execution of releases, the confidentiality of the agreement, the controlling law to be applied in any litigation involving the agreement and the means by which it could be amended.
Pursuant to this agreement, on February 27, 1998 defendant executed a general release in favor of, inter alia, SDC, BAIB and David Buntzman.
Also on that same date, a check in the amount of $1,500,000 was issued to defendant's counsel in the Stanton Litigation. That payment reflected the deduction of $300,000 in full satisfaction of $150,000 that David Buntzman had advanced to defendant, $50,000 loaned by David Buntzman to the parties during the first year of their marriage and $100,000 in interest accrued on those loans. In turn, after deducting its legal fees, defendant's counsel sent him a check in the amount of $1,435,000 (the Big Apple Settlement Funds).
Thereafter, SDC issued defendant a 1099 Form reporting a payment to him of $1,800,000. On the parties' 1998 Federal Income Tax return (the 1998 Federal Return), that payment was reported by them as business income, as reflected on Schedule C to that tax return. A supplemental schedule attached to the return detailed the payment as Gross Receipts or Sales to BAIB.
Defendant initially deposited the Big Apple Settlement Funds into a personal account at Hudson Valley Savings Bank (the HVSB account). Part of those funds was transferred to other accounts, and was used to purchase other assets or for investment purposes, while some of the money was used to satisfy outstanding obligations.
B. THE SEPARATE PROPERTY DISPUTE
Under this State's Equitable Distribution Law (DRL § 236[B]), "[s]eparate property shall remain such", while "[m]arital property shall be distributed equitably between the parties, considering the circumstances of the case and of the respective parties" (DRL § 236[B][5][b], [c]). "Separate Property" is defined as:
(1) property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse; (2) compensation for personal injuries; (3) property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse; [and] (4) property described as separate property by written agreement of the parties pursuant to subdivision three of this part. (DRL § 236[B][1][d] [emphasis added]).
Relying upon subdivisions (1) and (3) above, defendant maintains that the Big Apple Settlement Funds, and any assets purchased with those funds, constitute his separate property.
In proffering this argument, defendant states, first, that it is undisputed that he obtained his shares in ADC prior to the parties' marriage. Next, he asserts that although he lost his shares in ADC to his father in the Stanton Litigation, since that action never proceeded to its damages phase, so that his appellate rights did not yet accrue, he never surrendered his claim to his interest in those stock shares. Building upon that contention, defendant argues that because the Big Apple Settlement Funds were obtained in exchange for his claim to an interest in the stock of ADC, his release of that claim constituted a sale of his interest in ADC, and was "property acquired in exchange for . . . separate property" (DRL § 236[B][1][d][3]). Finally, he maintains that all other assets obtained using those funds are not subject to any claim for equitable distribution by plaintiff.
Seeking to defeat that position, plaintiff offers three arguments. Two of them are persuasive, and as discussed below, the determination of this separate property issue in her favor markedly impacts the Court's distribution of the parties' assets.
Plaintiff also contends that if the Court concludes that the Big Apple Settlement Funds were defendant's separate property, they lost their character as separate property because they were commingled with certain other funds that were marital property. As plaintiff recognizes, that argument need be reached only if the Court concludes that the Big Apple Settlement Funds were marital property. In view of the Court's contrary conclusion, the commingling argument is not addressed by this Court. Upon the Court's review of the relevant facts and the controlling law, however, it is initially of the view that plaintiff would not prevail on her claim of commingling, because defendant has rebutted the presumption that the Big Apple Settlement Funds were placed in certain of their accounts with the intention that she receive a beneficial interest in those funds ( see McCanna v. McCanna, 274 AD2d 949, 949 [4th Dept. 2000] ["Although it is undisputed that plaintiff withdrew [$23,300] from his own savings account and deposited it in a joint checking account, he presented credible evidence to rebut the presumption that his intent was to create a beneficial interest in defendant"]; see also Brugge v. Brugge, 245 AD2d 1113, 1114 [4th Dept. 1997] ["Defendant established that the joint account was used only as a conduit for the transfer of her capital interest from one business owned by her family to another, thus rebutting the presumption that, by depositing the funds into a joint account, separate property was transmuted into marital property"]).
1. PAROLE EVIDENCE
Plaintiff's first argument is based upon the parole evidence rule. According to her, both the Payment Letter and the 1998 Settlement reflect an agreement that defendant would receive at least 10% of the recovery in the PG Action in consideration of his cooperation and his consulting services in that lawsuit, and neither contains any language indicating that the payment was for any claim to ownership in the stock of ADC or BAIB. She further asserts that since these documents are neither incomplete nor ambiguous, defendant may not be heard to vary their terms with parole evidence at trial.
"A familiar and eminently sensible proposition of law is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms", and "[e]vidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing" ( W.W.W. Associates, Inc. v. Giancontieri, 77 NY2d 157, 162). Consequently, if this Court concluded that the agreements relevant to determining the consideration for the Big Apple Settlement Funds were unambiguous, plaintiff would be correct in her position that the Court could not consider the testimony offered by defendant and his witnesses concerning the nature of the exchange between defendant and his father in settlement of the Stanton Litigation ( see South Road Associates, LLC v. International Business Machines Corp., 4 NY3d 272, 278 ["Whether a contract is ambiguous is a question of law and extrinsic evidence may not be considered unless the document itself is ambiguous"]).
Notwithstanding that she was not a party to any of the relevant agreements, plaintiff may rely upon the parole evidence rule in her effort to prevent defendant from offering evidence that contradicts their terms concerning the consideration given by defendant in exchange for the Big Apple Settlement Funds ( Oxford Commercial Corp. v. Landau, 12 NY2d 362, 365-366 [1963] ["Although it is sometimes broadly observed that the parol evidence rule has no application to any except parties to the instrument, it is clear that in the case of a fully integrated agreement, where parol evidence is offered to vary its terms, the rule operates to protect all whose rights depend upon the instrument even though they were not parties to it"] [internal citations omitted]).
Here, however, there are four pertinent documents that comprise the overall settlement of the dispute between father and son in the Stanton Litigation. These include, not only the Payment Letter and the 1998 Settlement, but also the Segrue Memorandum and the BAIB Release. As noted, the Segrue Memorandum indicates that defendant shall execute a "release of any claim [defendant] may have to the stock of Big Apple and any other entities related to [ADC]" (Def. Exh.J, p. 1), while the 1992 Release recites that defendant is "releas[ing] all of [his] claims to ownership of any stock of any class or kind in [ADC] and in any other entities, corporate or otherwise, including [BAIB]" (Def. Exh.J, p. 1). Because these latter two documents evince an intent on the parts of defendant and his father to exchange a share of the recovery in the PG Action for any remaining claims that defendant had to any stock in ADC or BAIB, there is an ambiguity in the documents settling the Stanton Litigation, such that defendant's proffer of testimony concerning the settlement terms was not barred by the parole evidence rule ( cf. Meathe v. State University Construction Fund, 65 AD2d 49, 51-52 [3rd Dept. 1978] [Trial Court properly admitted extrinsic evidence to explain ambiguity in contracts which "contain[ed] two articles pertaining to compensation, one based on cost plus and the other on a percentage of the construction costs"]).
2. QUASI-ESTOPPEL
Plaintiff's next argument is based upon defendant's treatment of the Big Apple Settlement Funds for income tax purposes. Specifically, relying upon Zemel v. Horowitz ( supra) she contends that this Court should apply the doctrine of "quasi-estoppel" or "estoppel against inconsistent positions" and that "defendant should not be permitted to adopting [sic] a contrary position in this litigation (i.e., the monies received were from the sale of stock), than the position that he asserted on his 1998 tax return (i.e., self-employment income)" (Pl. Mem., p. 9).
Citations to "Pl. Mem., p." and "Def. Mem., p." refer to the parties' respective post-trial submissions.
In Zemel, the relevant facts, as recited by the Court, were as follows:
"In this action for fraud, breach of contract, breach of fiduciary duty, unjust enrichment, conversion and negligence, plaintiffs Alexander and Rona Zemel allege that they sold certain securities in order to loan the proceeds to defendant Steven A. Horowitz (Horowitz), and that Horowitz failed to repay the loan. Horowitz denies that any of the proceeds were loaned to him, and claims that plaintiffs sold the stock on his behalf, and that he replaced it a few days later. It is undisputed that, on their tax returns, plaintiffs did not report any gain from the sale of the stock, which would have been required under applicable tax laws had they actually sold the stock, and loaned the proceeds to Horowitz. Instead, plaintiffs represented to the Internal Revenue Service, under oath and subject to the penalty of perjury, that they had sold stock which they subsequently acquired, the equivalent of a short sale.'" ( supra, 11 Misc 3d 1058 [A], at *1).
On his summary judgment motion, defendant Horowitz argued that "plaintiffs are estopped from claiming that they loaned the proceeds of the stock sale to him, because they reported the transaction on their tax returns as a sale, instead of a loan" ( id., at *2).
Reviewing the law of estoppel, Justice Bernard J. Fried acknowledged that "the form of estoppel that is applicable here is not classic judicial estoppel", because the original position as represented by the plaintiffs was "in a context not precisely falling in the judicial' forum category" ( id., at *5). Nevertheless, because "[t]he same policies and principles underlying classic judicial estoppel have been extended to non-judicial circumstances by courts throughout the United States, including New York, where parties have been precluded from asserting inconsistent positions in a variety of situations, including positions taken on tax returns", Justice Fried concluded that whether the controlling principle is "designated quasi estoppel' or estoppel against inconsistent positions[,]' [t]hese estoppel principles forbid a party from receiving the benefits of a transaction or statute, and then subsequently taking an inconsistent position to avoid the corresponding effects" ( ibid.). Upon that conclusion, Justice Fried ruled that "plaintiffs are estopped from claiming to this Court that they sold the [stock] Shares and loaned the proceedings to Horowitz when they, under penalty of perjury, asserted to the IRS that they [sic] transaction was something entirely different" ( id., at *7). That reasoning applies equally well to the facts before this Court, where defendant represented in the 1998 Federal Return that the $1,800,000 that he received was "business income", and not income from the sale of stock or a claim to an interest in stock.
Endeavoring to avoid that conclusion, defendant asserts that "[f]or this Court to adopt plaintiff's argument and simply look to the labeling of the transaction in the 1998 tax return would ignore the obvious intent of the transaction and contravene the relevant case law" (Def. Supp., p. 8). Defendant is plainly wrong, as it is he, and not plaintiff, who seeks to avoid the application of controlling authority.
Citations to "Pl. Supp., p." and "Def. Supp., p." refer to the parties' respective supplemental post-trial submissions.
In defendant's view, under Zemel this Court "is compelled to look beyond the labeling of a particular transaction in a tax return and must consider all evidence, testimony and documents, in analyzing the intent of a particular transaction" (Def. Supp., p. 10). That approach, however, was neither followed by the Zemel Court, nor is appropriate where a party has made a factual representation in an income tax return which is inconsistent with a position taken in a later judicial proceeding. Rather, as has been consistently held in cases addressing this issue, including those analyzed by the Court in Zemel, "the intent of a particular transaction", so heavily relied upon by defendant at bar, is wholly without relevance to the estoppel issue.
In Zemel, after ruling that estoppel applied to the plaintiffs' claims, the Court considered, and rejected, the plaintiffs' argument that factual issues existed as to whether Horowitz fraudulently induced them to report the transaction for tax purposes as they did. That Court did not, as urged by defendant at bar, search the record "in analyzing the intent of [the] particular transaction" (Def. Supp., p. 10). In this case, moreover, unlike the situation in Zemel, no basis exists to consider whether plaintiff was in any manner responsible for the reporting of the Big Apple Settlement Funds as business income, because defendant did not offer that argument at trial.
Plaintiff's reliance upon Continental Casualty Company v. State of New York Mortgage Agency (1998 U.S. Dist. LEXIS 12784 [S.D.NY 1998]) is misplaced. There, the Court declined to apply quasi-estoppel because that doctrine would have acted to bind a party "to descriptions it used in matters collateral to the substance of the transaction" ( id., at *42). It was based upon that consideration that the Court therein found "that applying quasi-estoppel would not be consistent with its obligation to consider the substantive issue before it", i.e., the nature of the transaction at issue. That consideration is not present at bar because the "description" at issue is the characterization of the Big Apple Settlement Funds for income tax purposes, which was central, and not collateral, to the settlement between defendant and his father which resulted in the payment of those funds to defendant.
Thus, for example, in Estate of Ginor v. Landsberg (159 F.3d 1346, 1998 WL 514304 *1 [2d Cir. 1998]), the Circuit Court addressed the sufficiency of, inter alia, a breach of fiduciary cause of action, founded upon a claim that one of the defendants breached its duty of loyalty to the plaintiff-partnership by paying $1.3 million to another defendant in satisfaction of a "wrap note", instead of first exercising rights to cancel the wrap note without cost. The defendant that was sued for breach of that duty argued at trial that the cancellation rights without cost "represent[ed] a scrivener's error' warranting reformation" ( ibid.). The reviewing Court did not rule upon the reformation defense, holding instead that the plaintiffs "[were] estopped from pressing their current interpretation of the wrap note's terms", because "[h]aving obtained some $14.5 million in tax deductions by representing to the IRS that the wrap note, whose $13.5 million face value was included in the partnership's basis in the properties, was a genuine debt obligation, [they] may not now represent to this Court that that note was no obligation at all (i.e., that it could be costlessly cancelled at will simply by assuming the genuine underlying mortgages)" ( ibid.).
Equally on point, and of greater precedential value to this Court, is the decision in Naghavi v. New York Life Insurance Company ( 260 AD2d 252 [1st Dept. 1999]), involving a suit to recover under a disability insurance policy which had been issued based upon plaintiff's misrepresentation that his income was $100,000 annually. Faced with the insurer's showing on its summary judgment motion that no disability policy would be issued to any person earning less than $16,000 annually, plaintiff asserted that he actually had an annual income of $100,000 in the years in question "when commissions he allegedly earned from business activities abroad [we]re taken into account" ( ibid.). Affirming the dismissal of the complaint, the First Department "deem[ed] [plaintiff] to be bound by his contrary representations in the income tax returns he filed for those years, the application for insurance having defined earned income' in terms of amounts reportable for personal federal income tax purposes'" ( ibid.).
Because no authority on this issue from the Court of Appeals or the Second Department has been cited by either party or found by this Court, Naghavi is controlling upon this Court in determining the applicability of quasi-estoppel in this case ( Mountain View Coach Lines, Inc. v. Storms, 102 AD2d 663, 664 [2nd Dept. 1984] ["[T]he doctrine of stare decisis requires trial courts in this department to follow precedents set by the Appellate Division of another department until the Court of Appeals or this court pronounces a contrary rule"]).
In an unavailing semantic exercise, defendant attempts to distinguish Naghavi. According to defendant, the Naghavi Court "held that the plaintiff was precluded from asserting that his income was more than that which he had declared on his tax returns", and "[t]he issue of estoppel was never entertained" (Def. Supp., p. 10, n. 3 [emphasis added]). As an initial matter, even if the word used by the Naghavi Court was "precluded", rather than "estopped", it is clear from the decision that the Court was preventing the plaintiff in that case from asserting a position on the motion that was inconsistent with the information he had reported in his tax return, and as such, that it had applied some form of estoppel against him ( see Lewis v. King, 157 La. 718, 726, 103 So. 19, 22 [La. 1925] ["Estoppel is a bar which precludes a person from denying the truth of a fact . . ."] [internal citation omitted, emphasis added]; State ex inf. Shartel, ex rel. City of Sikeston v. Missouri Utilities Co., 331 Mo. 337, 351, 53 S.W.2d 394, 399 [Mo. 1932] ["Estoppel is a preclusion in law which prevents one alleging or denying a fact in consequence of his own previous act, allegation, or denial of a contrary tenor"] [emphasis added]). Thus, the absence of the word "estoppel" provides no basis for distinguishing Naghavi. More to the point, however, is that it was the Court in Zemel that used the characterization of "preclusion" in its discussion of Naghavi. In fact, the word "preclude", in any tense, does not appear in the Naghavi decision. Rather, as set forth above, the First Department declared that the plaintiff therein was " bound by his contrary representations" ( Naghavi v. New York Life Insurance Company, supra, 260 AD2d, at 252 [emphasis supplied]), language that is plainly consistent with the law of estoppel.
As Zemel, Ginor, Naghavi and other cases make clear (see Meyer v. Insurance Co. of America, supra; Matter of Davidson, supra), it is the act of obtaining the benefit of a tax law provision or regulation by the making of a representation in a tax return, a document executed with the same effect as the taking of an oath, which works to bind a party to the representation made therein, and to prevent him from assuming a position contrary to that representation in a later dispute, "simply because his or her interests have changed" ( Festinger v. Edrich, 32 AD3d 412 [2nd Dept. 2006]; see Matter of Davidson, supra, 947 F.2d, at 1297; see also Kaneb Services, Inc. v. FSLIC, 650 F.2d 78, 81 [5th Cir. 1981] ["It is recognized that under the doctrine of equitable estoppel a party with full knowledge of the facts, which accepts the benefits of a transaction, contract, statute, regulation, or order may not subsequently take an inconsistent position to avoid the corresponding obligations or effects"]). Thus, Courts have consistently applied the quasi-estoppel doctrine in those circumstances because our judicial system "cannot tolerate" litigants who play "fast and loose with the courts'" ( Ford Motor Credit Co. v. Colonial Funding Corp., 215 AD2d 435, 436 [2nd Dept. 1995] [internal citations omitted]). Moreover, in their application of that doctrine, they have eschewed defendant's proposed approach of considering the intent of the parties which led to the reporting of the information for income tax purposes ( see Zemel v. Horowitz, supra; Estate of Ginor v. Landsberg, supra; Matter of Davidson, supra). And in this case, so shall this Court.
Cf. In re Kelley, 216 B.R. 806, 809-810 [Bankr. E.D. Tenn. 1998] [Rejecting application of quasi-estoppel to conflicting characterization of alimony payments in bankruptcy proceeding and in tax return because 11 U.S.C.A. § 523[a] "requires federal courts to look beyond the labels" in determining whether a payment is alimony or support for discharge purposes] [collecting cases, internal citation omitted]). Unlike a bankruptcy proceeding, in a matrimonial action in this State there is no statutory requirement that a Court asked to apply quasi-estoppel "look beyond labels" to determine the intent of a party who reported the receipt of funds in his income tax return in a manner inconsistent with that which he characterizes the funds in the matrimonial action.
Therefore, the Court agrees with plaintiff that defendant is estopped from arguing that the Big Apple Settlement Funds were the proceeds of a sale of an interest that he held in the stock of BAIB or ADC. Instead, the Court concludes that those funds constitute business income earned by him during the parties' marriage, which is marital property for the purposes of equitable distribution in this action ( see Zabezhanskaya v. Dinhofer, 274 AD2d 476, 477 [2nd Dept. 2000] [Spouse's earnings during the marriage were marital property]), as is any asset acquired with any of those funds ( Maher v. Maher, 196 AD2d 530, 532 [2nd Dept. 1993] abrogated on other grounds by McSparron v. McSparron, 87 NY2d 275 ["Since there is no dispute that the watch was purchased during the marriage with marital assets, it was a marital asset"]; Zelnik v. Zelnik, 169 AD2d 317, 330 [1st Dept. 1991] ["To the extent that the funds used to finance, improve or maintain [a] property [purchased shortly before the marriage] came from wages or income earned during the marriage, these funds are marital property and the wife is entitled to an equitable share thereof"].
3. JUDICIAL ESTOPPEL
On April 26, 1993, approximately five months before he married plaintiff, defendant resolved his divorce action with his first wife by executing a written settlement agreement (the 1993 Divorce Agreement). That agreement included a disclosure provision stating, in relevant part:
"The parties acknowledge, each to the other, that the wife expressly relies in the execution of this Agreement, upon the husband's representation that he . . . has no interest, actual, legal, equitable or contingent, in any business as a sole proprietor, partnership, corporation or any other legal entity and he has no stocks, bonds, mutual funds, savings or contingent interest in same in his name, jointly with another. The husband's representations are of the essence to the wife's execution of this Agreement." (Pl. Exh.71, p. 15 [emphasis added]).
In addition, in two financial disclosure affidavits (together hereinafter "the Family Court Affidavits") signed by defendant on October 5, 1994 and June 5, 1995 and filed in separate Family Court proceedings between his first wife and him (hereinafter "the Two Family Court Proceedings"), in a section for reporting "Other Property", identified therein as including "stocks, bonds, boat, trailer, etc.", defendant wrote "NONE" (Pl. Exh.75, p. 1) and "O" (Pl. Exh.76, p. 1), respectively.
In plaintiff's view, these representations by defendant that he had no interest of any kind in any stocks or in any business as of 1993, 1994 and 1995 wholly contradict the position taken by him in this action, i.e., that he received the Big Apple Settlement Funds in consideration of his release of any remaining claims that he had to stock in ADC or BAIB. Relying upon the doctrine of judicial estoppel, plaintiff argues that "defendant should not be permitted from [sic] assuming a different position in this case than the one he assumed in his prior legal proceedings with [his first wife]" (Pl. Mem., p. 8).
"The doctrine of judicial estoppel provides that where a party assumes a position in a legal proceeding and succeeds in maintaining that position, that party may not subsequently assume a contrary position because its interests have changed" ( McIntosh Builders Inc. v. Ball, 264 AD2d 869, 870 [3rd Dept. 1999]). However, "for this doctrine to apply, . . . there first must have been a final determination in the [other] proceeding endorsing the party's inconsistent position . . .'" ( ibid. [internal citation omitted]; Bono v. Cucinella, 298 AD2d 483, 484 [2nd Dept. 2002] [Judicial estoppel was "inapplicable" where "[n]o judgment or decree was secured in the [earlier] proceeding"]).
In this case, plaintiff offered no evidence that a final determination was rendered in defendant's favor in either of the Two Family Court Proceedings. Consequently, his representations in the Two Family Court Affidavits concerning his lack of "other assets" do not bar him from taking the position in this action that he had a claim to an interest in the stock of ADC and BAIB that he could sell or release in consideration of his receipt of the Big Apple Settlement Funds ( Bono v. Cucinella, supra).
Plaintiff's attempt to avoid this requirement, relying upon Perkins v. Perkins ( 226 AD2d 610 [2nd Dept. 1996]), is unpersuasive. Therein, judicial estoppel was invoked against a party in a matrimonial action who asserted that he had contributed to the purchase and upkeep of a farm property, because in an action brought against him by a third-party creditor he gave deposition testimony that his former wife had purchased the property with her own assets and that he did not contribute at all to the purchase or upkeep of the property. Plaintiff reads the Perkins decision as ruling that judicial estoppel is applicable even in the absence of a prior determination in favor of the party who is taking an inconsistent position. This Court does not agree with that interpretation, because it is unclear if the husband even raised the requirement that there have been an earlier decision or judgment favorable to him. The absence of any discussion of that requirement equally supports a view that in Perkins, that issue was deemed waived because it was not raised ( cf. Festinger v. Edrich, supra, 32 AD3d 412 ["In this regard, the plaintiff never contended in the Supreme Court that judicial estoppel was unavailable because he did not obtain a favorable judgment or other benefit in the federal proceeding; hence, his present contention is improperly raised for the first time on appeal"] [internal citations omitted]).
A similar conclusion could readily follow with respect to the effect of the 1993 Divorce Agreement, since "a settlement does not constitute a judicial endorsement' of either party's claims or theories and thus does not provide the prior success necessary for judicial estoppel" ( Manhattan Avenue Development Corp. v. Meit, 224 AD2d 191, 192 [1st Dept. 1996], lv. denied 88 NY2d 803). Of course, if there was evidence that the 1993 Divorce Agreement had been incorporated in the divorce judgment entered in the earlier divorce proceeding (the First Divorce Judgment), the judicial estoppel doctrine would control ( Crespo v. Crespo, 309 AD2d 727, 728-729 [2nd Dept. 2003] [Husband barred from taking position contrary to that represented in separation agreement later incorporated into divorce judgment]). Here, however, no proof was offered at trial that such an incorporation occurred. Based upon that failure of proof, the Court would be warranted in finding that the judicial estoppel doctrine does not apply, and that defendant is not precluded from taking the position asserted by him at the trial of this action because of the representations made by him in the 1993 Divorce Agreement ( McIntosh Builders Inc. v. Ball, supra, 264 AD2d, at 870; Bono v. Cucinella, supra, 298 AD2d, at 484).
In her supplemental submission, plaintiff attempts to avoid the impact of her failure of proof, by asking the Court to take judicial notice of the First Divorce Judgment, notwithstanding her failure to seek that relief during trial. Although defendant opposes this late application, in the exercise of its discretion, the Court grants that request, and takes judicial notice that the First Divorce Judgment incorporated the 1993 Divorce Agreement ( see Weinberg v. Hillbrae Builders, Inc., 58 AD2d 546 [1st Dept. 1977] ["[A] a court may take judicial notice of its own records"]; see also Berger v. Dynamic Imports, Inc., 51 Misc 2d 988, 989 [N.Y.C. Civ. Ct. 1966] ["[A] court in New York will take judicial notice of its own record of the proceeding of the case before it, as well as of its own records, not only of the case before it but also of cases involving one or more of the same parties or even totally different parties"] [internal citations omitted]). Upon taking judicial notice of the First Divorce Judgment, the Court agrees with plaintiff that the incorporation into that judgment of the 1993 Divorce Agreement constituted a favorable determination for defendant in his earlier divorce, and that he is judicially estopped from taking a position contrary to his representation made in that agreement that he did not have any interest in any business or any stocks ( Crespo v. Crespo, supra, 309 AD2d, at 728-279). As with the invoking of quasi-estoppel, the application of judicial estoppel bars defendant's argument that the Big Apple Settlement Funds were anything other than business income received during the marriage, which constitutes a marital asset.
Plaintiff also made two other attempts, neither of which are successful. Her argument that 1993 Divorce Agreement must have been incorporated into the divorce judgment because the agreement was retrieved from the County Clerk file in the earlier divorce action is unpersuasive, since it is evident that either party to that proceeding could have filed the agreement even in the absence of a judgment. Similarly without support is her contention that in an affidavit admitted at trial as Exhibit 72, defendant conceded that the incorporation occurred. Contrary to plaintiff's position, the affidavit was not admitted, but rather, based upon plaintiff's position at trial, only its fifth and sixth paragraphs were presented to the Court, neither of which relates to the incorporation issue.
Although defendant opposes plaintiff's request, the Court concludes that taking judicial notice of the First Divorce Judgment is warranted because it will "aid materially in the . . . determination of the case" ( Mohawk Carpet Mills, Inc. v. State of New York, 173 Misc. 319, 322 [Ct. Claims 1940], and it appears that the failure to offer the prior judgment was an oversight on the part of plaintiff's counsel ( see Seguin v. Berg, 260 App.Div. 284, 286 [3rd Dept. 1940] ["Notwithstanding the general rule that a party holding the affirmative is bound to introduce all the evidence on his side before he closes, the trial court in the exercise of its discretion and for sufficient reason may allow a departure from the rule and permit a party to reopen and supply defects in the evidence which have inadvertently occurred"]). Moreover, the fact that the request has been made after the trial is no bar, since it is settled law that "judicial notice may be taken in any court at any stage of the litigation from motion practice to appeals" ( Associated General Contractors of America v. Lapardo Bros. Excavating Contractors, Inc., 43 Misc 2d 825, 826 [Sup. Ct. Albany Co. 1964]). Nor has defendant demonstrated any prejudice that he would suffer from granting the request ( see Felice v. Gershkon, 34 AD2d 1008, 1009 [2nd Dept. 1970] [Trial Court erred in denying plaintiff's application to reopen his case where there was no showing of any prejudice to defendant]), especially since it was made prior to the Court's trial decision ( cf. Shapiro v. Shapiro, 151 AD2d 559, 560 [2nd Dept. 1989] [Leave to reopen properly denied where it was sought "approximately five months after the close of all evidence, and approximately three and one half months after the trial court issued its memorandum decision"]). Moreover, notwithstanding his claim that by failing to formally move for this relief, plaintiff has denied him the opportunity to be heard, defendant most certainly had that opportunity by submitting a letter setting forth his position on this issue and others raised in plaintiff's supplemental submission. Indeed, despite the fact that the letter was submitted without leave of the Court, and constituted an unauthorized sur-reply, it has been considered ( cf. Matter of Kushaqua Estates, Inc. v. Bonded Concrete, Inc., 215 AD2d 993, 994 [3rd Dept. 1995] ["Supreme Court could properly refuse to consider respondents' surreply which . . . was submitted without permission from the court"]). And finally, defendant cannot be heard to credibly object to plaintiff's request when, in his proposed findings of fact, he asks the Court to take judicial notice of the trading price of EVCI stock on the final day of trial, proof of which he could have, but failed to, offer at trial, and has filed a separate motion seeking similar relief as to the post-trial value of that stock.
As between the two, this Court concludes that it is the quasi-estoppel argument, and not the judicial estoppel claim, that more fully supports plaintiff's position.
III. VALUATION DATE
The second preliminary issue to be addressed is the appropriate date for valuing certain stocks and options currently or previously owned by defendant. Resolution of this issue turns primarily upon whether the particular assets are found to be "active" or "passive".
A. DEFENDANT'S ROLE IN EVCI
In March 1997, defendant and Dr. John McGrath formed Educational Video Conferencing Inc. (EVCI), a New York corporation. EVCI's initial business plan was to provide a system by which corporations could "enhance both the academic and professional qualifications of their work force" in "convenient and cost effective ways" (Tr. 1833).
Citations to "Tr." refer to the transcript of the trial proceedings.
Using separate funds advanced to him by his father, defendant contributed $30,000 "for refining, refocussing and editing [the] business plan of [EVCI]" (Tr. 2593). Defendant also used funds or securities that were his separate property to pay $45,000 to RAS Securities as a retainer for services "in connection with the private placement of bridge financing of common stock" (Tr. 2594). Based upon the greater share of his initial financial contributions, defendant originally received 99.76 shares of EVCI stock, with 49.88 shares being distributed to McGrath, and up to 200 more authorized for other individuals.
On October 28, 1997, the EVCI Board of Directors and shareholders approved a plan to recapitalize the corporation, which including incorporating EVCI in the State of Delaware, and offering some of its shares for public sale (the IPO). That plan also involved the exchange of 182.03 shares into 3,650,000 shares, as a result of which defendant received 2,000,000 new shares. Approximately one-half of the new shares was attributable to his initial contribution to EVCI, while the other half was given to him as founder of the corporation. Then, in preparation for the IPO, defendant negotiated a reverse stock-split, under which the shares of EVCI were reduced, resulting in a reduction in his holdings to 1,000,000 shares.
In February 1999 the IPO was conducted and EVCI went public. At that time, defendant was both EVCI's Chairman of the Board of Directors (Chairman) and Chief Executive Officer (CEO), and McGrath was President and one of the Directors. Together, defendant and McGrath constituted the senior management team from 1999 through the time of the trial of this action in 2005. Defendant committed extensive time to the IPO process and throughout the operation of EVCI. He was considered by its management staff and Directors to be the individual who contributed most to the corporation.
When it was determined to change the focus of EVCI to the ownership and operation of several for-profit colleges, including Interboro College in Queens, New York (Interboro), defendant played a substantial role in concentrating Interboro's marketing toward serving disadvantaged students in the New York metropolitan area. Defendant also personally developed the strategy for addressing the retention problem that existed at Interboro when it was acquired by EVCI. He was also the "principal architect of the decision" to expand Interboro beyond New York City, including the opening of a campus in Yonkers, New York (Tr. 2932).
Among defendant's other significant contributions to EVCI was his raising of capital and his successful negotiation with NASDAQ officials to avoid the "de-listing" of the corporation, which would have prevented EVCI from being traded on that stock exchange and markedly reduced its ability to raise money. In recognition of the view that defendant's role in EVCI was essential to its operation and growth, defendant has consistently been the highest paid officer, and for several years, was the only officer for whom the corporation maintained a life insurance company. Under defendant's leadership, EVCI's stock price increased at a rate significantly higher than the growth of the stock market in general, as well as its competitors in the for-profit college business. Defendant's active contribution to the activities and strategies of EVCI were a substantial cause for the appreciation in the value of the corporation's stock.
As relates to this conclusion, the Court deems the testimony of defendant's expert, Dr. William Kennedy, to be more credible than that of plaintiff's expert, Dr. Dana Heller, for several reasons. First, Dr. Heller never interviewed anyone involved in the management of EVCI to obtain information about defendant's role in the operation and management of the corporation. Second, Dr. Heller failed to provide any basis for her selection of June 20, 2005 as a valuation date, except that it was the date that her analysis was performed. Third, Dr. Heller incorrectly interpreted the terms of defendant's employment contract, so as to conclude that defendant was merely working part-time for EVCI. Fourth, and most significantly, her regression analysis and event study, the latter of which was based upon certain news items related to EVCI, did not provide a statistically significant evaluation of the correlation between defendant's efforts in behalf of the corporation and the value of its stock ( cf. Siegel v. Siegel, 132 AD2d 247, 251 [2nd Dept. 1987], appeal dismissed 71 NY2d 1021 [1988], lv. denied 74 NY2d 602 [1989] [Rejecting opinion of financial experts as to value of business as unreliable]).
Notwithstanding that EVCI viewed defendant as "critical to [its] success" (Def. Exh.FF-2, p. 4), in a press release issued by it following McGrath's election as CEO on November 22, 2002, EVCI acknowledged that in his role as its President, he was "primarily responsible for overseeing the successful growth of Interboro" (Pl. Exh.29, p. 5 [emphasis omitted]). The recognition of the significant contributions of McGrath to the operations of EVCI, coupled with the absence of any evidence directly linking the increase in the value of its stock to defendant, undermines any claim by defendant that the appreciation in value of EVCI's stock following the commencement of the action was due solely to his efforts, rather than to the efforts of the entire management team of the corporation or other factors.
Notably, in response to a question whether "the movement of the stock price of EVCI during any period of time" could be "attribute[d] causatively to the actions of any one person", Dr. Kennedy testified that: " It's the collective actions of the management of the corporation in deciding on whatever corporate strategies. There are detailed day-to-day decisions that need to be made. It's that manifestation of those efforts that result in value. Those are not separately parsed out so that you can assign five percent to this one and 15 percent to that one." (Tr. 1224-1225 [emphasis added]). Dr. Kennedy further conceded, when asked if he could "quantify how much the long-term value of the corporation is affected by anything that [defendant] has done since May of 2003", that he could not do so "without identifying a very specific pure event that wasn't clouded by any other event" (Tr. 1261-1262). As admitted by Dr. Kennedy, "That's the only way" (Tr. 1262).
Indeed, defendant implicitly acknowledged the impact of market factors upon the value of the stock in testifying as to his reasons for making a sale of some of his EVCI shares on April 2, 2004, months after the commencement of this action. Specifically, he stated: "Again, I thought it was a — phenomenal price, higher than in years. And I wanted to take advantage of the high price. If I had known that I would have been able to sell stock at $11, I wouldn't have sold stock at 4; and if I had known that the stock would have gone back into the 2's, I would have sold all my stock and exercised my options then" (Tr. 1443).
The following portion of defendant's testimony as to the November 12, 2003 sale of some of his shares similarly supports the view that market conditions played a factor in the value of the EVCI stock.
"Q. Did you known when you sold the stock in November of 2003 what it was going to be the next year as far as the price?A. No. If I had known it was going to continue going up, I would have sold more — I wouldn't have sold stock. If I knew that the stock would go down after I sold the second tranche, I would have sold all of it." (Tr. 2740).
1. EVCI STOCK AND OPTIONS
At the time this action was commenced, defendant was an officer of EVCI and its Chairman, and held, in his name alone, 685,361 shares of EVCI stock and options for another 450,000 shares (together hereinafter "the EVCI stock and options") that had been obtained during the parties' marriage. As agreed to by the parties, the EVCI stock and options are marital property for the purposes of plaintiff's equitable distribution claims.
As of the time of commencement, 349,963 of the stock options had vested. It is agreed by the parties that the balance of 100,037 options are defendant's separate property.
For a lengthy period of time, EVCI stock had a value of less than one dollar. When it increased in value to more than $4.00 per share, defendant saw an opportunity to make a significant profit. Consequently, on November 12, 2003, approximately six months after the action was commenced, defendant sold 300,000 shares of EVCI stock at $4 per share (the First Sale). He placed the sale proceeds of $1,200,000 (the First Sale Proceeds) into the HVSB Account.
Shortly thereafter, plaintiff filed a motion before Justice Garvey seeking a contempt adjudication against defendant for engaging in the First Sale. At the February 11, 2004 appearance on that motion, although Justice Garvey did not find defendant in contempt, she ordered him not to sell any other stock shares. In addition, she prohibited him from moving the First Sale Proceeds, as follows (the February 2004 Order):
You are not to take any money that is held in that bank account and buy any piece of property. All of that money is to remain in that account, otherwise I am going to direct that it be held in escrow. That goes for all of the funds. Now you are not going to get a written order from me because quite frankly I just don't have the time. But what I am going to do is order you to purchase the transcript and I am going to so order it. That there is to be no movement of that money. (Ct. Exh.16, Transcript, p. 25-26 [emphasis added]).
Consistent with his approach of determining which Court orders to follow, and as he admitted on a subsequent enforcement motion filed by plaintiff with this Court, defendant moved the First Sale Proceeds to other accounts from the HVSB Account. Based upon that violation of the February 2004 Order, this Court directed defendant to place an amount equal to the First Sale Proceeds into an escrow account pending further order of the Court.
At trial defendant could not recall having any expenses with respect to this sale (Tr. 1445).
In early 2004, another opportunity to sell stock arose. At that time defendant first obtained plaintiff's consent to make the sale, which consent was given on condition that he pay her $100,000 from the proceeds as an advance against her distributive award in this action. On April 2, 2004 defendant completed the sale of another 310,000 shares of EVCI, at $11.50 per share (the Second Sale), from which he received net proceeds of $3,445,850 after expenses (the Second Sale Proceeds). Subsequently, he paid State and Federal taxes in the combined amount of approximately 22% of the Second Sale Proceeds. Five days after the Second Sale, he made the $100,000 payment to plaintiff.
Having made the First Sale and the Second Sale (together hereinafter "the Two Sales"), defendant continues to own 75,361 shares of EVCI stock. He also owns all 450,000 stock options.
2. DAIN RAUSCHER ACCOUNT
When this action was commenced, defendant also owned a substantial stock portfolio in an account maintained by RBC Dain Rauscher (the Dain Rauscher account), which included 46,400 shares of EVCI. As with the EVCI stock and options, the parties have agreed that the securities maintained in that account (the Dain Rauscher stock) are marital property that is subject to plaintiff's equitable distribution claims.
These 46,400 shares are included in the 685,361 shares owned by defendant at the commencement of the action (Tr. 1288), and in the 75,361 shares that he currently retains.
Defendant opened the Dain Rauscher account after meeting with the son of a friend. He transferred some stocks from an existing account, which contained both separate property and securities acquired during the marriage, into the Dain Rauscher account.
As it was established, the Dain Rauscher account is a nondiscretionary account, i.e., no trade can be made without defendant's authorization. Following the opening of the account, defendant controlled all of the trading of the Dain Rauscher stock. In the period from the commencement of the action through the time of trial, defendant initiated or approved 92 transactions, which included 47 purchases and 45 sales. Plaintiff, by contrast, had no significant knowledge of the Dain Rauscher account, did not know the source by which it was funded, and had no role in determining when and what transactions should be engaged in from that account.
B. THE ACTIVE/PASSIVE DISTINCTION
Under DRL § 236(B)(4)(b), "[a]s soon as practicable after a matrimonial action has been commenced, the court shall set the date or dates the parties shall use for the valuation of each asset." A court distributing marital assets in a matrimonial action has broad discretion in setting the valuation date, and may set a valuation date for a particular asset "anytime from the date of commencement of the action to the date of trial" (DRL § 236[B][4][b]; see Poster v. Poster, 4 AD3d 145, 146 [1st Dept. 2004], lv. denied 3 NY2d 605 ["A trial court must have the discretion to select a valuation date appropriate to the particular circumstances of the case before it"]). Moreover, separate valuation dates may be established for different assets ( Wegman v. Wegman, 123 AD2d 220, 236-237 [2nd Dept. 1986], remittitur amended 123 AD2d 238 [2nd Dept. 1987]).
Following the enactment of the Equitable Distribution Law, a distinction was recognized between "active" and "passive" assets ( Greenwald v. Greenwald, 164 AD2d 706, 716 [1st Dept. 1991], lv. denied 78 NY2d 855). Thus, "active assets", i.e., those "whose values are affected by the active participation of the titled spouse[,] should generally be valued as of the commencement of the action to reward that party's postcommencement efforts, to which the nontitled spouse did not contribute, either directly or indirectly" ( Heine v. Heine, 176 AD2d 77, 87 [1st Dept. 1992], lv. denied 80 NY2d 753). By contrast, "[a]ssets that are passive, that is, whose values are affected by outside influences such as inflation or market forces, should generally be valued as closely as possible to the date of trial so as to avoid a windfall to the titled spouse and injustice to the other if the asset has increased in value" ( ibid.).
Notwithstanding that the characterization of marital assets as either active or passive for determining their valuation date is well-established in our case law ( Smerling v. Smerling, 177 AD2d 429, 429-430 [1st Dept. 1991]; Trivedi v. Trivedi, 222 AD2d 499, 499 [2nd Dept. 1995]; Soule v. Soule, 252 AD2d 768, 771 [3rd Dept. 1998]; Murphy v. Murphy, 193 AD2d 1068, 1069 [4th Dept. 1993]), our State's highest court has cautioned the nisi prius courts that "[s]uch formulations, . . . may prove too rigid to be useful in particular cases", and "[t]hus, they should be regarded only as helpful guideposts and not as immutable rules of law" ( McSparron v. McSparron, supra, 87 NY2d, at 288). Hence, it remains the rule that "[t]he selection of the appropriate valuation dates for various assets is addressed to the sound discretion of the trial court, upon consideration of all of the relevant facts and circumstances in the case" ( Collins v. Donnelly-Collins, 19 AD3d 356, 357 [2nd Dept. 2005]; Fuchs v. Fuchs, 276 AD2d 868, 869 [3rd Dept. 2000] ["Generally, the value of marital property is established as of the date of commencement of the matrimonial action, but a trial court has discretion to determine the appropriate valuation date, particularly if use of the date of commencement would result in an inequitable distribution"]).
C. THE SOLE CAUSE REQUIREMENT
At the conclusion of plaintiff's case-in-chief at the trial, defendant moved for an order setting the valuation date for the EVCI stock and options and the Dain Rauscher stock (collectively hereinafter "the Stock Assets") as the commencement date of the action. In its determination of the issues raised by that application, this Court concluded that defendant "has the burden of proving that those assets are active and not passive in character, such that the court should set the valuation date as of the commencement date of the action" ( Mahoney-Buntzman v. Buntzman, 11 Misc 3d 869, 877 [Sup. Ct. Westchester Co. 2006]). Because "[defendant] had yet to complete his presentation of his case when he moved for the establishment of the valuation date", the Court denied his motion as premature ( id., at 877-878). As the Court observed at that time, it did not reach plaintiff's argument that defendant, as the party seeking to fix the commencement date as the valuation date, is required to prove that his efforts were the sole cause of the appreciation in the value of the Stock Assets. That issue must now be resolved.
This Court's analysis begins with the 1987 decision rendered by the Appellate Division, Second Department in Siegel v. Siegel ( supra, 132 AD2d, at 251), where the Court approved the use of the commencement date as the valuation date for a business which was under the plaintiff's "complete control". Significantly, that Court observed that "[i]f we were able to attribute the decline in [the business'] value to adverse economic forces, then it might well have been better to evaluate this business as of the date of the trial" ( ibid.).
Four years later, in Greenwald v. Greenwald ( supra), in determining the appropriate valuation date for shares in an Employee Stock Ownership Plan Trust Fund, the First Department observed that "courts have consistently recognized that assets such as undeveloped real estate or mutual funds, which appreciate in value strictly as a result of random market fluctuations or the efforts of others, constitute passive assets, while assets that appreciate due to the efforts of the titled spouse are active" ( id., 164 AD2d, at 716 [emphasis added]).
From the language appearing in Greenwald and Siegel, it is arguable that the appropriate analysis under the active/passive dichotomy is whether the spouse seeking to have the commencement date set as the valuation date of an asset has established that the appreciation in the value of the asset was due in substantial part to his efforts, and not strictly as a result of other factors, such as market fluctuations or the efforts of other individuals ( see Greenwald v. Greenwald, supra). Put differently under such an analysis, the controlling consideration is that market or other influences have not driven the value of the asset, but rather, that the asset's value was driven by the efforts of the party arguing that the asset is active in nature.
This, in sum, is the position offered by defendant, who argues that this Court must "hold that a party is actively managing or otherwise impacting a business or account when a direct nexus exists between the individual's actions and the value of the business or account" (Def. Mem., p. 21). Indeed, some support for that view is found in the decisions in Kerzner v. Kerzner ( 264 AD2d 338 [1st Dept. 1999]) and Heine v. Heine ( supra).
Kerzner involved the valuation of a business that was solely owned by the husband. Addressing the valuation date issue, the First Department ruled that the business was properly valued as of the commencement of the action because "its value was plainly affected by his active participation therein" ( supra, 264 AD2d, at 338). Thus, it was "active participation", and not a showing that no other factors could have influenced the value of the business, that was the controlling consideration ( see Sieger v. Sieger, 8 Misc 3d 1029 [A] *20, 806 NYS2d 448 [Sup. Ct. Kings Co. 2005] [Recognizing that application of the "general rule" would require the valuation of a business as of the commencement date because the titled spouse was "actively involved in [its] operation"]; cf. Janet B. v. John B., 5 Misc 3d 1027 [A] *4, 799 NYS2d 161 [Sup. Ct. Nassau Co. 2004] [Date of commencement of prior, discontinued action set as valuation date for husband's businesses because "[t]he value of these businesses has been clearly affected by the Husband's participation or lack thereof"]). Although it may be argued that the result in Kerzner was due to the sole ownership of the business by the husband, that factor was not present in Heine, which defendant at bar relies upon in asserting that the date of commencement is the proper valuation date. In Heine, when the divorce action was commenced, the husband owned shares in American Bakeries, a publicly-traded company. One year later, while the divorce action was ongoing, that company "went private" ( supra, 176 AD2d, at 85), as a result of which the husband acquired shares in the private company. Then, when American Bakeries merged with another company three years after the commencement of the divorce action, its shareholders received a substantial payment, of which the husband's share exceeded 8.8 million dollars, only part of which he conceded was marital property.
Seeking to defeat "the wife's claim to a distributive share of the postcommencement dividends and proceeds from the sale of the husband's American Bakeries stock" ( id., at 86), the husband argued, inter alia, that his stock shares were an active asset, which should be valued as of the commencement date, thereby depriving the wife of a significant portion of the funds received by him during the pendency of the action for shares held by him during the marriage. Addressing the attack upon the Trial Court's use of the commencement date as the valuation date for the stock shares, the reviewing Court stated:
"Although the point could have been better developed at trial, a reading of the record reveals that the husband, a director of American Bakeries, with a small coterie of other directors and certain employees, numbering at most 20, made a strategic decision in October 1986 to take the company private. As part of that transaction, the husband availed himself of the option to convert his publicly traded shares for private shares. The husband's actions with respect to these transactions can hardly be characterized as passive, as the wife argues. Rather, they represent an active and direct involvement in a corporate and investment decision which dramatically affected the legal nature of the multi-million dollar entity." ( Id., at 87 [emphasis added]).
Upon that view of the husband's role in the decision to take the company private, the First Department held that the stock shares were properly valued as of the commencement date of the action.
As is evident from the facts of the case, in Heine the Court did not require proof that the husband was solely responsible for the increase in the value of the stock shares, or the decision to change the company from a public to a private entity. Instead, it focused on whether the husband's role in the critical decision of the directors amounted to active and direct involvement which had a dramatic effect upon the legal nature of the entity, and in turn, significantly increased the value of the company's stock. Indeed, had it been required that the husband's efforts alone caused the increased stock value in order to support a finding that the stock shares were an active asset, that showing would have been impossible, merely by virtue of the fact that there were other directors involved in the decision-making process. Thus, Heine supports the view that a company's stock will be found to be an "active" asset when the titled spouse has been actively involved in the management of the company and has had a significant impact upon the value of the stock ( see Soule v. Soule, supra, 252 AD2d, at 771 [Stock options properly valued at commencement date because increase in their value was "the direct result of plaintiff's efforts"]; see also Murphy v. Murphy, supra, 193 AD2d, at 1069 ["If a marital asset has grown in value through the active efforts of the spouse in possession, the asset is valued for distribution purposes as of the date of the commencement of the action"]).
This Court agrees with defendant that in view of the analysis used in Heine, there is some merit to his position on the valuation date issue. Unfortunately for defendant, this Court must follow the case law of the Second Department as it understands it, and the approach taken by the Second Department renders his reliance upon Heine misplaced.
For example, in a 1998 decision, Breese v. Breese ( 256 AD2d 433 [2nd Dept. 1998]), although citing, inter alia, Siegel v. Siegel ( supra), the Second Department determined that the trial date was the proper valuation date for an entity whose value appeared to be essentially that of the real property which it owned, because "the defendant husband failed to proffer evidence in support of his assertion that any change in the value of the [entity] was due solely to his efforts, rather than to, for example, market forces" ( id., at 434 [emphasis added]). Then, in 2001, the same approach was taken in Barbuto v. Barbuto ( 286 AD2d 741, 743-744 [2nd Dept. 2001]), where that Court, using the same language employed in Breese, ruled that the Trial Court "improvidently exercised its discretion in valuing certain investment accounts as of the date of commencement of the action rather than as of the date of the trial" because "[t]he defendant failed to prove that any change in the value of such accounts prior to trial was due solely to his efforts, rather than, for example, to market forces" (emphasis added).
Finally, and most recently, in last year's decision in Scharfman v. Scharfman ( 19 AD3d 474 [2nd Dept 2005]), the Court continued that approach to this issue. There, the defendant-husband successfully moved prior to trial to have the commencement date of the action set as the valuation date for "marital assets consisting of 85 operating entities which owned more than 100 residential rental real estate properties" ( id. at 475). On appeal, the Trial Court's ruling was reversed because "defendant failed to proffer evidence in support of his assertion that any change in value of the [p]roperties since [the date of commencement of the action] was due solely to his efforts rather than to other factors, including market forces" ( ibid. [emphasis added]).
As is apparent from the decisions in Breese, Barbuto and Scharfman, in this Judicial Department the burden upon a party arguing that an asset is active, and should be valued as of the commencement of the action, is to prove that any change in value of that asset was due solely to his efforts, to the exclusion of all other factors. Notwithstanding that this standard may limit the situations in which business assets are characterized as "active" to sole proprietorships ( see e.g. Kerzner v. Kerzner, supra), this Court is constrained to follow the approach taken by the Second Department ( Mountain View Coach Lines, Inc. v. Storms, supra, 102 AD2d, at 664).
D. VALUATION OF THE STOCK ASSETS
Having determined the appropriate standard to apply, the Court now turns to the determination of the valuation dates for the Stock Assets. On the credible evidence presented at trial, this Court holds that the laws of equitable distribution require that different dates be used for valuing the EVCI stock and options, as opposed to the Dain Rauscher stock.
As relates to the EVCI stock and options, it has been established that defendant played a significant role in the creation of EVCI and its continued, and highly successful, ongoing operation. He was also the central figure in its change of direction to a company owning and operating for-profit colleges, and for its survival through its IPO and its struggle to avoid "de-listing" by NASDAQ. By virtue of defendant's efforts, EVCI had substantial increases in its revenue and earnings, and its stock value increased markedly, during the period from its creation through the time of trial.
Nonetheless, because defendant has failed to exclude the impact of McGrath's contributions to the success of EVCI, as well as the effects of market forces, he has not met the burden of demonstrating that the increased value of the EVCI stock and options was due solely to his efforts ( see Scharfman v. Scharfman, supra). Accordingly, the Court concludes that the EVCI stock and options are passive assets which, under the general rule, should be valued as of the date of trial of the action ( Greenwald v. Greenwald, supra, 164 AD2d, at 716 ["Passive assets should generally be valued as of the trial date so as to prevent a windfall to the titled spouse if the asset has increased in value"]). Of course, whether the Court applies the general rule in this case is significant to both parties, in view of the substantial decline in the value of EVCI's stock during the trial and thereafter.
Shortly after the trial commenced, EVCI was the subject of a State investigation of for-profit colleges. Based upon the adverse report issued as a result of the investigation, EVCI stock lost a substantial portion of its value during the trial, and has declined further since the trial was concluded.
The parties agree that when the action commenced the value of the EVCI stock was $2.70 per share (Def. Prop. Facts, p. 43). Between the first and last days of the trial, the shares plummeted from $6.21 to $1.53 per share. Since that time the stock value has declined further, and as of July 7, 2006, EVCI stock was trading at only 66 cents per share.
Citations to "Pl. Prop. Facts, p." and "Def. Prop. Facts, p." refer to the parties' respective proposed findings of fact.
As sought by plaintiff (Pl. Mem., p. 14), the Court takes judicial notice of the $6.21 trading price of EVCI stock on the first day of trial ( see Scoville v. Surface Transit, Inc., 39 Misc 2d 991, 995 [Sup. Ct. NY Co. 1963] [Court took judicial notice of stock price]; see also Powell v. Hill, 170 N.Y.S. 915, 917 [Sup. Ct. NY Co. 1918] ["[Supreme] court can take judicial notice of the present condition of the financial market"]). Similarly, at defendant's request (Def. Prop. Facts, p. 43) the Court has judicially noticed the $1.53 final trial date value of that stock. In addition, by separate decision and order entered on September 11, 2006, the Court has granted defendant's motion for judicial notice to be taken of the 66 cent value of the stock on July 7, 2006, the last trading day prior to the filing of that motion ( Mahoney-Buntzman v. Buntzman, 13 Misc 3d 1205 [A] [Sup. Ct. Westchester Co. 2006]). As more fully explained in the Court's decision on that motion, it is appropriate for the Court to consider the value of the stock after the trial was completed, in view of the stark change in the trading price from the commencement of the action to the present time ( see Mohawk Carpet Mills, Inc. v. State of New York, supra, 173 Misc., at 322]).
If plaintiff's distributive portion of the value of all 610,000 shares of EVCI sold by defendant after the action was commenced was determined as of the first day of trial, it would be based upon a total value of $3,788,100. However, as noted, defendant netted $1,200,000 and $3,445,800 from the First Sale and Second Sale, respectively, or a total of $4,645,850. Thus, the use of the $6.21 per share value would actually result in a substantial windfall to defendant because plaintiff's share of value of the 610,000 shares sold would be based upon a figure that is more than $850,000 less than the actual net proceeds received by defendant ( see Stern v. Stern, 5 Misc 3d 1027 [A] * 3, 799 NYS2d 164 [Sup. Ct. NY Co. 2004] ["The court should be concerned if the date selected confers a windfall on either party"]). It would also be inequitable to use the first day of trial as a single valuation date for each package of stock sold by defendant because it would deprive plaintiff of what she would have received as her share of the Second Sale Proceeds had the parties not been separated, notwithstanding that the EVCI stock and options are marital property. Likewise, use of the trading price as of the first day of trial as a single valuation date would be unjust to defendant, because it would render him liable to pay plaintiff a portion of the total value of the first 300,000 shares of stock sold by him based upon a trading price that was more than 50% hisgher than the price at which he sold those shares.
Valuing each bundle of shares sold on its respective sale date is the most equitable means of distributing the value of the EVCI stock to each party, since it provides each of them with an award based the actual sum received in exchange for each block of stock ( see Stern v. Stern, supra, 5 Misc 3d 1027 [A] *3 ["In the final analysis, the court's determination of a valuation date should be based upon producing a just result in a particular case"]). And, notwithstanding that all of the shares sold by defendant were issued by the same entity, since the sales were made in distinct transactions of large blocks of stock at separate times, they are appropriately viewed as separate assets for the purpose of setting a valuation date. Thus, the use of separate dates for each sale is also consistent with the Court's authority to establish separate valuation dates for separate assets ( Wegman v. Wegman, supra, 123 AD2d, at 236-237). Consequently, the Court concludes that the valuation date for each of the two bundles of shares sold by defendant post-commencement should be the date of each sale ( see Zelnik v. Zeknik, supra, 169 AD2d, at 335 [Affirming use of sale price of stock in entity that formerly employed husband for purpose of equitable distribution]; cf. Smerling v. Smerling, supra, 177 AD2d, at 430 [Trial court did not abuse its discretion in valuing a movie chain as of the date of sale, notwithstanding that the asset was active in nature, "due to the speculative nature of the value ascribed to the movie chain [when the action was commenced]"]).
A similar analysis compels a different valuation date for the 28,961 shares that defendant still possesses (the remaining shares), as well as the 349,963 stock options (together hereinafter "the remaining shares and options"). In their aggregate, and valued as of the first trial day, those 378,924 shares and options would have a value of $2,353,118. However, as judicially noticed, the trading price of EVCI stock has recently declined to as low as 66 cents per share. At that price, defendant's remaining 28,961 shares are worth merely $19,114.26. More striking is the impact upon the stock options resulting from the dramatic drop in the trading price of EVCI's stock. Specifically, since the options have a "strike price" of one dollar per share, reducing the 66 cent trading price by the strike price renders the options essentially worthless.
Although the Court is required to set a valuation date which is "between the commencement of the action and the date of the trial" (DRL § 236[B][4][b]; D'Angelo v. D'Angelo, 14 AD3d 476, 476 [2nd Dept. 2005]), contrary to plaintiff's view that the latest date that may be set is the first day of trial, there is no bar to using a later date as long as it is not beyond the final date of trial ( see Bartek v. Draper, 309 AD2d 825, 826 [2nd Dept. 2003] ["However, in light of the inordinate length of time that passed between the testimony of the appraiser on March 4, 1999, as to the value of the Brooklyn cooperative apartment, the plaintiff's objection to the use of that valuation by the Supreme Court prior to the close of the trial testimony in this matter on June 26, 2000, and the ultimate issuance of the order dated February 4, 2002, directing the distribution of, inter alia, the Brooklyn cooperative apartment, we find that the apartment should have been reappraised as of June 26, 2000, the last date of testimony"] [emphasis added]). Thus, to avoid a windfall to plaintiff, the Court may use a value other than the $6.21 share price on the first day of trial.
Plaintiff took that position in opposing defendant's motion seeking to reopen his case. Specifically, she argued that "the law on this issue is clear that a valuation date cannot be utilized after the first date of trial" (Farrauto Affirm., 7/26/06, par.12 [emphasis added]). Notably, she cited no support for that assertion. Moreover, she is wrong, as evidenced by the decision in Bartek v. Draper ( supra).
Here, valuing the remaining shares and options as of the final date of trial enables the Court to use the $1.53 trading price that has been judicially noticed. The use of that value is equitable because it requires the parties to share the impact of the drastic downturn in the value of EVCI's stock, just as they shared the benefit of the Two Sales. This is particularly appropriate since it has not been established that the decline in stock value was due to actions by defendant ( see Sagarin v. Sagarin, 251 AD2d 396, 396 [2nd Dept. 1998] [Trial Court did not improvidently exercise its discretion in selecting date of trial as valuation date of business where "adverse economic forces outside of the husband's control caused the decline in the value of the corporation" and "there was no evidence of dissipation or wasteful conduct on the part of the husband"]). Therefore, the Court establishes the final date of trial as the valuation date for the remaining shares and options ( see Poster v. Poster, supra, 4 AD3d, at 146).
Finally, with respect to the Dain Rauscher stock, defendant proved that those securities were maintained in a nondiscretionary account, and that while he received information and recommendations from his broker, he exercised complete control of the trading of securities into and out of that account. Upon that showing, the Court agrees with defendant that the commencement date is the proper valuation date for the Dain Rauchser stock ( Ferraioli v. Ferraioli, 295 AD2d 268, 270 [1st Dept. 2002] ["The trial court erred in valuing the Schwab securities account as of the trial date" where "defendant made all transaction decisions reflecting his own investment strategies, rendering this asset active'"]; Trivedi v. Trivedi, supra; Soule v. Soule, supra; cf. Naimollah v. De Ugarte, 18 AD3d 268, 269 [1st Dept. 2005] ["Even though the PaineWebber account was managed by plaintiff's broker, not by plaintiff, the capital losses therein must still be considered as active rather than passive"]).
IV. MAINTENANCE
Having determined the two preliminary issues discussed above, the Court turns to plaintiff's application for maintenance. As to this request, the parties offer wholly contradictory positions. In plaintiff's view, she is entitled to "[p]ermanent maintenance in the amount of $10,000.00 per month, to be reduced over time", although she does not inform the Court of the manner in which that reduction is to take place (Pl. Prop. Disp., p. 2 [emphasis omitted]). Defendant responds with his contention that there should be no maintenance award of any kind in this case.
Citations to "Pl. Prop. Disp., p." and "Def. Prop. Disp., p." refer to the parties' respective Statements of Proposed Disposition.
Obviously recognizing that his position may not be entirely persuasive, defendant offers the alternative stance that: "To the extent that the Court does consider the awarding of some temporary maintenance, . . . the amount should be set at the same level which this Court has already established, $2,500 per month, and those payments will conclude with the expiration of [his] current employment contract with EVCI, which marks his intended date of retirement" (Def. Mem., p. 15).
As both parties recognize, maintenance awards are controlled by DRL § 236(B)(6)(a), which states, in relevant part:
"Except where the parties have entered into an agreement . . . providing for maintenance, in any matrimonial action the court may order . . . maintenance in such amount as justice requires, having regard for the standard of living of the parties established during the marriage, whether the party in whose favor maintenance is granted lacks sufficient property and income to provide for his or her reasonable needs and whether the other party has sufficient property or income to provide for the reasonable needs of the other and the circumstances of the case and of the respective parties."
Under that provision, any court rendering a decision as to a maintenance application must consider ten designated factors (DRL § 236[B][6][a][1]-[10]), together with "any other factor which the court shall expressly find to be just and proper" (DRL § 236[B][6][a][11]). Accordingly, this Court turns to its review of those factors, to the extent that each is relevant to this lawsuit.
A. INCOME AND ASSETS
The first factor to be considered is "the income and property of the respective parties including marital property distributed" to each of them (DRL § 236[B][6][a][1]). As is undisputed, these parties experienced a significant change in their financial situations from the inception of their marriage to the time of trial.
Specifically, in the year before their marriage, their financial situation was very poor. That situation continued through the date of their marriage, when their incomes and assets were quite limited, and into the first few years of their marriage.
Then, after the creation and development of EVCI and the settlement of the Stanton Litigation and the PG Action, their financial condition significantly improved. The receipt of the Big Apple Settlement Funds resulted in the purchase of a home for the family, two cooperative apartments and a large boat. While plaintiff remained at home caring for the children, defendant worked at the business of EVCI, increasing his annual salary over several years to the $630,000 base level he was earning when this action was tried.
As a consequence of the upturn in their financial situation, there are several millions of dollars of assets that are to be distributed between the parties. For her part, as discussed below, plaintiff shall receive a distributive award of almost 3.2 million dollars, of which approximately 77% are liquid assets. Those liquid assets alone, even conservatively invested, shall provide her with a significant income for her support. Coupled with any income she earns through employment, as discussed below, that potential investment income undermines any claimed need for non-durational maintenance, or an award as sizable as that sought by her ( see Suydam v. Suydam, 203 AD2d 806, 811 [3rd Dept. 1994], lv. dismissed 84 NY2d 923 [Court did not award maintenance to defendant, "recognizing that the substantial liquid assets received in the equitable distribution will, if conservatively invested, provide a secure income to supplement her earnings"]).
At a modest investment rate of only 5% annually, plaintiff could earn interest of $140,000 per year.
B. MARRIAGE DURATION AND AGE AND HEALTH OF PARTIES
The second factor to be considered is "the duration of the marriage and the age and health of both parties" (DRL § 236[B][6][a][2]). As noted, plaintiff and defendant are ages 47 and 63, respectively. Although plaintiff has certain health concerns, she did not argue at trial that her health would impact her ability to support herself. While defendant did not offer any evidence as to the condition of his health, he argues that he shall be retiring when his current contract with EVCI terminates on December 31, 2007. Thus, while defendant's age may have some relevance to the maintenance issue, neither party's health is a factor.
Because they were married for just short of 10 years, the Court may properly consider that these parties had a long-term marriage ( see Zuch v. Zuch, 117 AD2d 397, 403 [1st Dept. 1986], lv. denied 68 NY2d 611 ["Although the parties had been married for nine years and, previous to that, had lived together for another three years, Trial Term incredibly found this to be a marriage of brief duration'"]; see also Granade-Bastuck v. Bastuck, 249 AD2d 444, 445 [2nd Dept. 1998] [Discussing appropriate equitable distribution in a long-term marriage where the parties were married eleven years]; cf. Shortis v. Shortis, 274 AD2d 880, 881 [3rd Dept. 2000] [For the purposes of cruelty grounds for divorce, an eleven-year marriage was "long-term"]). Thus, the length of this marriage supports a maintenance award ( cf. Hale v. Hale, 16 AD3d 231, 234 [1st Dept. 2005] [Durational maintenance awarded where parties "were married only six years, [but] they did live together for an additional eight years"]).
Moreover, the duration of a marriage "is not a factor which should be considered in isolation; more important than the temporal duration of a marriage is the extent to which that marriage caused either party to sacrifice his or her own economic independence in favor of marital interdependence" ( McCarthy v. McCarthy, 156 AD2d 346, 347 [2nd Dept. 1989]). In this case, as discussed below, plaintiff accepted the role as homemaker throughout their marriage, and thereby limited her financial independence to further the joint family and economic goals of the parties. Consequently, even if their ten-year marriage was not deemed to be long-term, a maintenance award would still be appropriate ( see Hale v. Hale, supra).
C. LOST OPPORTUNITIES AND EARNING CAPACITY
The next three statutory factors are: (1) "the present and future earning capacity of both parties" (DRL § 236[B][6][a][3]); (2) "the ability of the party seeking maintenance to become self-supporting and, if applicable, the period of time and training necessary therefor" (DRL § 236[B][6][a][4]), and (3) "reduced or lost lifetime earning capacity of the party seeking maintenance as a result of having foregone or delayed education, training, employment, or career opportunities during the marriage" (DRL § 236[B][6][a][5]). Because the facts relevant to these factors are, for the most part, the same, the Court considers all three factors together.
Turning first to plaintiff, it is undisputed that her education and work experience are quite limited. Specifically, she "[h]as a GED (diploma) and completed a semester at Iona College in 1990, earning twelve (12) credits" prior to the parties' marriage (Stip., par.12). Between 1978 and 1980, she worked for Carter Lighting, mostly on a part-time basis, where she answered telephones, made photocopies and sold light bulbs, and earned a maximum of $3,962 in a single year. Then, until 1983, she raised her daughter Christina, supporting herself using her savings and public assistance received from the City of New York.
Citations to "Stip., par." refer to the parties' post-trial Stipulated Facts dated March 31, 2006.
In 1983, plaintiff began working for ADC as an office assistant. She remained there until 1985, when she left because she was pregnant with the parties' daughter, Tiffany. Plaintiff's income for 1983, 1984 and 1985 was $3,439.00, $14,193.00 and $16,864.00, respectively.
Her next employment began in 1985, when she worked mostly from her home on a flexible schedule for BAIB, "researching for health club equipment that was going to be put on the property at some point" (Tr.156). In that position, in 1986 she earned $22,000.00, which was her maximum employment income in her lifetime.
Following the birth of their other daughter, and throughout the early years of their marriage, plaintiff worked only sporadically, and earned only a few thousand dollars, doing mostly office work. In addition, for several months in 1997 she worked as a school aide at a Yonkers public school, so that the parties would have medical insurance coverage.
Since 1997, plaintiff has not worked outside the Home. Instead, pursuant to the parties' agreement, she cared for the children and maintained the Home, without the assistance of a nanny or housekeeper.
In stark contrast, "[p]rior to [the] marriage . . ., [defendant] had earned a BA and MBA from Arizona State University" (Stip., par.10). Following their marriage in 1993, defendant also received an Ed.D degree from Fordham University. From 1993 to 1995 defendant was employed as a part-time professor at Mercy College and a part-time adjunct professor at Fordham University, earning $18,020 and $20,746 in 1993 and 1994, respectively.
The parties agree that "[n]o enhancement of earnings is attributable . . . to [defendant's] Ed.D degree" (Stip., par.11).
In 1995 defendant co-founded an entity named EdTel, and served as its Chairman and CEO. It was at that time that defendant experienced an increase in his income, which rose from $52,540 to almost $110,000 in 1996. However, he resigned from EdTel in October 1996.
Then, in 1997, defendant and McGrath founded EVCI. Between 1997 and December 31, 2002, defendant was Chairman and CEO of EVCI. During that period, he earned the following approximate sums (year in parenthesis): $136,140 (1997); $316,451 (1998); $553,333 (1999); $824,650 (2000); $336,000 (2001); and $349,938 (2002).
From 2003 to the time of trial, defendant was Chairman of EVCI and the Chancellor of Interboro, and earned $433,702 in 2003 and $630,000 in 2004. Under his current contract, executed on August 12, 2005 (the 2005 EVCI Contract), his salary as of January 1, 2004 is $630,000 per year, with the possibility of significant bonuses.
As is evident, at least through the end of his current contract, defendant shall continue to earn a substantial income. Thus, he is certainly able to pay a reasonable sum of maintenance to plaintiff, while providing himself with a very comfortable style of living.
Although neither party presented any evidence as to plaintiff's employment prospects, it is apparent that with her minimal education and employment experience, her ability to make a significant living is limited. Nevertheless, she does have skills which are marketable in the area of secretarial and office administrative work, and given her age, she will be employable.
Notwithstanding that defendant's proffer of the consumer price index to project that plaintiff's past highest income of $22,000 is the equivalent of a $42,000 current income is not controlling on the issue of her future income, the Court concludes that based upon her work and earnings history, and even with her limited formal education, plaintiff has the ability to earn at least $40,000 annually in present-day dollars ( see Matter of Zwick v. Kulhan, 226 AD2d 734, 734 [2nd Dept. 1996] ["An imputed income amount is based, in part, upon a parent's past earnings, actual earning capacity, and educational background"]). Clearly, an award of an appropriate amount of maintenance for a brief period, taken together with earnings from employment and the income that will be generated by her distributive award, will not merely enable plaintiff to be self-sustaining, but will provide her with the financial resources necessary to enjoy a lifestyle similar to that which she enjoyed while the parties resided together ( see Block v. Block, 258 AD2d 324, 326 [1st Dept. 1999] [Finding that "[t]he Special Referee properly weighed plaintiff's ability to re-enter the workforce, the income defendant is capable of earning and the parties' standard of living prior to the divorce in awarding maintenance"]).
D. PRESENCE OF CHILDREN
The Court must also consider "the presence of children of the marriage in the respective homes of the parties" (DRL § 236[B][6][a][6]). As noted, pursuant to the parties' 2004 agreement, both of their daughters reside with plaintiff.
Of course, now that both children are over 18 years old, custody is no longer a concern in this action ( Toppel v. Toppel, 67 AD2d 628, 628 [1st Dept. 1979] ["A parent may not be awarded the custody of a child over eighteen years of age"]).
Here, Tiffany and Rian will turn 21 and 20 years old in November and December of this year, respectively. Thus, neither of them shall require the supervision of a parent or any type of child care if plaintiff elects to return to work. While they are both attending college, as more fully discussed below, each of them has received approximately $440,000 from trust funds established for them by their paternal grandfather. In addition, Tiffany has been employed in the past by plaintiff's counsel, while also pursuing a singing career, and Rian has been employed by Interboro since May 2005. Consequently, because the children's limited incomes, coupled with their trust fund assets and the child support that defendant shall be required to pay, will adequately meet their needs, this statutory factor is not one that weighs heavily in plaintiff's favor in the determination of the maintenance issue ( cf. Lawson v. Lawson, 288 AD2d 795, 799-800 [3rd Dept. 2001] [Maintenance award of $1,000 monthly for five years affirmed where defendant was required to pay child support in the amount of $810 biweekly for the unemancipated child until her 21st birthday and it was "not unreasonable to expect plaintiff to utilize her [MBA] to become self-supporting within the five-year period"]).
E. CONTRIBUTIONS AND SERVICES
The next of the relevant statutory factors to be considered is any "contributions and services of the party seeking maintenance as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party" (DRL § 236[B][6][a][8]). As to this factor, defendant concedes that "[p]laintiff's primary job was looking after the home and the two girls", that she "had day-to-day responsibility for care of the home", and that she "took the two daughters to extra-curricular activities and other events" (Def. Prop. Facts., p. 8). Moreover, while during several years of their marriage the parties obviously possessed the resources necessary to retain the services of a housekeeper or nanny, they did not do so, and plaintiff provided all of the care-giving to their children and maintained the Home by herself.
Notwithstanding that these services enabled defendant to focus his attention and efforts on obtaining his Doctorate Degree in Education and establishing his businesses, the most successful of which was EVCI, there is no credible proof that plaintiff directly aided him to any significant degree in the development or operation of any of those businesses. In this regard, the Court rejects as lacking in credibility plaintiff's claims that she helped defendant grade papers for his Mercy College students, and hosted breakfast and dinner meetings and participated in hiring employees for EVCI.
As discussed more fully with respect to "other factors" that may be considered by the Court, the credibility of both parties is subject to question in this action. For that reason, the Court has closely scrutinized their various claims, and has not accepted certain of their factual assertions that were not supported by other credible testimony or documentary proof. Thus, for example, the Court does not credit plaintiff's contention that she, together with the parties' then nine-year-old daughter, Tiffany, graded college papers or examinations.
Despite the lack of any substantial direct contributions to the founding and operation of defendant's businesses, it cannot be denied that plaintiff's efforts in the Home constitute a significant contribution to defendant's career and financial success. Consequently, plaintiff, who, as defendant concedes, "largely remained a stay-at-home mother and focused her time on the care of the parties' daughters" (Def. Mem., p. 13), is entitled to consideration of that contribution in determining an appropriate maintenance award ( see Reck v. Reck, 149 AD2d 934, 935 [4th Dept. 1989] [Crediting wife's contributions as homemaker in determining appropriate maintenance award]).
F. OTHER FACTORS
DRL § 236(B)(6)(a)(11) provides the Court with authority to consider "any other factor which the court shall expressly find to be just and proper". Defendant cites this catch-all provision in arguing that "[t]he near rampant perjury within plaintiff's two net worth statements strongly mitigate against any [maintenance] award" (Def. Mem., p. 13). In support of this position he offers several examples in the net worth statements filed by plaintiff at the commencement of the action and at the time of trial where she either reported expenses that she was not required to make or was not making, failed to report income that she received, or grossly inflated her ordinary living expenses and those of the parties' daughters. This claim by defendant brings to the fore the issue of credibility in this case.
As clearly demonstrated throughout the lengthy trial of this action, both of these parties have not hesitated to make factual claims, or engage in conduct, some of which was related to their litigation and some which was not, for the specific purpose of advancing either their financial goals or those of certain family members. Thus, for example, both parties have submitted net worth statements that inflate their own expenses and attempt to understate those of the other party. In addition, as discussed above, defendant misrepresented the nature of income to obtain a tax advantage for his father's corporation. Further, he failed to report certain of his income and assets in the Two Family Court Affidavits.
Not to be overlooked, however, is that plaintiff falsely reported to the Department of Motor Vehicles that she had transferred a car to her father as a gift, when in fact she received approximately $4,600 from him. Similarly, her role in the alleged purchase of a cooperative apartment for her father raises a question of whether she was assisting him in hiding assets that might have adversely impacted his ability to obtain Medicaid benefits.
By their conduct, and in certain of their responses under oath at trial, the credibility of both parties has been undermined. Their lack of complete candor has, without question, extended to the representations made in their respective net worth statements. Consequently, while the Court agrees with defendant that plaintiff's most recent net worth statement is certainly inflated, so too is his. Consequently, consideration of the parties' net worth statements is, in simple terms, "a wash". Therefore, the Court rejects defendant's argument that this factor requires that the maintenance issue be determined completely in his favor.
G. MAINTENANCE AWARD
Upon consideration of each of the statutory factors discussed above, the Court agrees with plaintiff that she is entitled to a maintenance award ( see Gaglio v. Molnar-Gaglio, 300 AD2d 934, 939 [3rd Dept. 2002] [Maintenance award proper considering all relevant factors, including length of marriage, disparity in income and pre-divorce standard of living]). In determining the duration of that award, the Court has considered that the parties have a long-term marriage, that plaintiff has significantly contributed to the parties' economic relationship by caring for the children and maintaining the Home, that she has a limited formal education, and that by their agreement, she did not have employment outside of the Home while they were married ( see Callen v. Callen, 287 AD2d 818, 820 [3rd Dept. 2001] ["In determining the amount and duration of maintenance, the court appropriately considered, inter alia, the duration of the marriage, the age and health of both parties, the disparity in earning capacity between the parties, the reduced lifetime earning capacity of plaintiff and plaintiff's contribution as spouse, wage earner and homemaker"]). The Court has also considered that plaintiff is only 47 years old, has some skills that lend themselves to a position in an office, should be capable of earning at least $40,000 annually once she obtains new employment, and shall be receiving a significant equitable distribution award ( see Pejo v. Pejo, 213 AD2d 918, 918-919 [3rd Dept. 1995], lv. denied 85 NY2d 811 [Durational maintenance award appropriate, notwithstanding that wife was "out of the workforce for approximately 20 years", considering, inter alia, distribution to her more than one million dollars in cash and property]). In addition, the Court has taken into account the parties' lifestyle, which was that of an upper-middle-class family, as exemplified by their ownership of their own home, two cooperative apartments, and a pleasure craft, as well as the types of vacations taken by them, their use of marital funds to provide for the college education of their children and their investment of funds to further the singing career of one of their daughters ( see Hartog v. Hartog, 85 NY2d 36, 50-51 ["Consideration of the predivorce standard of living is an essential component of evaluating and properly determining the duration and amount of the maintenance award to be accorded a spouse"]).
No evidence was offered by either party as to the other statutory factors, i.e., "the tax consequences to each party"; "the wasteful dissipation of marital property by either spouse"; and "any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration" (DRL § 236[B][6][a][7], [9], [10]).
Under these circumstances, the Court is not persuaded by defendant's argument that no maintenance award is warranted, which he founds primarily on the ground that plaintiff shall be receiving a distributive award exceeding $2,000,000 ( see Kohl v. Kohl, 24 AD3d 219, 221 [1st Dept. 2005] ["We reject the husband's argument that because the wife will receive enough from the distribution to be self-supporting, she should not be awarded any maintenance at all"]). Similarly, the Court rejects plaintiff's contention that she should be awarded non-durational maintenance ( see Sperling v. Sperling, 165 AD2d 338, 342 [2nd Dept. 1991] [Where lifetime maintenance has been awarded, the recipient has generally been elderly, in ill-health, lacking in special training or education, or out of the work force for many years with no significant assets to provide her with income] [collecting cases]). Instead, the Court concludes that defendant shall pay maintenance to plaintiff for a period of fifteen months, ending in December 2007, by which date plaintiff should receive a substantial portion of her distributive award and should be able to return to the work force if she chooses to do so, thereby enabling her to be self-supporting ( see De La Torre v. De La Torre, 183 AD2d 744, 745 [2nd Dept. 1992] ["Maintenance is designed to give the spouse economic independence, and should continue only as long as is required to render the recipient self-supporting"] [internal citations omitted]; see also Granade-Bastuck v. Bastuck, supra, 249 AD2d, at 446 ["[W]hile insuring that the [recipient spouse's] reasonable needs are provided for, [maintenance] should also provide [that spouse] with an appropriate incentive to become financially independent"]).
Although plaintiff cites several cases where lifetime maintenance was awarded (Pl. Mem., p. 28), these are readily distinguishable because they involved marriages of far greater duration than that of these parties, and more importantly, none of the cited cases involved a substantial distributive award to the party seeking maintenance.
Turning to the amount to be awarded, the Court recognizes that defendant has an income exceeding $600,000 annually and, having earned a similarly large income throughout the course of this litigation, is certainly able to pay maintenance to plaintiff ( see Fischer v. Fischer, 199 AD2d 1028, 1029 [4th Dept. 1993] [Affirming maintenance award upon finding that the Trial Court appropriately balanced the payee's needs and the payor's ability to pay]). At the same time, the Court cannot overlook the significant equitable distribution award that defendant shall receive, which is readily capable of producing income of at least $140,000 annually, even if invested conservatively, and the fact that her age permits her to obtain employment sufficient to provide additional meaningful income to her ( see Pejo v. Pejo, supra, 213 AD2d, at 918-919; cf. Redgrave v. Redgrave, 13 AD3d 1015, 1019 [3rd Dept. 2004] [Husband's receipt of a "substantial cash distribution" was a factor supporting the denial of his request for maintenance]).
Having weighed the competing factors, the Court determines that the appropriate level of maintenance is $2,500 per month, which shall be taxable to plaintiff ( cf. Lawson v. Lawson, supra, 288 AD2d, at 799-800 [Affirming $1,000 monthly maintenance award where payee spouse was also awarded child support]). Defendant shall make that payment commencing on October 10, 2006 and continuing on the first day of each month thereafter through December 1, 2007.
As noted above, defendant concedes that this is an appropriate amount of durational maintenance ( see n. 31, supra).
For determining the amount of maintenance arrears, the maintenance award is retroactive to May 19, 2003, that being the date of filing of the summons with notice in which plaintiff first made her maintenance demand (Burns v. Burns, 84 NY2d 369, 377 ["A final order of maintenance or child support shall be effective as of the date of the application therefor'"] [internal citation omitted]; see Harris-Logan v. Logan, 228 AD2d 557, 557 [2nd Dept. 1996] [Child support obligation is retroactive to date of filing of summons with notice demanding that relief]). Since there was no interim maintenance order in effect between May 19, 2003 and the September 15, 2003 effective date of the October 2003 Decision, the maintenance arrears for that four-month period are set in the amount of $10,000 (4 months x $2,500 per month). Those arrears shall be included in the Court's adjustment summary, as set forth below.
This date is as agreed to by counsel for the parties pursuant to a telephone conference with the Court's Principal Law Clerk conducted on September 12, 2006, as expressed in the letter of that date submitted by defendant's counsel following that conference.
V. CHILD SUPPORT
The next of the significant disputes between the parties involves the amount of child support to be paid by defendant. In sum, it is plaintiff's position "that the statutory requirement of 25% should be applied to the parents['] combined income over $80,000, with a cap of $400,000, to determine the appropriate child support award in this case" (Pl. Mem., p. 26). Relying upon the facts that both daughters have received trust distributions in the sum of approximately $440,000, and that he has paid pendente lite child support in the amount of $5,000, and later $6,000, per month, defendant urges the Court not to award any further child support.
In a matrimonial action, child support is generally determined under DRL § 240(1-b). However, because that statute applies to "any child of the marriage" ( see DRL § 240[a]), and both of the parties' daughters were born prior to the date of marriage, in this case the child support provisions of the Family Court Act govern ( see FCA § 413 [hereinafter "CSSA"]).
A comparison of the two statutes reveals that, to the extent relevant to this action, they are the same.
To establish the appropriate level of child support, the Court must perform the "precisely articulated, three-step method" required by CSSA ( Matter of Cassano v. Cassano, 85 NY2d 649, 652). That consists of:
(1) The calculation of "combined parental income"; (2) Multiplying that figure, up to $80,000, by the applicable percentage for the support of two children under the statute; and (3) If the combined parental income exceeds $80,000 (hereinafter "the statutory cap"), "determin[ing] the amount of child support for the amount of the combined parental income in excess of such dollar amount through consideration of the factors set forth in [FCA § 413[1][f]] . . . and/or the child support percentage" (FCA § 413[1][c][3]; see Matter of Cassano v. Cassano, supra, 85 NY2d, at 653).
As is apparent, in order to perform this analysis, the Court must first determine the individual incomes of the parties.
Turning first to plaintiff, it is undisputed that she has not worked outside of the Home for several years. Under these circumstances, the Court concludes that the appropriate manner in which to compute her income is by averaging her reported incomes over the course of the marriage until 2004, that being the last year for which there were reported earnings. Those are as follows:
----------------------- | Year | Income | | |-------|----------|----| | 1993 | $ | 0 | |-------|----------|----| | 1994 | $ 313 | | |-------|----------|----| | 1995 | $1,106 | | |-------|----------|----| | 1996 | $ | 0 | |-------|----------|----| | 1997 | $3,753 | | |-------|----------|----| | 1998 | $ | 0 | |-------|----------|----| | 1999 | $ | 0 | |-------|----------|----| | 2000 | $ | 0 | |-------|----------|----| | 2001 | $ | 0 | |-------|----------|----| | 2002 | $1,072 | | |-------|----------|----| | 2003 | $ | 0 | |-------|----------|----| | 2004 | $ | 0 | -----------------------
In total, plaintiff earned $6,244 between 1993 and 2004, for an average of $520 per year. Reducing that sum by the applicable 6.2% and 1.45% rates for Social Security and Medicare taxes, respectively, results in a CSSA income of $480 per year.
While the Court has determined that plaintiff shall be capable of earning at least $40,000 annually if she chooses to return to the workforce, in view of the fact that she has not been employed for ten years, the Court concludes that it would be unjust to impute that level of income to her for the purpose of setting defendant's child support obligation.
As relates to defendant, plaintiff urges the Court to limit itself to a consideration of his reported income at the time of trial, which the parties stipulated to be "$630,000 with the possibility of a bonus" (Stip., par.15). The Court rejects that approach because the evidence established that defendant's salary rose to that level following EVCI's retention of a consulting agency which conducted a review of the salaries of the corporation's executive officers, which led to a decision by EVCI's Board of Directors to dramatically increase those salaries. Since defendant's new salary was markedly greater for the single year 2004 than all but one prior year, an averaging of his salary is warranted, using his incomes from the years 1996 through 2004, when he was in the businesses commenced by him, either alone or with others ( see Bragar v. Bragar, 277 AD2d 136, 137 [1st Dept. 2000] ["The court properly determined plaintiff's annual income to be $300,000 since that was his approximate average income for the five years preceding the matrimonial action"]; cf. Renzulli v. Renzulli, 251 AD2d 482 [2nd Dept. 1998] ["[I]t was not improper for the Judicial Hearing Officer . . . to base the determination of the amount of [former husband's] child support obligation upon his actual earning capacity, calculated by averaging his reported income for the five years immediately preceding 1995", the year in which he claimed "[a] precipitous drop in [his] income"]).
An analysis of defendant's income for the period from 1996 through 2004 discloses the following:
--------------------- | Year | Income | |-------|-----------| | 1996 | $109,538 | |-------|-----------| | 1997 | $136,140 | |-------|-----------| | 1998 | $316,451 | |-------|-----------| | 1999 | $553,333 | |-------|-----------| | 2000 | $824,650 | |-------|-----------| | 2001 | $336,000 | |-------|-----------| | 2002 | $349,938 | |-------|-----------| | 2003 | $433,702 | |-------|-----------| | 2004 | $630,000 | --------------------
Defendant's aggregate income for that period is $3,689,752, for an average of $409,972 annually. Reducing that sum by the applicable Social Security and Medicare taxes in the amount of $5,840 and $5,945, respectively, and $30,000, representing his maintenance payment as directed herein, results in a CSSA income of $368,187 ( see FCA § 413[1][b][5]).
Neither party can be heard to credibly complain about the Court's use of 1996 to commence the averaging period for defendant's income. The use of the nine-year period benefits plaintiff because the twelve-year average is $315,974. From defendant's perspective, that averaging is beneficial, because if the Court used only his most recently-reported income of $630,000, that figure would be more than fifty-three percent greater than the nine-year average.
These are the taxes that would be deducted for this level of income in 2006, with the 6.2% Social Security tax applicable to a maximum of $94,200, and the 1.45% Medicare tax applicable to all earned income.
Having computed the parties' individual incomes, the Court first adds them together, resulting in a combined parental income of $368,667. Plaintiff's share of that combined income is 0.1% and defendant's share is 99.9%.
Next, because there are two children to be supported, the applicable CSSA rate is 25%. Multiplying the parties' first $80,000 in combined income by that rate results in a support obligation of $20,000 per year ( see Chalif v. Chalif, 298 AD2d 348, 349 [2nd Dept. 2002]). Plaintiff's and defendant's shares of that amount are $20 and $19,980, respectively.
The final step under CSSA is to determine the amount of child support, if any, that should be awarded based upon the $288,667 of combined parental income that exceeds the statutory cap (FCA § 413[1][c][3] (hereinafter "the Excess Income"). In rendering that determination, "the courts are not bound to apply the statutory percentage but may establish the child support obligation through application of the statutory percentage, the paragraph (f)' factors, or a combination of the two" ( Matter of Mitchell v. Mitchell, 264 AD2d 535, 539 [3rd Dept. 1999], lv. denied 94 NY2d 754; FCA § 413[1][c][3], [f]).
In this case, two of the factors to be considered under FCA § 413(1)(f) (hereinafter "the paragraph [f] factors") buttress plaintiff's position that CSSA should be applied to almost the entirety of the Excess Income in determining defendant's child support obligation. These are, first, that at present, plaintiff's CSSA income is effectively zero, while defendant's CSSA income has been determined to be more than $368,000 per year (FCA § 413[1][f][7] ["A determination that the gross income of one parent is substantially less than the other parent's gross income"]). Second, the Court finds that the parties have provided their daughters with the benefits of an upper-middle-class lifestyle, including a comfortable home and possessions, vacations, college educations, and assistance in the singing career of their daughter Tiffany, using defendant's substantial income, and that defendant has not demonstrated why the children should not enjoy a similar standard of living following their parents' divorce, at least for the short time remaining until each of them turns 21 years of age (FCA § 413[1][f][3] ["The standard of living the child would have enjoyed had the marriage or household not been dissolved"]; see Matter of Brefka v. Dobies, 271 AD2d 876, 878 [3rd Dept. 2000], lv. denied 95 NY2d 759 [CSSA percentage properly applied to total parental income considering, inter alia, "the need to avoid drastic changes in the children's standard of living"]; but cf. Matter of Gluckman v. Qua, 253 AD2d 267, 272 [3rd Dept. 1999], lv. denied 93 NY2d 814 ["The mere fact that the children would have enjoyed an enhanced standard of living had the parties remained married does not necessarily mean that the statutory formula should be blindly applied on all income over $80,000"]). Similarly, one of the paragraph (f) factors weighs against considering substantially all of the Excess Income for CSSA purposes. This is "[t]he financial resources of the custodial and non-custodial parent, and those of the child[ren]" (FCA § 413[1][f][1]). In particular, as a result of the equitable distribution award in this case, although defendant shall retain several millions of dollars of assets, plaintiff shall also receive nearly 3.2 million dollars in cash and property, so that there is not a significant disparity in their financial resources ( see Holterman v. Holterman, 3 NY3d 1, 14 ["[A] distributive award to be paid by one parent to the other pertains to the financial resources of the parties and therefore is an appropriate paragraph [f] factor that the trial court may consider when awarding child support"]). The interest income that she will be able to receive, together with her employment income and a reasonable child support award, will certainly enable her to provide the basic necessities for the two children for the very limited period of their minorities.
Moreover, each of the daughters received a distribution of $440,000 from trust accounts established for them by their paternal grandfather. The availability of those monies to enable them to meet their discretionary expenses, while defendant pays child support to address their basic needs, is certainly an appropriate consideration under FCA § 413(1)(f)(1) ( see Matter of Avitzur v. Rose, 174 AD2d 843, 845 [3rd Dept. 1991], appeals dismissed 78 NY2d 1007 [FCA § 413 "mandates that a child's resources be considered as a relevant factor in determining child support"]), although it does not relieve defendant of the obligation to provide for their daughters' basic needs ( see Guiry v. Guiry, 159 AD2d 556, 556-557 [2nd Dept. 1990] ["While the child's resources are a factor to be considered in determining an application for child support, children should not be forced unwittingly to use their funds or diminish their assets to supply their basic needs, such as shelter, food and clothing"]; see also Lenigan v. Lenigan, 159 AD2d 108, 112 [3rd Dept. 1990] ["Shelter costs, like food and clothing, inhere in the basic child support obligation"]).
Even conservatively invested, those funds will likely generate more than $20,000 per year in interest income for each of their daughters.
The final consideration is defendant's payment of 100% of he college expenses of both children under the College Expense Order (see FCA § 413[1][f][10] [Court may consider "[a]ny other factors [it] determines are relevant in each case"]). Those payments have enabled the children to attend college without having to use any of their trust funds to meet their college expenses, and without any obligation to do so on plaintiff's part. In addition, notwithstanding that defendant has also been required to pay substantial monthly child support, he is not entitled to any credit against his child support obligation for any portion of the college expense payments, because they involved only tuition, fees and books ( see Lee v. Lee, 18 AD3d 508, 512 [2nd Dept. 2005] ["Further, in respect to any credit against child support that might be granted in connection with the defendant's payment of college expenses,' any such credit should be calculated based solely on those expenses that are associated with the cost of room and board, or on other similar expenses of the kind that child support' is normally intended to defray", and "[s]uch a credit should not be calculated based on the cost of college tuition"] [internal citations omitted]).
Weighing these competing factors, the Court rejects plaintiff's effort to have CSSA applied to the parties' joint income up to the amount of $400,000, but does agree that application of the statutory rate to an additional $208,000 of joint income is warranted ( see Jordan v. Jordan, 8 AD3d 444, 445-446 [2nd Dept. 2004] [Affirming Trial Court's ruling applying CSSA rate to $280,000 of parties combined parental income of $415,621]; see also Kosovsky v. Zahl, 272 AD2d 59, 59 [1st Dept. 2000] ["Application of the statutory 17% figure for one child to a marital income of $300,000 was a proper exercise of discretion in determining basic child support, in view of, among other things, a total family income of $550,000 and the lavish standard of living that the child would have enjoyed had the marriage not ended"]). Applying the statutory 25% rate to the additional $208,000 in combined parental income results in an additional child support obligation in the amount of $52,000. Plaintiff's and defendant's shares of that amount are $52 and $51,948 per year, respectively.
Combining plaintiff's shares of the child support obligation as computed above results in a total annual child support obligation for plaintiff in the amount of $72. Upon performing the same calculation for defendant, his total child support obligation for the parties' daughters is $71,928 annually, or $5,994 monthly. Accordingly, defendant shall pay child support for the parties' two children in the amount of $5,994 per month, payable in equal amounts of $2,997, commencing with payments on October 10 and 20, 2006, and continuing on the first and fifteenth day of each month thereafter.
Upon the emancipation of the parties' daughter Tiffany, or at the latest on November 27, 2006, when she reaches the age of 21, defendant shall only be required to provide support for their daughter Rian. At that time, the parties' total child support obligation shall be reduced to 17% of their total joint income of $288,000, or $48,960 ( see Lee v. Lee, supra, 18 AD3d, at 511 [Trial Court must "provide for a method for reducing the [non-custodial parent's] overall child support obligation as each child reaches the age of 21 or is otherwise emancipated"]). Of that total support amount, plaintiff's and defendant's shares shall be $49 and $48,911, respectively. Accordingly, commencing upon the emancipation of their daughter Tiffany or on November 27, 2006, whichever occurs first, defendant's child support obligation shall be reduced to $4,076 per month. Defendant shall pay child support to defendant in the amount of $2,038 beginning on the first and fifteenth days of the month thereafter, and continuing on the first and fifteenth days of each subsequent month until their daughter Rian is 21 years old or is otherwise emancipated,
For the purposes of determining the amount of retroactive child support arrears owed by defendant, the effective date of the child support order is May 19, 2003, the date that plaintiff commenced this action by filing her summons with notice containing a demand for child support ( Sherman v. Sherman, 304 AD2d 744, 745 [2nd Dept. 2003]; Harris-Logan v. Logan, supra, 228 AD2d, at 557). Here, a three-part analysis is required.
First, the Court notes that there was no child support order in effect from May 19, 2003 until September 15, 2003, the latter being the effective date of the October 2003 Decision. Consequently, for that four-month period the arrears are set in the amount of $23,976 (4 months x $5,994 per month).
Next, defendant paid $5,000 per month in child support pursuant to the October 2003 Decision from September 15, 2003 to May 27, 2004, the latter being the effective date of Justice Garvey's bench order increasing the child support to $6,000 per month. Because, for those eight months, he paid $994 per month less than the amount awarded by this Court, his retroactive obligation for that period is $7,952 (8 months x $994 per month).
Finally, because defendant has paid child support at the rate of $6,000 monthly since May 27, 2004, he has actually paid $6 more per month than this Court's award during that time-frame. For that reason, he owes no arrears for the period from May 27, 2004 to September 30, 2006, but instead, is entitled to a credit against the arrears in the amount of $168 (28 months x $6 per month) ( see Matter of Maksimyadis v. Maksimyadis, 275 AD2d 459, 461 [2nd Dept. 2000] ["Although Domestic Relations Law § 236B[7][a] authorizes a credit against a retroactive support obligation for overpayments made after the commencement of the proceeding, overpayments may not be recovered by reducing future support payments"] [internal citation omitted]; but cf. Foxx v. Foxx, 114 AD2d 605, 607 [3rd Dept. 1985] [There is no requirement under the DRL that the Court grant credits for past overpayments of temporary child support]).
Adding the two retroactive sums together and subtracting the credit results in total child support arrears in the amount of $31,760. Those arrears shall be included in the Court's adjustment summary, as set forth below.
Because defendant's obligations to pay durational maintenance and child support will both terminate in December 2007, there is no necessity for this Court to compute an appropriate child support adjustment ( see Bronstein v. Bronstein, 203 AD2d 703, 704 [3rd Dept. 1994] ["Furthermore, where, as here, one party is ordered to pay both durational maintenance and child support, that party's income should be reduced by the amount of maintenance paid for the purpose of calculating the child support obligation, and provision should be made to adjust the child support payments as the amount of maintenance changes"]).
VI. COLLEGE EXPENSES
As noted, on plaintiff's motion, Justice Garvey issued the College Expense Order, requiring defendant to pay 100% of his daughters' college tuition, fees and book expenses pendente lite. As part of her proposed disposition of this action, plaintiff asks the Court to continue defendant's obligations under the College Expense Order. Defendant opposes having any obligation for these expenses, in view of his payment of those expenses during this litigation and the availability of each child's substantial trust funds. Recognizing that he may be required to meet these expenses, he asks that any such obligation be "condition[ed] . . . upon each daughters [sic] full-time attendance at an undergraduate college and that payment of such costs conclude when each child graduates, or turns 21 years old, whichever occurs first" (Def. Prop. Disp., p. 16).
Although these expenses do not constitute mandatory "add-ons" under CSSA, the Court may order defendant to contribute to his daughters' college expenses if it "determines that such an award is appropriate" ( Matter of Calvello v. Calvello, 20 AD3d 525, 526-527 [2nd Dept. 2005]; see FCA § 413[1][c][7]; DRL § 240[1-b][c][7]). Nevertheless, "a court does not have unfettered discretion in making such an award" ( Matter of French v. French, 13 AD3d 624, 625 [2nd Dept. 2004]). Rather, consistent with CSSA, the Court "must consider the circumstances of the case, the circumstances of the respective parties, the best interests of the children, and the requirements of justice" ( Manno v. Manno, 196 AD2d 488, 491 [2nd Dept. 1993]; Matter of French v. French, supra).
FCA § 413(1)(c)(7) provides that:
"Where the court determines, having regard for the circumstances of the case and of the respective parties and in the best interests of the child, and as justice requires, that the present or future provision of post-secondary, private, special, or enriched education for the child is appropriate, the court may award educational expenses. The non-custodial parent shall pay educational expenses, as awarded, in a manner determined by the court, including direct payment to the educational provider." (Emphasis added).
The language of the parallel Domestic Relations Law provision is the same ( see DRL § 240[1-b][c][7]).
Here, while plaintiff has a limited education, defendant has advanced degrees in business and education. In addition, both of their daughters have been attending college, and it appears that both intend to complete their educations and obtain degrees. Further, at least until December 2007, when the 2005 EVCI Contract terminates, defendant's income shall be at least $630,000 annually. Thus, the parties' backgrounds, the children's educational histories and defendant's financial situation provide some support for the relief sought by plaintiff ( see Amodemo v. Amodemo, 205 AD2d 484, 485 [2nd Dept. 1994] [Father ordered to contribute to child's college expenses because he was an educator with a graduate degree, mother was a registered nurse, and when the application was made the child was doing well academically]; see also Brough v. Brough, 285 AD2d 913, 917 [3rd Dept. 2001] ["[P]ayor's financial ability to pay" for college is relevant factor]).
Balanced against those considerations is the availability of substantial financial resources to the children, in the form of the trust fund proceeds paid to the daughters by their paternal grandfather. Since each of them has received more than $440,000, both have the resources available to pay for the completion of their college educations ( cf. Mitnick v. Rosenthal, 14 AD3d 440, 440 [1st Dept. 2005] ["The IAS court properly exercised its discretion in directing that the child's custodial accounts, which were originally funded by a close friend of the father with the mother as custodian, be used by the mother to pay the son's college expenses and exhausted before the parties pay such expenses themselves"]).
Irrespective of whether she is obligated to contribute to the costs of their college educations, it cannot be overlooked that since plaintiff shall be receiving a distributive award in excess of three million dollars, she will be in a position to assist the children in meeting their college expenses if she chooses to do so.
The latter consideration is of particular significance in this case because of the ages of the two children. Specifically, the parties' older daughter will turn 21 years old in approximately two months from the date of entry of this decision. As a matter of law defendant cannot be ordered to provide for her college education beyond that time, since there is no agreement to do so between these parties ( Maroney v. Maroney, 173 AD2d 685, 685 [2nd Dept. 1991] ["In the absence of a voluntary agreement, a parent may not be directed to pay support or to contribute to the college education of a child who has attained the age of 21 years"] ; Matter of Calvello v. Calvello, supra, 20 AD3d, at 527 [same]). Her younger sister will reach the same age only thirteen months later. Thus, the period of time that these children would be required to fund their own college educations is quite limited in this action. And since, as recognized by Justice Garvey, the children's tuition "is not exorbitant" and they have "no additional room and board charges", they can fund the balance of their college educations without making any significant withdrawals from their trust funds.
This is not a case where the trust funds have been earmarked for some special use by each daughter, such that it would be inappropriate for them to be directed to use those monies to pay for their own college educations. Indeed, as plaintiff conceded at trial, each child gave their step-sister $10,000 as a wedding gift shortly after receiving the distributions of those trust funds.
Further, defendant has contributed to his daughters' college educations throughout the course of this litigation. And finally, during the majority of the pendente lite period defendant has paid $6,000 monthly toward the support of the two children, and he shall be making a similarly substantial support payment prospectively pursuant to this decision ( cf. Du Jack v. Du Jack, 221 AD2d 712, 716 [3rd Dept. 1995], lv. denied 88 NY2d 802 [Finding that it was "inappropriate" for Trial Court to order husband to pay an additional award for private school tuition in view of the fact that he was paying $4,843 per month in child support]).
Thus viewed, the factors that must be considered by the Court do not warrant obligating defendant to contribute to the college expenses of the parties' daughters. Therefore, the obligation imposed upon him by the College Expense Order is terminated, effective as of the date of entry of this decision.
VII. MEDICAL EXPENSES
FCA § 413(1)(c)(5) provides that:
"The court shall prorate each parent's share of future reasonable health care expenses of the child not covered by insurance in the same proportion as each parent's income is to the combined parental income. The non-custodial parent's pro rata share of such health care expenses shall be paid in a manner determined by the court, including direct payment to the health care provider."
Relying upon the relevant provision of the 2005 EVCI Contract, it is plaintiff's position that defendant should be required to provide health insurance coverage for the children and to pay all of their unreimbursed medical expenses.
Defendant does not offer any opposition to providing medical insurance coverage for his children. Therefore, defendant shall continue to provide health insurance coverage for each of the parties' daughters for as long as he is obligated to pay child support in behalf of that daughter ( see Albany Medical Center Hospital v. Johnston, 102 AD2d 915, 916 [3rd Dept. 1984] [FCA § 413 "places an affirmative obligation upon parents of a child under the age of 21 to support such a child by paying for expenses relating to care, maintenance and education'", which "includes payment of reasonable expenses of medical care required by the child"]).
Under the 2005 EVCI Contract defendant "may participate . . . in any . . . health insurance, hospitalization, dental, drug prescription . . . and other benefit plans . . . EVCI provides with respect to its executive personnel" (Pl. Exh.37, p. 3).
As relates to unreimbursed expenses, ordinarily the Court would be required to apportion responsibility for those expenses based upon the parties' respective CSSA incomes ( Matter of D'Avanzo v. Papa, 18 AD3d 658, 659 [2nd Dept. 2005] ["A parent's share of [medical] expenses is computed by prorating the parent's income to the combined parental income"]). In this case, however, one of defendant's employment benefits under the 2005 EVCI Contract is that his "dependent children shall be entitled to 100 percent reimbursement by EVCI of the portion of their medical and dental expenses not covered by insurance provided by EVCI" (Pl. Exh.37, p. 3). Since this benefit is received by defendant without cost, and further, because defendant's pro rata share of the parties' combined income is all but 100%, no reason exists to apportion responsibility between the parties for these expenses while he continues to be employed by EVCI, as he will be through their younger daughter's 21st birthday ( cf. Rzepecki v. Rzepecki, 6 AD3d 1134, 1135 [4th Dept. 2004] [Under DRL § 240[d] a Trial Court errs by requiring that a party "pay more than his pro rata share of the cost of providing health insurance benefits for the parties' unemancipated child[ren]" unless the Court has "set forth in the order the factors it considered, the amount of each party's share of the cost and the reason or reasons the court did not order such pro rata apportionment"]; see DRL § 240[d][3]). Therefore, defendant shall be responsible for payment of all uncovered and unreimbursed medical, dental and pharmaceutical expenses for each of the parties' daughters for as long as he is obligated to pay child support in behalf of that daughter.
Although FCA § 413(1)(c)(5) does not contain a similar provision permitting departures from the prorating requirement, the Court concludes that it has the authority to deviate from the strict proportioning of the parties' responsibilities for these expenses under appropriate circumstances, such as exist in this case.
VIII. LIFE INSURANCE
Plaintiff also asks the Court to require defendant to maintain his existing life insurance policies, naming her as primary beneficiary. Defendant does not address this issue in his post-trial submission.
"[W]hile Domestic Relations Law § 236(B)(8)(a) empowers the court to order a party to purchase such a policy for the benefit of another, the statute does not mandate that such provision be made" ( Grenier v. Grenier, 210 AD2d 557, 559 [3rd Dept. 1994]). Where, however, as at bar, defendant is able to procure life insurance through his employment, has the income sufficient to pay the premiums, and is required to make maintenance and child support payments, an order obligating him to insure his life is warranted ( see Holterman v. Holterman, 307 AD2d 442, 443 [3rd Dept. 2003], affd. 3 NY3d 1 [Requiring husband "to maintain $500,000 of life insurance, with [wife] as the primary beneficiary, terminat[ing] upon [husband's] completion of his three obligations to pay the distributive award, child support and maintenance"]; see also Friedman v. Friedman, 216 AD2d 204, 205 [1st Dept. 1995] [Trial Court properly ordered obligated spouse to provide life insurance "which serv[ed] as discretionary security-type financial protection'"] [internal citation omitted]).
In view of the amount of child support and maintenance that defendant must pay and the limited duration of those obligations, the Court concludes that life insurance coverage in the total amount of $250,000 is warranted. Therefore, within twenty days of the date of entry of the Judgment of Divorce, defendant shall obtain a policy insuring his life with a face value of not less than $250,000, which shall name plaintiff and the parties' children as beneficiaries. Defendant shall maintain that policy until he has fully satisfied his child support and maintenance obligations as established by this Decision and the Judgment of Divorce that shall be entered. By no later than 40 days after the date of entry of the Judgment of Divorce, defendant shall serve plaintiff with a copy of that policy.
The Court is aware that defendant is entitled to life insurance coverage through his employment. Consequently, if he currently has such coverage, he may satisfy his obligation by maintaining any policy that provides at least $250,000 in benefits.
IX. EQUITABLE DISTRIBUTION
The parties have numerous assets that are subject to equitable distribution claims, which are identified in their post-trial submissions. These include bank, investment and retirement accounts, real property, a boat, stocks and options, the proceeds of the Two Sales, and certain personal property. They have agreed to the value of most of these assets, as set forth in their "STIPULATION RE: VALUE".
A. DISTRIBUTION FACTORS
Simply stated, "[i]t is plaintiff's contention that she should receive 50% of the [parties'] assets since they were accumulated exclusively during the marriage" (Pl. Mem., p. 1-2). In response, "defendant proposes that marital assets, with the exception of [the] EVCI stock and options, as well as the value of his RBC Dain Rauscher account, at their commencement date values . . . be distributed equally to each party, in kind, where appropriate to minimize tax consequences" (Def. Prop. Disp., p. 11). As to the EVCI stock and options and the Dain Rauscher stock, defendant argues that their values as of the commencement date should be divided 80% to him and 20% to plaintiff.
Because there is a dispute as to plaintiff's right to an equal distribution of a significant portion of their assets, it is required that the Court "determine the respective rights of the parties in their separate or marital property", so that it may equitably distribute the property "considering the circumstances of the case and of the respective parties" (DRL § 236[B][5][a], [c]). To determine the manner in which to resolve the parties' competing equitable distribution claims, the Court is obligated to consider the thirteen factors found in DRL § 236(B)(5)(d). In rendering its equitable distribution decision in this case, the Court addresses these statutory factors as to the parties' claims in general and as to certain marital assets in particular.
As is evident, much of the analysis of these factors parallels that set forth above in the discussion of the maintenance issue. Thus, although the Court performs a separate analysis of the equitable distribution factors, to the extent relevant it incorporates its discussion of the parallel factors in its consideration of the equitable distribution issue.
1. INCOME AND PROPERTY
The first factor to be considered is "the income and property of each party at the time of the marriage, and at the time of the commencement of the action" (DRL § 236[B][5][d][1]). Here, between the date of their marriage and the commencement of this action, the economic situation of these parties vastly improved. For example, following their initial years of limited income and assets, while plaintiff earned little from outside employment, defendant's income rose steadily to the point that it currently exists, with defendant's base salary exceeding $600,000 annually.
Similarly, the parties' assets soared with the payment of the Big Apple Settlement Funds to defendant. Using those funds, the parties were able to purchase their family home, as well as their boat and two cooperative apartments.
Now, because of the these changes in their finances, they possess assets whose total value is several millions of dollars, and which shall be distributed in this action. Both of them shall leave their marriage owning significant assets which are capable of generating sizable income, allowing them to support themselves comfortably, particularly when combined with any employment income each may earn. Nevertheless, plaintiff will undoubtedly be capable of earning far less than defendant, and her overall economic situation will be to some degree less favorable than his. These concerns certainly support an appropriate equitable distribution award in her favor ( see Fiedler v. Fiedler, 230 AD2d 822, 823 [2nd Dept. 1996] [Distribution of more than 50% of total assets to wife was warranted by, inter alia, husband's role as principal earner and his superior earning potential]).
2. MARRIAGE DURATION AND AGE AND HEALTH OF PARTIES
Next, the Court considers "the duration of the marriage and the age and health of both parties" (DRL § 236[B][5][d][2]). Here, as noted, the plaintiff and defendant are 47 and 63 years old, respectively, and neither party's health is a factor. However, as also determined with respect to the maintenance question, notwithstanding that these parties were married under 10 years, theirs may be considered a long-term marriage ( see Zuch v. Zuch, supra, 117 AD2d, at 403; see also Granade-Bastuck v. Bastuck, supra, 249 AD2d, at 445). That is a factor also supporting plaintiff's claim to entitlement to an equal distribution of their marital assets ( see Granade-Bastuck v. Bastuck, supra, 249 AD2d, at 445 ["Where, in a marriage of long duration, both parties have made significant contributions to the marriage, a division of marital assets should be made as equal as possible"]).
3. USE OF MARITAL HOME
The third statutory factor is "the need of a custodial parent to occupy or own the marital residence and to use or own its household effects" (DRL § 236[B][5][d][3]). In this case, plaintiff has been residing in the Home with the two children throughout the course of the litigation. As defendant concedes, "[a]though the children are ages 19 [and] 20 respectively, . . . [i]t would seem prudent for that arrangement to continue" (Def. Prop. Disp., p. 13). Indeed, the parties are in agreement that plaintiff should be permitted to retain the Home as her property after the divorce, with defendant to be credited for his share of its value. Moreover, since the Home is mortgage-free, she will readily be able to maintain it with the income and assets available to her when this action is concluded. Thus, while this is a factor to be considered by the Court, as it specifically relates to the distribution of the Home, there is no significant dispute between the parties.
4. MAINTENANCE
The Court must also consider whether either party is paying or receiving "any award of maintenance" (DRL § 236[B][5][d][5]). As a general consideration, this factor supports defendant's position, because he shall be paying maintenance to plaintiff. Nevertheless, considering that his maintenance obligation is limited in duration to fifteen months, and in view of the small percentage of his overall income that his $2,500 monthly payment will constitute, this factor is not one which warrants other than an equal distribution of the marital assets.
5. CONTRIBUTIONS
The fifth statutory factor is "any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party" (DRL § 236[B][5][d][6]). It is settled law that in deciding what share, if any, a non-titled spouse is entitled to receive as to a property acquired during a marriage or the enhanced value of a property acquired prior to the marriage by the titled spouse, the Trial Court's "review is not limited to the nontitled spouse's direct financial contributions to the acquisition of the assets, but must include all forms of contribution to the economic partnership that characterizes' a marriage" ( Brough v. Brough, supra, 285 AD2d, at 914-915 [internal citation omitted]).
Plaintiff places substantial reliance upon this factor in asserting her general claim to an equal share of all marital assets, including those which are titled solely in defendant's name. Defendant, by contrast, argues that "[p]laintiff's contributions were only indirect, and minimal, at best", and that he "earned virtually all of the income and solely managed each and every financial account, business interest etc." (Def. Prop. Disp., p. 13).
Despite this Court's finding that plaintiff had no direct role in defendant's development or operation of any of his businesses, she did fulfill the role of primary caretaker for the children and the Home. By doing so, plaintiff relieved defendant of any responsibility to be an at-home parent, and permitted him to concentrate his efforts in the work which enabled him to earn the significant income and purchase the assets that he seeks to retain for himself.
Clearly, these indirect contributions to the furtherance of defendant's education and his successful businesses are worthy of consideration in the distribution of the parties' marital assets ( see Granade-Bastuck v. Bastuck, supra, 249 AD2d, at 445 [Trial Court's award to the plaintiff of 50% of the marital property was proper where, "although both parties agreed that the defendant was the sole provider for the family through the 11-year marriage, the first 7 of which were childless, the plaintiff nevertheless made a noneconomic contribution to the marriage which allowed the parties to amass a substantial marital estate"]; see also Day v. Day, 112 AD2d 972, 973 [2nd Dept. 1985] [No error "in dividing the marital property into two roughly equal parts", notwithstanding that "defendant's financial contribution to the marital property was greater than the plaintiff's", because "plaintiff's homemaking services, as well as her financial contribution, entitled her to share in the marital property to the extent indicated in the judgment"]). However, in ruling upon plaintiff's claims against the EVCI stock and options, the Court shall consider whether she has offered proof that she substantially contributed to defendant's acquisition of those assets ( cf. Farrell v. Cleary-Farrell, 306 AD2d 597, 599 [3rd Dept. 2003] ["The nontitled party seeking a distributive share of enhanced earning capacity must demonstrate that he or she made a substantial contribution to the titled party's acquisition of that marital asset, as opposed to overall contributions to the marriage"] [internal citations omitted]).
6. CHARACTER OF PROPERTY
The Court must also consider "the liquid or non-liquid character of all marital property" (DRL § 236[B][5][d][7]). The parties offer scant argument on this particular factor.
For her part, plaintiff merely states that as set forth in a listing of the marital assets included with her Statement of Proposed Disposition, "the assets are both liquid and non-liquid" (Pl. Prop. Disp., p. 4 [emphasis omitted]). In response, "[d]efendant proposes that, to the extent possible, non-liquid assets be distributed in kind" (Def. Prop. Disp., p. 14).
In this case, the parties' holdings do, in fact, include sizable liquid and non-liquid assets. Consequently, it is evident that a distribution of their assets may be accomplished which, to a significant extent, will leave each of them with equivalent amounts of each type of asset ( see Blaise v. Blaise, 206 AD2d 715, 716 [3rd Dept. 1994] [Holding that "[t]he essentially equal distribution of marital property by in-kind distribution rather than by liquidation was well within Supreme Court's discretion"]). Moreover, assuming, arguendo, that plaintiff received a greater share of the more-liquid assets, that result would not be inequitable in view of the fact that she is currently unemployed, while defendant is still earning more than $630,000 annually ( see Finkelson v. Finkelson, 239 AD2d 174, 175 [1st Dept. 1997] ["[I]n light of the vast difference between the parties' financial circumstances, the husband having a far greater earning capacity than the wife, who has not worked outside the home for a number of years and who cared for a child with special needs, the court properly awarded her the more liquid assets since the husband is more able to restore liquidity from current earnings"]).
7. FUTURE FINANCIAL CIRCUMSTANCES
Another significant factor that the Court must consider is "the probable future financial circumstances of each party" (DRL § 236[B][5][d][8]). As they did with respect to the maintenance issue, the parties present starkly different pictures of their future financial conditions.
In plaintiff's view, defendant's "financial circumstances . . . will only increase as time goes on", while she "will live on a fixed income of support and equitable distribution" (Pl. Prop. Disp., p. 4 [emphasis omitted]). By contrast, defendant maintains that "plaintiff is approximately 15 years younger than [him] and, hence, unlike [him] not close to retirement age" (Def. Prop. Disp., p. 14).
As this Court has concluded with respect to the maintenance issue, notwithstanding plaintiff's limited formal education and work history, the office skills she possesses should enable her to obtain employment in the near future with a salary of at least $40,000 annually. And since she shall be receiving a maintenance award for fifteen months, that income will aid her in meeting some of her living expenses during the time period that it is likely to take for her to return to the workforce. Moreover, her employment income, together with the expected investment income from her distributive award of almost 3.2 million dollars, will allow her to maintain a very comfortable lifestyle which does not differ much, if at all, from that which she enjoyed while the parties were living together.
Despite defendant's effort to portray himself as the party whose financial future is more bleak, for at least fifteen months he shall be earning his EVCI salary of $630,000 per year, together with any bonuses to which he may be entitled. In addition, he shall leave the marriage with several millions of dollars in liquid and non-liquid assets. Thus, like plaintiff, he will be able to generate a significant investment income to provide him with support. That investment income, of course, may still be secondary to his earned income, because no evidence has been submitted to the Court that defendant will, in fact, retire at the end of the 2005 EVCI Contract, or that he shall not be seeking another well-paying position.
If the parties' employment histories and prospects were the only elements of the future financial circumstances factor, consideration of this factor would greatly favor plaintiff. However, as has been recognized, "employment history is but one of many components of the parties' respective future financial circumstances and should be considered accordingly" ( Willis v. Willis, 107 AD2d 867, 869 [3rd Dept. 1985] [internal citations omitted]). And here, in view of the parties' overall future financial circumstances, this factor is not one which supports more than an equal distribution of marital assets to either party.
8. RETENTION OF ASSETS BY TITLED PARTY
The final statutory factor to be considered is "the impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party" (DRL § 236[B][5][d][9]). Neither party points to any evidence presented at trial that bears directly upon this factor. However, to the extent that the parties address this factor, plaintiff does not appear to take issue with defendant's view that, insofar as possible, "the distribution of marital assets to each party begin with the consideration that the person having title or possession be awarded same and the values of the award to each be credited accordingly" (Def. Prop. Disp., p. 14). Consequently, in distributing the parties' marital assets the Court shall, to the fullest extent possible, award each party those assets that are titled in their respective names, with appropriate cash credits where necessary.
Neither party offered proof relevant to the other statutory factors, i.e.: "the loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution"; "the tax consequences to each party"; "the wasteful dissipation of assets by either spouse"; and "any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration" (DRL § 236[B][5][d][4], [10], [11], [12]). Consequently, these factors have not been considered by the Court.
B. ASSET DISTRIBUTION
Having considered the statutory factors that are relevant to the equitable distribution issue, the Court turns to the distribution of specific assets. Payment of the distributive award shall be made as discussed below. Where appropriate, credits shall be given to the parties in the adjustment summary.
1. STIPULATED ASSETS
Although the parties have significant disputes as to several of their assets, they have agreed that certain assets are marital in character and should be distributed equally (collectively hereinafter "the Stipulated Assets"). In addition, they have entered into a stipulation as to the value of each of those assets. Based upon their agreements, the Court shall distribute the following assets, having the values reflected, to the party shown below.
------------------------------------------------------------------------------------------ | Asset | Value | Party | | |-------------------------------|-----------------------------|-------------|------------| | 1. | Atlantic Bank of New York | $2,838.00 | Plaintiff | |-------------------------------|-----------------------------|-------------|------------| | Account No. 010021558 | 2. Hudson Valley Bank | $8,096.00 | Defendant | |-------------------------------|-----------------------------|-------------|------------| | Account No. 0142265006 | | | | |-------------------------------|-----------------------------|-------------|------------| | 3. Atlantic Bank of New York | $567.00 | Plaintiff | | |-------------------------------|-----------------------------|-------------|------------| | Account No. 01502125 | | | | |-------------------------------|-----------------------------|-------------|------------| | 4. Smith Barney Money Funds | $544.00 | Defendant | | |-------------------------------|-----------------------------|-------------|------------| | Account No. 41510481-15-264 | | | | |-------------------------------|-----------------------------|-------------|------------| | 5. Dreyfus Treasury Prime | $1,787.00 | Defendant | | |-------------------------------|-----------------------------|-------------|------------| | Cash Management | | | | |-------------------------------|-----------------------------|-------------|------------| | Account No. 104226500-86 | | | | |-------------------------------|-----------------------------|-------------|------------| | 6. 20979 eRoom Systems Tech | $4,825.00 | Defendant | | |-------------------------------|-----------------------------|-------------|------------| | 7. Brokerage Account | $669.00 | Defendant | | |-------------------------------|-----------------------------|-------------|------------| | Tejas Securities | | | | |-------------------------------|-----------------------------|-------------|------------| | Account No. 3L1893493 | | | | |-------------------------------|-----------------------------|-------------|------------| | 8. Defendant's 401(k) Plan | $55,589.00 | Defendant | | |-------------------------------|-----------------------------|-------------|------------| | 9. Plaintiff's New York State | $150.15 | Plaintiff | | |-------------------------------|-----------------------------|-------------|------------| | Local Retirement Reserves | | | | |-------------------------------|-----------------------------|-------------|------------| | 10. Private Equity in Office | $61,994.00 | Defendant | | |-------------------------------|-----------------------------|-------------|------------| | Power LLC and Office Power | | | | |-------------------------------|-----------------------------|-------------|------------| | Leasing | | | | |-------------------------------|-----------------------------|-------------|------------| | 11. American Express Private | $10,817.25 | Plaintiff | | |-------------------------------|-----------------------------|-------------|------------| | Assets Annuity | | | | |-------------------------------|-----------------------------|-------------|------------| | Certificate No. FXB9506739 | | | | |-------------------------------|-----------------------------|-------------|------------| | 12. Defendant's Sports | $108,365.00 | Defendant | | |-------------------------------|-----------------------------|-------------|------------| | Memorabilia | | | | |-------------------------------|-----------------------------|-------------|------------| | 13. Azimut Boat | $461,125.00 | Defendant | | |---------------------------------------------------------------------------------------- Plaintiff and defendant shall receive $14,372.40 and $702,994.00, respectively, of the total value of $717,366.40 represented by the Stipulated Assets. Since each party shall be entitled to one-half of those totals, after subtracting plaintiff's total from that of defendant, plaintiff shall receive a credit of $344,310.80.2. VEHICLES
Although each party owns two motor vehicles, no proof of value as to any of those vehicles was presented at trial. However, there is no dispute between the parties as to the manner in which to address their vehicles. Specifically, the parties agree that each of them shall retain the vehicles owned by him or her at the time of trial.
Based upon their agreement, plaintiff shall retain her 2000 Jeep Grand Cherokee and 2004 Jeep Grand Cherokee, and defendant shall retain his Subaru Forester and Volkswagon Jetta. Neither party shall be entitled to any credit for any difference in the aggregate values of the vehicles retained by them.
3. REAL PROPERTY
The parties also own the Home and a cooperative apartment located at 540 Tuckahoe Road, Yonkers, New York (the Yonkers Apartment), both of which plaintiff claims are marital property. While defendant concedes that the Home is marital property, he asserts that he is entitled to two credits against its value. In addition, he maintains that the Yonkers Apartment is separate property.
At trial, there was also evidence presented concerning a second cooperative apartment, located at 7 Balint Drive, Yonkers, New York (the Second Apartment). In a separate lawsuit, plaintiff's father asserted that he was actually the owner of that apartment. That litigation was subsequently settled by an agreement recognizing that plaintiff's father does own the Second Apartment. For that reason, the Second Apartment is not included in the asset distribution.
All property acquired during a marriage is presumed to be marital property ( DeJesus v. DeJesus, 90 NY2d 643, 648). Consequently, "[t]he party seeking to overcome the marital property presumption, here the [defendant], has the burden of proving that the property in dispute is separate property" ( Farag v. Farag, 4 AD3d 502, 503 [2nd Dept. 2004]).
Defendant's separate property claims against the Home are based upon the fact that it was purchased and improved with monies from the Big Apple Settlement Funds. Similarly, he relies upon his use of a portion of the Big Apple Settlement Funds to purchase the Yonkers Apartment to support his separate property claim against that asset. However, in view of this Court's determination that the Big Apple Settlement Funds were marital property, he has failed to rebut the presumption that the Home and the Yonkers Apartment are marital property, and his separate property claims against both of those assets fail ( see Kurtz v. Kurtz, 1 AD3d 214, 215 [1st Dept. 2003] ["The Brooklyn condominium was properly found to be a marital asset, the husband having failed to rebut the presumption that the property, acquired during the parties' marriage, was marital property"]). And since both properties were purchased and maintained with marital funds, the parties should equally share in the values of the properties.
Because the parties are in agreement that plaintiff should continue to reside in the Home with the two children, the Home, titled in both their names, shall be distributed to her. Defendant shall be entitled to a credit of one-half of the $570,000 stipulated value of the Home, or $285,000.
The parties also agree that plaintiff should be permitted to retain the Yonkers Apartment, subject to a credit. For that reason, the Yonkers Apartment shall be distributed to plaintiff, and defendant shall receive a credit of $75,000, representing one-half of the $150,000 stipulated value of that asset.
4. FATHER'S TRUST ACCOUNT
Plaintiff maintains bank account number 01502159 at Atlantic Bank of New York, in her name in trust for her father and defendant. At trial, the credible evidence established that the funds deposited into that account were not marital monies, but appear to be money owned by plaintiff's father. Based upon that showing, the Court concludes that the funds maintained in this account are not marital assets. Therefore, no distribution of those funds shall be made, and defendant shall receive no credit for any portion of those funds ( cf. Harris v. Harris, 242 AD2d 558, 560 [2nd Dept. 1997] [Trial Court improperly awarded the wife, as separate property, only the premarital sum in a bank account, where she proved that "the money in that account was separate property and remained separate property throughout the marriage"]).
The circumstances under which this account were maintained by plaintiff are what lead the Court to conclude that she and her brother decided to open an account for her father that was not in his name so that he would not appear to have any assets when he sought Medicaid benefits. As noted herein, the Court viewed that effort as reflecting adversely upon her credibility at trial.
5. MUSIC COMPANIES
When their daughter Tiffany became interested in pursuing a singing career, defendant assisted her by investing approximately $42,000 to start two companies, "Second Chance Music" and "Second Chance Records" (together hereinafter "the Two Music Companies"). Neither venture was profitable, and at present, both companies are inactive, although after the action was commenced, defendant formed another entity, "Present Moment, LLC", which is engaged in the same business as the Two Music Companies.
Without stating a factual or legal basis for her claim, plaintiff maintains that she "should receive a credit for half of the $42,000 invested in these two properties, as well as, half of the assets held by the companies" (Pl. Prop. Facts, p. 27). Defendant does not deny plaintiff's entitlement to share in the Two Music Companies, but argues that "the ownership of the companies is marital property and the shares should be divided evenly" (Def. Prop. Facts, p. 52).
Plaintiff offered no proof at trial that she did not share in her husband's desire to help their child in her singing career. Indeed, as testified by her, she has attended some of Tiffany's performances, and her updated net worth statement included significant expenses for clothing and beauty care that she claims are necessary to aid their daughter in that career. Under these circumstances, the Court concludes that the Two Music Companies were started with plaintiff's consent as a loving parent, and that she must share in the losses, as well as the profits, of those businesses.
Since neither of the Two Music Companies were valued for trial, the most equitable manner in which to distribute any remaining value of the companies is an equal division of defendant's stock shares in each of those entities. In addition, the parties shall equally share defendant's entitlement to any music rights or other assets owned by the Two Music Companies.
6. BANK NOTES
Defendant owns certain treasury notes (the T-Notes) maintained at Hudson Valley Bank under account number 49P002543. The T-Notes have a stipulated value of $218,626.00 as of the commencement date of the action. While defendant contends that the T-Notes are his separate property, plaintiff argues that they are marital property which should be evenly distributed.
Like so many other investments and purchases made by defendant using the Big Apple Settlement Funds, these notes were obtained with a portion of those monies. Since the Big Apple Settlement Funds were marital in character, the T-Notes, purchased with marital funds, are also marital property ( Zelnik v. Zelnik, supra, 169 AD2d, at 330).
Because no showing has been made why defendant is entitled to a greater share of this asset than plaintiff, the Court agrees with her than an equal distribution is warranted. Accordingly, the T-Notes shall be distributed to defendant, and plaintiff shall receive a credit in the amount of $109,313.00 for her one-half share.
7. MORGAN STANLEY ACCOUNT
Also maintained in defendant's own name is account number 476170767224 at Morgan Stanley Dean Witter (the Morgan Stanley Account). The parties agree that the account is marital property, and that its value as of the commencement date was $1,476,387. However, they dispute the extent to which plaintiff is entitled to the value of the Morgan Stanley Account at the time of trial.
Unlike the Dain Rauscher Account, defendant offered no proof that he was involved in the management of the Morgan Stanley Account to such an extent that it constitutes an active asset. Consequently, the valuation date for the Morgan Stanley Account is the date of trial ( see Barbuto v. Barbuto, supra, 286 AD2d, at 744).
As reflected in the most recent account statement prior to the commencement of the trial, the balance in that account was $2,708,819.68. Therefore, absent other considerations, that sum would be subject to plaintiff's equitable distribution claim.
Here, however, even plaintiff concedes that the trial date value must be reduced prior to distribution to reflect two post-commencement deposits. As established by defendant at trial, these deposits were a $1,000,000 transfer from another account, which was part of the proceeds of the Two Sales, and a $25,000 transfer from defendant's Hudson Valley Bank checking account. In plaintiff's view, after deducting those transfers, the remaining balance of $1,683,819.68 is marital property which should be shared equally by the parties.
Defendant offers a more simplistic analysis of the dispute. As explained by him, plaintiff is entitled to no more than an equal share of the commencement date value of the Morgan Stanley Account because she "neglected to introduce any evidence which would show any actual or equitable interest in the funds added to the account post commencement" (Def. Mem., p. 30).
What is problematic for defendant is that his approach overlooks other debits and credits to the account, whose entitlement to him has not been proven. First among these are withdrawals in the amounts of $28,202 and $60,000 made in June and November 2003, respectively, and a $31,500 transfer from the Morgan Stanley Account to RBC Dain Rauscher in September 2003. Significantly, defendant failed to establish the purpose of these withdrawals. Thus, there is no basis for determining that any of these withdrawals is chargeable solely to his own portion of the funds previously on deposit.
Second, as reflected in Karlitz' analysis of the Morgan Stanley Account, included in the trial date balance was the sum of $310,784 reflecting "Portfolio Earnings and Change in Market Value" (Def. Exh. EEEEEE, p. 1). Yet defendant offered no evidence at trial as to the portion of that increase in value of the account that was attributable to the parties' joint holdings as of the commencement date. Consequently, the Court is unable to determine that plaintiff is not entitled to any share of that increase in the account value due to market forces.
Since defendant is proffering a separate property claim as to the value of the Morgan Stanley Account following the commencement of the action, it was his burden to prove that the expenses paid by him with the withdrawn funds should be shared by plaintiff, but that she should not benefit from the increase in value of the account ( see Farog v. Farog, supra, 4 AD3d, at 503). Here, because defendant failed to sustain that burden, the parties should receive equal shares of the sum as proposed by plaintiff ( cf. Corasanti v. Corasanti, 296 AD2d 831, 832 [4th Dept. 2002] [Trial Court properly determined that an account was marital, and not separate, property "because plaintiff was unable to trace the source of funds in [the] account"]). Therefore, the Morgan Stanley Account shall be distributed to defendant, and plaintiff shall receive a credit in the amount of $841,909.84.
8. DAIN RAUSCHER ACCOUNT
Despite their dispute as to its proper valuation date, the parties agree that the Dain Rauscher account is a marital asset. As determined herein, that account must be valued as of the date of commencement of the action because defendant exercised total control of the securities trading for the account ( Ferraioli v. Ferraioli, supra, 295 AD2d, at 270). Consequently, defendant is entitled to retain the entire post-commencement increase in value of the Dain Rauscher account.
The parties have stipulated that as of the commencement date, the Dain Rauscher account had a value of $653,421.00. Therefore, the Dain Rauscher account shall be distributed to defendant, and plaintiff shall receive a credit in the sum of $326,710.50.
Although in his post-trial memorandum defendant concedes that "plaintiff's equitable interest in the Dain Rauscher account is $326,620.50" (Def. Mem., p. 26), or half of its commencement date value as determined on a typographically-erroneous value of $653,241.00, in his Statement of Proposed Disposition he argues that she should receive only 20% of its value (Def. Prop. Disp., p. 11).
9. EVCI STOCK AND OPTIONS
The most valuable of the parties' assets are the EVCI stock and options. Although the Court has set the valuation dates for these assets herein, before distributing them to the parties it must determine the appropriate shares of their value to which each party is entitled.
a. CONTRIBUTIONS TO VALUE
As noted, defendant obtained his first shares in EVCI when he and McGrath created that entity. At that time, he contributed $30,000 to the formation of EVCI from funds provided to him by his father. Thereafter, he acquired additional shares by virtue of his position with EVCI, and in particular, as a result of an exchange of shares at the time of the IPO. Based upon his view that, "at a minimum, half of the stock is separate property and half is marital", and that "[b]eyond this opening investment, [his] commitment and dedication to the company and its growth" contrasts starkly with "plaintiff['s] complete disassociation with the company" (Def. Mem., p. 23), he argues that she should receive only 20% of the value of the EVCI stock and options.
Plaintiff paints a different picture of her role in the development and success of EVCI. First, she points to her "significant role as homemaker, wife, and mother", which she claims, "contributed to the creation and maintenance of the marital assets" and permitted defendant to "work night and day' to create . . . EVCI" (Pl. Prop. Facts, p. 14). Next, she asserts that "she made significant contributions towards helping the family financially and defendant starting EdTel and EVCI during the marriage" ( ibid.). She also maintains that she assisted in paying expenses for EdTel, and with respect to EVCI, that she "attended meetings with defendant with potential employees, investors and their wives" ( id., p. 15). Based upon her version of the relevant events, the value of the EVCI stock and options should be evenly distributed between the parties.
In determining the appropriate manner of distributing these assets, the Court is aware that, generally, "in a marriage of long duration, where both parties have made significant contributions to the marriage, a division of marital assets should be made as equal as possible" ( Chalif v. Chalif, supra, 298 AD2d, at 349). Nevertheless, "there is no requirement that the distribution of each item of marital property be on an equal or 50-50 basis" ( Arvantides v. Arvantides, 64 NY2d 1033, 1034; Falgoust v. Falgoust, 15 AD3d 612, 614 [2nd Dept. 2005] ["Equitable distribution does not necessarily mean equal distribution"]).
As relates to these assets, the Court recognizes that while plaintiff's financial contributions to the creation of EVCI, and EdTel, the forerunner of EVCI, were quite limited, it is undisputed that she was the partner in the marriage who cared for the parties' daughters and the Home so that defendant could commit his full time and energy to the formation and operation of his businesses. At the same time, however, the Court rejects plaintiff's contention that she played a direct role in the creation of EVCI, through participation in meetings or otherwise, based upon the complete absence of any support for that claim, and the credible, contradictory testimony of defendant's witnesses.
Consequently, notwithstanding the length of the parties' marriage and her non-economic contributions, plaintiff is not entitled to an equal share of the value of the EVCI stock and options (see Arvantides v. Arvantides, supra, 64 NY2d, at 1034 [Appellate Division did not err in reducing wife's share of the value of husband's dental practice from approximately 50% to 25%, "taking account of the modest nature of plaintiff's contributions to [his] practice"]); cf. Phelps v. Phelps, 199 AD2d 608, 610 [3rd Dept. 1993], abrogated on other grounds by McSparron v. McSparron, supra [Approving distribution of 15% of plaintiff's medical license value to defendant, even though "she contributed significantly to the acquisition of the license itself, by working to support plaintiff while he was in school and serving as an unpaid intern, and by repaying part of his student loans during that time"]). And absent other considerations, based upon its review of the DRL § 236(B)(5)(d) factors, the Court would conclude that since defendant's contributions to the acquisition and increase in the value of these assets were significantly greater than those of plaintiff, an award to her of 30% of the value of the EVCI stock and options would be warranted ( see Orofino v. Orofino, 215 AD2d 997, 998 [3rd Dept. 1995], lv. denied 86 NY2d 706 [Trial Court did not abuse its discretion in awarding 60% of the parties' single largest marital asset, a joint account/stock portfolio valued at $1,870,750, to defendant and 40% to plaintiff, where it was "undisputed that defendant was solely responsible for management of the stock portfolio and that plaintiff contributed to the acquisition of the marital property as the primary caretaker of the children and the marital residence"]; see also Schiffmacher v. Schiffmacher, 21 AD3d 1386, 1387 [4th Dept. 2005] [Affirming award to plaintiff of 70% of the value of the parties' investment and savings accounts, because "the record establishe[d] that the court properly considered the factors set forth in Domestic Relations Law § 236[B][5][d], including the fact that plaintiff's contributions to the parties' investments were significantly greater than defendant's contributions"]).
Here, however, there is an additional factor that the Court has considered (see DRL § 236[B][5][d][13] [Court may consider "any other factor which the court shall expressly find to be just and proper"]). Specifically, the Court has taken into account that plaintiff would be entitled to prejudgment interest on any asset which was valued prior to the date of trial ( Selinger v. Selinger, 232 AD2d 471, 473 [2nd Dept. 1996], lv. dismissed 89 NY2d 981, lv. dismissed 90 NY2d 842, rearg. denied 90 NY2d 937). Applying a rate of 5% to the aggregate value of those assets, which the Court concludes is an appropriate interest rate considering current economic conditions ( see Madonna v. Madonna, 265 AD2d 455 [2nd Dept. 1999] [Reducing interest award from statutory 9% annual rate to 4-1/2%]), plaintiff would be entitled to recover approximately $200,000 in prejudgment interest. Through an adjustment of her equitable share of the EVCI stock and options from 30% to 35%, plaintiff will receive an additional sum that compensates her for that prejudgment interest. For that reason, plaintiff's and defendant's shares of the value of the EVCI stock and options shall be 35% and 65%, respectively.
Having determined the parties' shares of the value of these assets, the Court turns to the appropriate distribution to be made in this case. Since there are different valuation dates used as to certain of those assets, the Court addresses their distribution separately.
b. THE FIRST SALE PROCEEDS
Because the Court has set the date of sale as the valuation date for the 300,000 shares of EVCI disposed of by the First Sale at $4.00 per share, and there being no evidence introduced at trial as to any costs or taxes that would reduce the First Sale Proceeds, the total value of those shares to be distributed is $1,200,000. Applying the percentages determined above, the First Sale Proceeds are distributed to defendant, and plaintiff shall receive a credit of 35% of those proceeds, or $420,000.
c. THE SECOND SALE PROCEEDS
As noted, when defendant completed the Second Sale at $11.50 per share, he received net proceeds of $3,445,850 for the 310,000 EVCI shares sold at that time. On that capital gain he paid taxes in the amount of $689,170. Using the date of the Second Sale as the valuation date for the sale of those 310,000 shares, there is a total value of $2,756,680 which must be distributed. Since plaintiff is entitled to 35% of that amount, she shall receive a credit of $964,838, and the Second Sale Proceeds shall be distributed to defendant.
d. REMAINING SHARES
The parties agree that defendant has retained 28,961 EVCI shares. Based upon the determination that these shares shall be valued as of the final date of trial, when they were trading at $1.53 per share, the total value of the remaining shares is $44,310.33. In view of the agreement of the parties' experts that the value of defendant's EVCI shares must be reduced by 15% to reflect their actual market value because the stock is restricted, the actual value to be distributed is $37,663.78. Accordingly, the remaining shares shall be distributed to defendant and plaintiff shall receive a credit of $13,182.32, representing her 35% share of the value of those assets.
Because the other 46,400 shares of unsold EVCI stock are in the Dain Rauscher account, which has been separately distributed, they are not included in this distribution.
e. OPTIONS
Finally, the value of the 349,963 EVCI options must be distributed. Valued as of the final trial date, they are worth $1.53 per share, or a total of $535,443.39. However, this total must be reduced by their "strike value" of $1.00 per share, that being the cost of exercising the right to sell the option. In addition, the agreed-upon restricted-sale discount of 15% must be applied. Adjusting the total option value to reflect those reductions results in a total asset value of $157,658.33 to be distributed. Therefore, the EVCI options shall be distributed to defendant, and for her share of their value plaintiff shall receive a credit of $55,180.41.
10. DEBTS
During the marriage, defendant paid certain personal debts. Specifically, he paid maintenance to his first wife pursuant to the First Divorce Judgment, in the following amounts: $7,425 in 1993; $5,615 in 1994; $2,125 in 1995; $8,530 in 1996; $5,850 in 1997; and $29,000 in 1998. In addition, in November 1998 and January 1999 he paid a total of $7,000 in settlement of a lawsuit brought against him for non-payment of monies owed for the purchase of his F-27 boat. Further, in March 1998 he repaid his student loans, which were in a total sum of $48,126.20. In plaintiff's view, these payments were made with marital assets, and she is entitled to a credit in the amount of $56,835.60, representing her half of the repayment of these obligations.
In response to this request, defendant asserts that "[t]he testimony and exhibits in this case demonstrates that [he] not only used separate property to pay off debt from the parties' early marital living expenses, but also a far greater amount of marital debt than that which plaintiff claims to have paid" (Def. Prop. Disp., p. 6). Based upon that argument, "defendant proposes that any debt paid by either party during the marriage not be allocated, as it no longer exists" ( ibid.).
Without deciding whether defendant established that any of these debts were paid with separate funds, the Court concludes that plaintiff's position lacks merit, because of the manner in which both parties used marital funds for purposes not directly related to the support of their daughters and themselves.
Certainly, to the extent that defendant argues that some of these expenses were paid from the Big Apple Settlement Funds, that position is unavailing due to the Court's ruling that those funds were marital property.
For example, throughout their marriage, both parties were generous in their treatment of their children from their prior relationships, and evidently used marital assets for that purpose without the explicit agreement of the other. Moreover, plaintiff used money deposited into one of their accounts from defendant's employment income to provide support to her daughter Christina and her father.
Indeed, defendant argued that the use of money for that support, without his consent, constituted marital waste that was relevant to the issues of maintenance and equitable distribution.
While the Court does not agree that plaintiff's use of some marital assets to aid other relatives amounts to wasteful dissipation of an asset in this case, certainly her expenditure of marital funds in that manner without defendant's consent is no different than his use of marital funds to pay separate debts.
Clearly, this is not a situation where defendant incurred debt chargeable to plaintiff to free himself of other obligations, while not being capable of providing for the support of his own family, and while she had no access to marital funds for her own purposes ( cf. Solomon v. Solomon, 10 AD3d 584 [1st Dept. 2004] [Determining that plaintiff was entitled to "an award of $34,748.31 in outstanding credit card debt in [her] name, incurred by reason of defendant's unauthorized cash advance from that account and his transfer of his own debt to that account"]). Rather, under the circumstances presented in this case, neither party may be heard to complain about the other's use of marital funds to pay for their own obligations or to aid other family members, when that approach was evidently an accepted part of their lifestyle. Accordingly, the Court denies plaintiff's application for a credit for separate debts paid by defendant during the marriage.
Plaintiff also seeks a credit in the amount of $60,851.00, representing one-half of certain interest and dividend income declared by defendant on his 2003 and 2004 income tax returns. Because she has failed to identify the sources of that income, it cannot be concluded that those sources were assets of a type as to which she has a meritorious equitable distribution claim. For that reason, the credit sought by her is denied.
X. INTEREST
Plaintiff also asks the Court to award her prejudgment interest for the assets valued at time of commencement. It is her position that this relief is required because the selection of "an early valuation date" deprived her of "the benefit of any appreciation of that asset during the pendency of the divorce action" (Pl. Mem., p. 23).
As has been recognized:
"Interest is not a penalty. Rather, it is simply the cost of having the use of another person's money for a specified period. It is intended to indemnify successful plaintiffs for the nonpayment of what is due to them, and it is not meant to punish defendants for delaying the final resolution of the litigation." ( Selinger v. Selinger, supra, 232 AD2d, at 473 [internal citation omitted]).
Consequently, in the context of divorce litigation, if a marital asset is valued as of the date of commencement of the action or on another date prior to the date of trial, the party deprived of the use of that asset during the course of the action is entitled to interest from that date ( id., 232 AD2d, at 473), and failure to award such interest is error ( Burrows v. Burrows, 270 AD2d 871, 871-872 [4th Dept. 2000] ["The court erred in failing to award plaintiff prejudgment interest on those assets that were valued as of the time of the commencement of the action"]).
Nevertheless, where appropriate adjustments are made to the distributive award, the denial of a request for prejudgment interest is proper ( see Schanback v. Schanback, 159 AD2d 498, 500 [2nd Dept. 1990] ["Supreme Court did not improvidently exercise its discretion in declining to grant prejudgment interest" where "[t]he Judicial Hearing Officer compensated for any apparent inequity which might result from the failure to award prejudgment interest"]). In this case, as explained with respect to the distribution of the EVCI stock and options, the Court has taken the prejudgment interest factor into consideration in awarding plaintiff a greater percentage of those assets than otherwise warranted. For that reason, the application for prejudgment interest is denied ( see ibid.).
As discussed above, by awarding plaintiff 35%, rather than 30%, of the EVCI stock and options, the Court has accounted for the denial of a separate grant of prejudgment interest.
XI. ADVANCE PAYMENTS
The final issue to be addressed involves the payment of plaintiff's counsel fees. As noted above, the Interim Fee Order provided for a $25,000 interim counsel fee award to be paid by defendant to plaintiff's attorneys, which was to be a charge against her distributive award. Pursuant to the terms of the Interim Fee Order, further litigation cost advances were made to plaintiff's counsel, so that the total advanced for her litigation costs is $190.053.44. In addition, she received an advance payment toward her distributive award in the sum of $100,000 to obtain her consent to the Second Sale.
As part of her earlier attempt to avoid having any such advance payments credited toward her distributive award, plaintiff sought relief from Justice Garvey. That effort succeeded only in part, when Justice Garvey ruled that, as the Trial Court, she would consider "a reapportionment at the time of equitable distribution or, at the very least, take it into consideration if I decided to deviate from the normal fifty-fifty" (Ct. Exh.25, Transcript, p. 7-8). Justice Garvey further expressed her intent to "do that especially if I find that the Defendant is prolonging this litigation, as the Plaintiff has alleged, to get her to agree to an unfavorable settlement" ( id., p. 8).
Now, plaintiff asks the Court to rule that no part of the $290,053.44 advanced to her (collectively "the Advance Payments") should be charged against the distributive award that she is to receive. In sum, it is her argument that through the dilatory and meritless tactics engaged in by defendant throughout the pretrial proceedings and the trial of the action, and as a result of the unreasonable settlement posture taken by him, defendant caused her litigation costs to increase so dramatically that he must bear the entirety of those expenses.
Defendant offers a two-prong attack upon plaintiff's position. First, he contends that her application is facially defective, because it is not supported by proof of the services provided by her counsel and relevant billing information. Second, he maintains that he did not engage in any obstructionist tactics, that his approach to this action was appropriate, and that any delays or lengthening of the trial were due to the actions of plaintiff and her attorneys.
As an initial matter, the Court agrees with defendant that the application is defective because it is not supported by an affidavit of services from her counsel and billing statements. Notwithstanding that plaintiff's counsel is not seeking a counsel fee award, since plaintiff's request constitutes one for an award of counsel fees, the Court must review the relevant billing information to determine the reasonableness of the fees incurred, as part of its obligation in making a fee award. The absence of any such information renders the fee request facially deficient, requiring its denial on that ground alone ( Lazich v. Lazich, 189 AD2d 750, 752 [2nd Dept. 1993], appeal dismissed 81 NY2d 1007 ["[I]t is an improvident exercise of discretion to award [counsel] fees where there is no supporting documentation"]; Smith v. Smith, 277 AD2d 531, 532 [3rd Dept. 2000] ["[A]n award of counsel fees cannot stand where the record lacks a sufficient evidentiary basis to evaluate the respective financial circumstances of the parties and value of the services rendered"] [internal citations and quotation marks omitted]).
More significantly, the application is unpersuasive on its merits. Certainly, this Court may "consider a party's dilatory and obstructionist tactics in making an award of counsel fees" ( ibid.). What is problematic for plaintiff is that both parties have some responsibility for the length and expense of the legal proceedings involved in this case, and defendant alone cannot be faulted for the approach taken with respect to litigation tactics and settlement posture. Thus, this argument does not support the relief sought by her ( see Fox v. Fox, 290 AD2d 749, 751 [3rd Dept. 2002] [Reducing interim counsel fee award considering, inter alia, "the absence of evidence that any significant portion of plaintiff's anticipated expenses arise out of dilatory tactics or obfuscation on defendant's part"]; cf. Holbrook v. Holbrook, 226 AD2d 831, 832 [3rd Dept. 1996] [Counsel fee award properly granted based, in part, upon "the fact that a significant portion of the legal expenses with which plaintiff has been burdened are the product of defendant's dilatory tactics and obfuscation"]).
Finally, a consideration of the parties' economic situations following the distribution of their assets undermines plaintiff's request. In particular, plaintiff shall be receiving approximately $3,200,000 in liquid and non-liquid assets and has no significant liabilities, and as a consequence, has been placed in a substantially equal financial position with defendant. Thus, she shall readily be able to absorb her own litigation costs, without the need of defendant's assistance. For that reason also, it would be inappropriate not to charge the Advance Payments against her distributive award ( see Gober v. Gober, 11 AD3d 261 [1st Dept. 2004] ["Plaintiff's request for counsel and expert fees pursuant to Domestic Relations Law § 237, based upon defendant's allegedly obstructive litigation conduct, was properly denied on the ground that the divorce judgment put the parties in financial parity and made each a multimillionaire"]; see also Filkins v. Filkins, 303 AD2d 934, 935 [4th Dept. 2003] ["[B]ecause defendant has sufficient funds to pay her own counsel fees as a result of the distributive award, the court erred in awarding her counsel fees in the amount of $10,000 plus disbursements"]).
It is undisputed that there is no marital debt that remains unsatisfied.
Based upon this analysis, the Court denies plaintiff's application not to include the Advance Payments as a charge against her distributive award. Accordingly, defendant shall receive a credit in the amount of $290,053.44, which shall be reflected in the adjustment summary.
------------------------------------------------------------------------------------------------------------------------------------ | XII. ADJUSTMENT SUMMARY | | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Upon the foregoing determinations on these various financial issues, the following | | | | | applies: | | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | OWED BY DEFENDANT TO PLAINTIFF | | | | | | | Child Support | | | Maintenance Arrears: | 10,000.00 | | 31,760.00 | | | | Arrears: | | | Stipulated Assets: | 344,310.80 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | T-Notes: | 109,313.00 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Morgan Stanley Account: | 841,909.84 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Dain Rauscher Account: | 326,710.50 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | First Sale Proceeds: | 420,000.00 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Second Sale Proceeds: | 964,838.00 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Remaining Shares: | 13,182.32 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Options: | 55,180.41 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Total: $3,117,204.87 | | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | OWED BY PLAINTIFF TO DEFENDANT | | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Marital Home: | 285,000.00 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Yonkers Apartment: | 75,000.00 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Advance Payments: | 290,053.44 | | | |-------------------------------------------------------------------------------------|--------------|-----------------|------------| | Total: | $650,053.44 | | | ------------------------------------------------------------------------------------------------------------------------------------- As is evident, defendant owes plaintiff the sum of $2,467,151.43 as her distributive award. Since the full amount of the First Sale Proceeds are being held in an escrow account, defendant shall pay $1,200,000 of the distributive award to plaintiff within 30 days of the date of entry of the Judgment of Divorce ( see Unger-Matusik v. Matusik, 276 AD2d 936, 938 [3rd Dept. 2000] [Trial Court did not abuse its discretion by ordering husband to pay wife's distributive award from proceeds of sale of marital home that were maintained in escrow account]). He shall pay the sum of $750,000 within one year and 30 days of the date of entry of the Judgment of Divorce, and the balance of the distributive award within two years and 30 days of the date of entry of the Judgment of Divorce ( see Bohnsack v. Bohnsack, 185 AD2d 533, 536 [3rd Dept. 1992] [Husband permitted to pay distributive award in five annual payments rather than immediately, considering that the award included half the value of certain stock shares held by him in a close corporation which were "not traded on a public exchange [and] do not enjoy the same liquidity as publicly held stock"]). Plaintiff shall be entitled to interest on the unpaid balance at the rate of nine per cent (9%) per year, from the date of entry of the Judgment of Divorce until the distributive award is fully paid by defendant ( see Lipsky v. Lipsky, 276 AD2d 753, 754 [2nd Dept. 2000] [Finding that "it was a provident exercise of discretion for the trial court to award postjudgment interest at the statutory rate of 9% on the distributive award from the date of entry of the judgment of divorce to the date of final payment"]).Because there are certain joint properties that are being distributed to each party, within 30 days of the date of entry of the Judgment of Divorce, the parties shall execute all documents necessary to effect the transfer of those assets.
Included in the documents to be executed are any necessary to enable plaintiff to obtain her award of her share in the Two Music Companies and their assets.
Plaintiff shall submit proposed Findings of Fact and Conclusions of Law and a Judgment of Divorce consistent with this Decision, on notice to defendant.
The foregoing shall constitute the decision of the Court.