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Monday, May 23, 2011

Important New Decisions - May 23, 2011

Improper to Incorporate Agreement into Judgment Where No Meeting of The Minds

In Alton v Alton, --- N.Y.S.2d ----, 2011 WL 1612577 (N.Y.A.D. 2 Dept.) the Appellate Division pointed out that the defendant husband contended that the Supreme Court erred in denying his motion which were to set aside the provisions of the parties' oral, on-the-record stipulation of settlement relating to equitable distribution, maintenance, his obligation to purchase an apartment for the plaintiff wife, and the validity of the parties' prenuptial agreement, because there was no meeting of the minds on an essential material term, to wit, the purchase price of the subject apartment. It held that since a judgment was entered that purported to incorporate the terms of the putative settlement, the defendant was precluded from challenging the validity or enforceability of the settlement by way of motion, but was required either to appeal from the judgment or commence a plenary action. Since the defendant appealed from the judgment, it reached the merits of the defendant's contention that no stipulation of settlement was, in fact, consummated. It noted that in determining whether an agreement exists, the inquiry centers upon the parties' intent to be bound and whether there was a meeting of the minds regarding the material terms of the transaction . A review of the transcribed proceedings at which the parties attempted to negotiate a settlement revealed that the parties never reached an agreement on the essential and material term regarding the purchase price of the apartment. The provisions relating to the apartment purchase were intertwined and integrated with the other provisions of the disputed stipulation of settlement, i.e., the provisions relating to equitable distribution, maintenance, and the validity of the parties' prenuptial agreement. Accordingly, the Supreme Court should not have incorporated the disputed stipulation of settlement provisions into the judgment of divorce.

Best Interest of Child Outweighed Application of Exclusionary Rule in Custody Case

In Matter of Young v Young, --- N.Y.S.2d ----, 2010 WL 6622106 (N.Y.A.D. 2 Dept.) the Appellate Division affirmed an order which awarded the father sole custody of the parties child. It held that Family Court did not err in summarily denying the mother's motion to suppress certain evidence which she alleged was obtained illegally. In a custody case, the court is required to determine "solely what is for the best interest of the child, and what will promote its welfare and happiness, and make an award accordingly. It stated that the best interests of the child are determined by a review of the totality of the circumstances. It held that the application of the exclusionary rule to prevent the court from considering factors relevant to that determination, pertaining here to the condition of the home of a parent who was seeking custody, would have a "detrimental impact upon the fact-finding process and the State's enormous interest in protecting the welfare of children," which outweighed the deterrent effect of applying the exclusionary rule (citing Matter of Diane P., 110 A.D.2d 354, 354). It also rejected the mother's contention that the Family Court should have conducted a pretrial hearing as to the voluntariness of an admission she made and the effectiveness of her counsel in a neglect proceeding which had been brought against her. The mother testified as to these matters during the custody trial, such that the issues and her position thereon were before the Family Court. Family Court's determination that it was in the children's best interest for the father to be awarded custody had a sound and substantial basis in the record.

Well-established Precedent Overwhelmingly Supports a Party's Right to an Evidentiary Hearing Before a Finding of Contempt

In Bergman v Bergman, --- N.Y.S.2d ----, 2011 WL 1796364 (N.Y.A.D. 1 Dept.) the Appellate Division held that a hearing is required on a contempt motion when the party opposing the motion asserts a defense of financial inability to comply. Domestic Relations Law s 246(3) in pertinent part states: "Any person may assert his financial inability to comply with ... an order or judgment ... as a defense in a proceeding instituted against him ... to punish him for his failure to comply ... and if the court, upon the hearing of such contempt proceeding is satisfied from the proofs and evidence offered ... that the defendant is financially unable to comply ... it may, in its discretion, until further order of the court, make an order modifying such order or judgment...." Further, Domestic Relations Law 236(B)(9)(b) provides that a party may seek downward modification if he or she has experienced a "substantial change in circumstances:" There is no limit to the number of times a party may seek downward modification. The party must demonstrate that there has been a substantial change in circumstances to merit any downward modification. There is no right to a hearing absent a prima facie showing of entitlement to downward modification. However, well-established precedent overwhelmingly supports a party's right to an evidentiary hearing before a finding of contempt (Boritzer v. Boritzer, 137 A.D.2d 477 [1988]; Comerford v. Comerford, 49 A.D.2d 818 [1975]; Singer v. Singer, 52 A.D.2d 774 [1976]; see also Gifford v. Gifford, 223 A.D.2d 669 [1996] ). In Singer, this Court held that "[d]ue process requires that a hearing be held before one can be adjudged in contempt" , undoubtably because a finding of contempt may result in incarceration as, indeed, it did in this case. Here, defendant has not had any opportunity to offer "proofs [or] evidence" at a hearing on either plaintiff's contempt motion or defendant's cross motion for downward modification. The court entirely ignored the affidavits prepared by a reputable forensic accountant, and the voluminous documentation defendant presented. In the court's opinion, defendant had had "repeated days in court." However, on this motion, defendant clearly presented new financial information and an expert affidavit explaining that defendant's circumstances had changed, and not for the better. Accordingly, it held that defendant should have had a hearing to assess the new financial information and new expert affidavit.

Lifetime Maintenance Award of $200 per Week to Be Warranted Given the Identified Disparity in the Parties' Respective Incomes and the Wife's Reduced Earning Potential.

In Scarpace v Scarpace, --- N.Y.S.2d ----, 2011 WL 1797230 (N.Y.A.D. 3 Dept.) after 31 years of marriage, plaintiff (husband) commenced an action for divorce. The parties entered into a stipulation with respect to all issues with the exception of spousal maintenance. According to their stipulation, the marital property was divided such that each party would retain various liquid assets valued at approximately $580,000. The wife's share included the unencumbered former marital residence, appraised at $250,000, and a payment received from the husband in the amount of $110,000. The parties also stipulated, that they each retain their own pension rights as separate property. After a trial, Supreme Court awarded the wife maintenance in the amount of $200 per week for six years, effective May 22, 2009. On appeal the wife contended that Supreme Court erred in setting the amount of maintenance at $200 per week and in limiting its duration to six years. The wife argued that the maintenance award would impair her ability to save money and, because she would reach her intended retirement age when the maintenance award terminates, she will be forced to rely on her savings to maintain her standard of living. The Appellate Division modified the underlying judgment to he extent that the wife was to receive lifetime maintenance in the amount of $200 per week, retroactive to October 16, 2007, the date of her answer. The Appellate Division observed that "Maintenance is appropriate where, among other things, the marriage is of long duration, the recipient spouse has been out of the work force for a number of years, has sacrificed her or his own career development or has made substantial noneconomic contributions to the household or to the career of the payor". At the time of trial, both parties were in their mid-fifties and in generally good health. Throughout their marriage, they lived a financially conservative lifestyle, resulting in no college loans for their four emancipated children and no mortgage on the marital home. While the husband attended college and built his career, the wife worked various part-time and seasonal jobs and devoted her time to tending to the needs of their children. As a result, the wife did not commence her current full-time occupation with State Farm Insurance until approximately 1996, such that at the time of trial, her annual income was roughly $32,000. The husband was earning $104,000 per year as a 32-year employee of the Department of Taxation and Finance. While the husband estimated that he would receive over $5,000 per month from his pension alone upon retirement, the wife estimated that between Social Security retirement and her own pension, she would receive approximately $1,200 per month upon her retirement. The wife also testified that she was now required to pay for health and homeowner's insurance, school and property taxes and various utilities and household expenses, all of which previously had been paid for by the husband. Finally, the wife testified that, while she used to save $600 per month, since the divorce she can only afford to save $275 per month, and that she has accumulated $8,600 in credit card debt due to their son's college expenses. The Appellate Division was persuaded that an award of lifetime maintenance was appropriate here. While it was true that the parties enjoyed a modest standard of living during their marriage and that the wife not only can contribute toward her own support but also has received assets through equitable distribution, one of "the many specific considerations underlying an award of nondurational maintenance ... is the present and potential future income of the parties". Given the identified disparity in the parties' respective incomes and the wife's reduced earning potential, it found a nondurational maintenance award of $200 per week to be warranted.

Finding That MBA Made the Defendant a More Attractive Candidate for Position in the Financial Sector of the Cable Television Industry Enhanced His Earning Capacity and Was a Marital Asset.

In Huffman v Huffman, --- N.Y.S.2d ----, 2011 WL 1817309 (N.Y.A.D. 2 Dept.) Supreme Court awarded the plaintiff 30% of the value of defendants master's degree, weekly child support of $1,281.14, and maintenance for four years commencing December 1, 2008, in the amounts of $5,000 per month for the first and second years, $3,500 per month for the third year, and $2,000 per month for the fourth year, and directed him to pay to the plaintiff $90,793.02 in connection with certain bonus money. The Appellate Divison held that Supreme Court's determination of basic child support was proper. The Supreme Court providently exercised its discretion in calculating child support against $300,000 of the defendant's income based upon the standard of living that the parties' children would have enjoyed had the marriage not dissolved and upon the parties' disparate financial circumstances, which were apparent from the record. Under the circumstances of this case, the Supreme Court improvidently exercised its discretion in awarding the plaintiff maintenance for four years beginning December 2008, given the length of the parties' marriage, the plaintiff's ability to reenter the workforce, and the fact that the defendant was paying temporary support pursuant to a pendente lite order dated February 25, 2005, requiring him to pay the plaintiff $2,500 per month in maintenance retroactive to November 11, 2004. Thus, the maintenance award had to be recalculated retroactive to November 11, 2004, taking into account any credit due for amounts paid by the defendant pursuant to the pendente lite order. The Appellate Division disagreed with defendants contention that the trial court erred in concluding that his MBA degree provided him with an enhanced earning capacity subject to equitable distribution. An academic degree earned during a marriage qualifies as marital property which is subject to equitable distribution ( McGowan v. McGowan, 142 A.D.2d 355, 357). The value of a degree is the "enhanced earning capacity it affords the holder" (O'Brien v. O'Brien, 66 N.Y.2d 576, 588). Here, while the defendant presented some evidence that an MBA degree was not an actual prerequisite to his employment in various finance positions in the cable television industry, there was also ample evidence, including expert testimony, to support the Supreme Court's finding that the attainment of this degree made the defendant a more attractive candidate for a position in the financial sector of the cable television industry. Accordingly, the Supreme Court properly concluded that the MBA degree which the defendant obtained during the course of his employment enhanced his earning capacity. The Supreme Court also properly determined that the plaintiff was entitled to a 30% share of the defendant's enhanced earning capacity. Although the plaintiff did not make direct financial contributions to the husband's attainment of his MBA degree, she made substantial indirect contributions by, inter alia, supporting the husband's educational endeavors, working until August 2000 and contributing her earnings to the family, being the primary caretaker of the couple's children, cooking family meals, and participating in housekeeping responsibilities. Bonuses earned for work by a spouse during the marriage constitute marital property subject to equitable distribution, even if paid after commencement of the divorce action, and are distributed after taking income taxes into account. It saw no reason to disturb the Supreme Court's equitable distribution of the defendant's 2002 and 2003 bonuses. However, it agreed with the defendant's contention that the Supreme Court erroneously distributed his gross 2004 bonus without taking into account income taxes. Accordingly, upon remittal, to the Supreme Court the award had to be recalculated to the extent it is based upon the defendant's 2004 bonus, to take into account income taxes paid by the plaintiff.

Proper to Apply a Lack of Marketability Discount of 25% to Reflect the Risk Associated with the Illiquidity of a Close Corporation Whose Shares Cannot Be Freely Traded.

In Cooper v Cooper, --- N.Y.S.2d ----, 2011 WL 1817757 (N.Y.A.D. 2 Dept.) the parties were married on April 8, 1984, and had two children, born in 1989, and 1992, respectively. Supreme Court, inter alia, awarded the plaintiff post-divorce maintenance of $5,000 per month for a period of four years, interest of 9% per annum on installment payments of the plaintiff's distributive awards, child support of $1,192.31 per week, based upon a finding that the defendant's "CSSA income is $250,000 per year," directed the defendant to maintain a life insurance policy for the benefit of the plaintiff and the children in the value of $500,000, and awarded her counsel fees of $50,000. This action was commenced in March 2003. The defendant was the founder and owner of Triangle Electronics Group, Inc. ( Triangle), which distributed electronic components. A primary issue at trial and on appeal was the equitable distribution of the defendant's 100% interest in Triangle, which the Supreme Court determined was worth $1,625,000 on the date of commencement of the action. In so doing, the Supreme Court credited the defendant's expert. The Appellate Divison held that the determination of the fact finder as to the value of a business, if within the range of the testimony presented, will be accorded deference on appeal if it rests primarily on the credibility of expert witnesses and their valuation techniques". The testimony of the defendant's expert, which was supported by competent evidence in the record and a written report admitted into evidence, was properly credited by the Supreme Court. The defendant's expert properly applied a lack of marketability discount of 25% to reflect the risk associated with the illiquidity of a close corporation whose shares cannot be freely traded. The Supreme Court properly determined that the plaintiff was responsible for one-half of the federal tax liability of $1,371,744 incurred when the defendant filed amended income tax returns for the tax years 1999, 2000, 2001, 2002, and 2003, but that she was not responsible for New York State tax liability, or any interest and penalties as a result of the filing of the amended tax returns. Since that tax liability was incurred during the marriage, the Supreme Court properly determined that the plaintiff was responsible for part of this liability. The record established that the defendant was responsible for the delay in reporting the income declared on those amended returns and, therefore, was properly required to pay all interest and penalties. Further, under all of the circumstances of this case, including that fact that, with respect to New York State tax liability, the plaintiff was officially adjudicated an innocent spouse, the Supreme Court providently exercised its discretion in determining that the plaintiff was not responsible for any of the New York State tax liability. The Supreme Court properly exercised its discretion in awarding the plaintiff post-divorce maintenance in the sum of $5,000 per month for a period of four years, based upon the parties' standard of living during the marriage, their income, and the plaintiff's distributive awards. The amount of maintenance awarded to the plaintiff would ensure that her reasonable needs were met, while providing her with an incentive to become self-supporting. Further, the award of child support was proper. The award of counsel fees, and the denial of additional expert fees, was a provident exercise of discretion, in light of the interim awards of counsel fees and expert fees, and the Supreme Court's conclusion that the fees demanded by the plaintiff's expert were excessive. Further, the award of interest at the statutory rate of 9% per annum (see CPLR 5004), on the plaintiff's distributive awards, should the defendant elect to pay those awards in installments over a period of five years, was a provident exercise of discretion.

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