On appeal from Superior Court of New Jersey, Chancery Division, Family Part, Essex County, FM-07-1163-98.
Before Judges Cuff, Wecker and Winkelstein.
The opinion of the court was delivered by: Wecker, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 20, 2001
Defendant James Brown ("James") appeals from the financial terms of a divorce judgment, challenging the amounts awarded to plaintiff Ellen Brown ("Ellen") as permanent alimony, child support, equitable distribution, counsel fees, and expert witness fees. In this appeal, we hold that under the rationale of Balsamides v. Protameen Chemicals, Inc., 160 N.J. 352, 368 (1999), and Lawson Mardon Wheaton, Inc. v. Smith, 160 N.J. 383, 397 (1999), which adopt the position of the American Law Institute as set forth at 2 ALI Principles of Corporate Governance § 7.22(a) and comment e thereto, neither marketability nor minority discounts apply to the valuation of defendant's 47½% interest in a closely-held corporation for purposes of equitable distribution. For this and other reasons, we remand for reconsideration and further findings with respect to the equitable distribution of James's interest in his family's business, as well as the counsel fee and experts' fee awards to Ellen.
We briefly summarize the relevant background. The parties were married on August 21, 1975, when James was twenty-two years old and Ellen was twenty-three. After twenty-two years of marriage, the parties separated in October 1997. The divorce complaint was filed in November 1997. The trial took place on five days between June and November 1999, and the trial judge issued a thirty-two-page written decision on July 20, 2000. The judgment of divorce was entered on September 7, 2000.
When the parties married, James had recently graduated from college and immediately went to work in his family's wholesale florist business, Union County Florist Supplies, Inc. (Florist), eventually acquiring a 47½% interest in the firm and becoming an officer. He has continually been employed by Florist. Ellen worked full-time as a dental assistant during virtually all of the marriage and continues in the position she has held for many years. The parties' only child, Matthew, was born September 6, 1985 and adopted as an infant. The parties agreed to joint legal custody of Matthew, with Ellen as the primary residential custodial parent.
The parties owned their own home in Bloomfield, which they improved over the years. They sent Matthew to a private school, Montclair Kimberley Academy, as well as to summer camp; generally took vacations three times per year; and each drove a leased car supplied by Florist and replaced every three years. In 1998, James reported W-2 income of $75,000, 1099 income of $75,000, and interest income of $7,131, all from Florist, and "passive income" of $8,514 from both Florist and PRJ, a real estate partnership in which James, his brother Richard, and his mother Patricia each held a one-third interest. Thus James's income reported in 1998 was in excess of $165,645. Ellen reported W-2 income of $27,194.99 for 1998. Each party's reported income in 1997 and 1996 was similar to that reported for 1998.
With respect to equitable distribution, the trial judge adopted Ellen's expert's valuation of James's interest in Florist as $561,925, which excluded discounts for lack of marketability and lack of control that James's expert included, and which omitted any reduction for James's claim that he received his interest as a gift. The judge awarded Ellen 40% of James's interest, $225,000, in equitable distribution. The parties agreed on the appraised value of PRJ's real property and the partnership's equity therein. After rejecting James's claim that his one-third interest was a gift and therefore immune from equitable distribution, the judge awarded Ellen $67,000, 40% of James's share of the equity in the property.
The parties stipulated the fair market value of the marital residence at $182,500 and the mortgage balance at $94,000. The judge awarded James $35,500, approximately 40% of the equity in the house. Ellen received title to the house subject to the mortgage and responsibility for repairs to the roof and windows and for water damage,*fn1 thus receiving net value of approximately $49,700.
In addition to the house and to James's holdings in Florist and PRJ, the parties' assets subject to equitable distribution and valued as of the date of the complaint, were:
James's Paine Weber Investment Account: $27,000 *fn2
James's Paine Weber Retirement Account: $29,536.82 *fn3
Ellen's IRA Account: $6,464
Ellen's Employer's Pension Account: $37,284
Household Furnishings: $15,000
These assets were ordered divided equally between the parties. In awarding Ellen 50% of the filing-date balances in James's Paine Weber accounts, plus "accumulated dividends, interest and growth . . . to the date of distribution . . . ," the trial judge found that although James had invaded those accounts during the course of the litigation with permission of the court, the orders allowing those withdrawals had reserved a final accounting to the conclusion of trial, and James "had the financial ability to pay the attorney fees, reasonable Bar Mitzvah costs; camp and temple expenses from his income and/or from his mother who paid the camp and temple costs prior to the parties' marital problems."*fn4 The judge applied the following legal principles:
Marital liabilities as well as marital assets must be considered when awarding equitable distribution. Monte v. Monte, 212 N.J. Super. 557 (App. Div. 1986). "However, if the debt resulted because the husband intentionally dissipated marital assets such intentional dissipation is no more than a fraud on marital rights and the debt will not be charged to the wife." Monte, supra. If the defendant depleted marital assets to discharge his obligations, he would be charged with the amount of the depletion. Weiss v. Weiss, [226 N.J. Super. 281 (App. Div. 1988).] Moreover, a party may not use marital assets to defray support from current earnings and thereby defeat a spouse's interest in the asset at the time of equitable distribution. Lynn v. Lynn, 165 N.J. Super. 328 (App. Div. 1979).
The parties' only marital debts as of the filing date were found to be an $18,000 credit card debt and James's $1,500 dental bill. The trial judge rejected James's claim that he owed his brother $2,300 and his mother $21,850 as a result of loans he claimed he needed in order to comply with his support obligations. The total $19,500 debt subject to equitable distribution was allocated 24% to Ellen and 76% to James, thus rejecting James's contention that the credit card debt was not marital. As James summarizes the award of equitable distribution, his net cash obligation to Ellen under the divorce judgment is $261,500.
With respect to alimony, the judge properly considered the statutory factors, N.J.S.A. 2A:34-23b; the parties' marital standard of living, consistent with the subsequent decision of the Supreme Court in Crews v. Crews, 164 N.J. 11 (2000); the parties' projected budgets; and their respective earnings and earnings potential. After finding that Ellen had little likelihood of substantially increasing her earnings in the future, whereas James had the potential for increasing his income from Florist, the judge awarded Ellen "permanent alimony in the amount of $62,500 payable $1,200 weekly," consistent with our subsequent decision in Cox v. Cox, 335 N.J. Super. 465 (App. Div. 2000). James did not dispute the appropriateness of a permanent alimony award to Ellen, but only the amount. In setting the amount of alimony, the judge noted that although James's "household consists of another 'family' which [he] is substantially subsidizing from his current income," he did not provide any information respecting his contribution to his new partner's living expenses and those of her children.
The judge calculated James's child support obligation under the Child Support Guidelines at $194 per week. Matthew's private school expenses of $16,500 per year were allocated 25% to Ellen and 75% to James, with James to be responsible for 100% of Matthew's approximately $6,700 in annual hockey expenses and summer camp. James was to provide medical and dental coverage for Matthew, and unreimbursed expenses above $250 were to be allocated 44% to Ellen and 56% to James.
James was to provide security for alimony and child support by maintaining life insurance in the amount of $500,000 with plaintiff as the irrevocable beneficiary to secure his alimony obligation, and by maintaining $150,000 with plaintiff as trustee for Matthew to secure child support until his emancipation. The insurance obligation is not challenged on this appeal.
Finally, the judge cited R. 5:3-5(c), Williams v. Williams, 59 N.J. 229 (1971), and D'Onofrio v. D'Onofrio, 200 N.J. Super. 361 (App. Div. 1985), as the basis for a discretionary award of counsel fees to Ellen based upon "the plaintiff's needs, the defendant's financial ability to pay, and the parties' good faith in instituting or defending the action." In addition to the disparity in income between the parties, the judge emphasized as a rationale for the fee award that a sizeable portion of the legal work performed by the plaintiff's attorney was the result of the defendant's bad faith in raising or prolonging issues related to income, alimony, child support, and equitable distribution . . . . [and finding] that the defendant acted in bad faith in misrepresenting his income, his "immunized" family business assets (subject to equitable distribution); his claim of business discounts not permitted in equitable distribution evaluations without exceptional circumstances and his use of marital assets to pay "expenses" with the intent to deprive the plaintiff of her right to equitable distribution .
The judge found Ellen's attorney's certification of services reasonable and necessary both in the hourly rates and time expended, and awarded plaintiff $40,250 (less $7,500 previously paid by defendant pendente lite) against the $65,987.50 claimed by her attorney for legal fees plus $1,894.90 costs. The judge also awarded Ellen $18,500 (less $3,500 previously paid pendente lite) against her accounting expert's total invoice of $25,050.90, plus $580.90 costs and noted the balance owed to defendant's accounting expert, $23,000,*fn5 from which he "infer[red] that the plaintiff's expert's fees were both reasonable as to time and hourly charges."
We do not interfere with the judge's determinations respecting alimony, child support, or the equitable distribution of assets other than defendant's interest in Florist. The judge's findings and allocation of marital assets and liabilities,*fn6 other than Florist, are supported by substantial credible evidence, and we defer to those findings. See Pascale v. Pascale, 113 N.J. 20, 33 (1988); Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974); Borodinsky v. Borodinsky, 162 N.J. Super. 437, 443-44 (App. Div. 1978). The trial judge's determinations of alimony and child support are likewise supported by credible evidence in the record, and we defer to those determinations. We recognize however, the interrelationship of equitable distribution, alimony, child support, and fee awards. See John D. Miller v. Margaret C. Miller, 160 N.J. 408, 420 (1999); Gladys Miller v. Jay Miller, 97 N.J. 154, 171 (1984); Stamberg v. Stamberg, 302 N.J. Super. 35, 42 (App. Div. 1997); Koelble v. Koelble, 261 N.J. Super. 190, 192 (App. Div. 1992); Slayton v. Slayton, 250 N.J. Super. 47, 50 (App. Div. 1991). We therefore leave it to the discretion of the Family Part ...