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Steneken v. Steneken

March 15, 2004


On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Passaic County, Docket No. FM-001196-97.

Before Judges Havey, Parrillo and Hoens.

The opinion of the court was delivered by: Parrillo, J.A.D.


Argued February 23, 2004

In this matrimonial action, defendant Gary Steneken appeals from a February 24, 2003 order of the Family Part, after our remand, increasing alimony to $5,500 per month, $1,500 more than the amount originally set by the trial judge in the February 14, 2000 final judgment of divorce, and awarding plaintiff Marilyn Steneken counsel fees. The novel issue raised in this appeal is whether it is impermissible"double counting" to value defendant's business based on his reasonable, rather than actual, compensation and then to calculate alimony based on the same excess salary that was added back to business income, thus increasing the value of the corporate asset for which plaintiff already received her share in equitable distribution.

This is the second appeal in this matter and the facts need to be stated only briefly. The parties were married on August 22, 1971 and separated approximately twenty-four years later on November 23, 1995. Three children were born of this marriage, two of whom, Krisann and Ryan, were emancipated at the time of trial, and the third, Lee, was born on July 27, 1979. A complaint for divorce was filed on April 14, 1997.

The largest marital asset subject to equitable distribution was defendant's interest in Esco Corporation (Esco), a closely-held company in which defendant was the sole shareholder and operator. We recount a description of this business, as well as the marital lifestyle and the parties' financial resources, from our earlier opinion:

Esco manufactures optics, optical components and optical filters. Plaintiff's uncle, Mike Esposito, was a founder and an owner of Esco in 1971 when defendant began working there while he was still a college student. Following his gradation from college, defendant went to work with Esco on a full-time basis. The principal owner, president and operator of Esco was Fred Stuhler. Esposito died in 1976 and Stuhler purchased his interest in Esco from Esposito's widow. Defendant purchased Esco from Stuhler in November 1982 for the sum of $650,000, plus $150,000 as consideration for a non-competition clause agreed to by Stuhler. The purchase was financed by a promissory note and bank loan, with the marital domicile used as collateral. Defendant became Esco's president; plaintiff was not a shareholder, although she was involved with several aspects of the business.

Plaintiff testified to a lavish marital lifestyle that included living in a 3500 square-foot, four-bedroom colonial home in Oak Ridge, the use of luxury vehicles and a sail boat, numerous out-of-state and out-of country vacations, and the receipt of expensive jewelry and gifts. Defendant's testimony did not dispute many of the actual facts concerning the lifestyle; rather, he contended many of the trips were business related.

Plaintiff, a college graduate, began working after Krisann, the oldest child, graduated from college, ultimately taking a full-time position as a science teacher in 1991. Her 1999 gross salary from the Sparta Township Board of Education was $42,465. The wife testified she was considering pursuing a master's degree which would likely significantly raise her salary.

Defendant's gross salary was $188,975 in 1995, $207,707 in 1996 and $198,535 in 1998. Defendant also testified he annually received perquisites (perks)... although they had decreased significantly due to the poor financial condition of the business. In 1998, defendant received $27,000 in perks but testified they averaged less than $16,000 each year since 1995 and were only $12,000 to $14,000, annualized, at the time of trial.....

There were significant differences in the expert testimony presented by the parties at trial concerning the value of Esco and defendant's effective cash flow therefrom. Plaintiff called three expert witnesses. Christopher Sullivan, a real estate appraiser, testified that the value of Esco's real property was $400,000 as of March 19, 1999. Rufino Fernandez, a business evaluation expert, testified that the value of Esco, including the real estate, was $915,000 as of December 31, 1996. Linda Schaeffer, an accountant, testified that husband had an effective cash flow from Esco of $330,072 in 1998, which included the salaries of the children and all perks; if those were not included, she found his gross income from Esco to be approximately $200,000 in 1998.

Defendant's business evaluation expert, Kenneth Arlein, testified that the value of Esco was $568,742 as of April 14, 1997; with the value of the real estate and an existing mortgage added in, Arlein found the value of Esco to be $768,000 as of that date. [Steneken v. Steneken, A-3882-99T5 (App. Div. April 10, 2002) (slip op. at 2-5).]

In his November 18, 1999 decision, the trial judge accepted the business valuation of defendant's expert who used the income, or capitalized earnings, approach. Arlein calculated a capitalization rate of twenty-four percent for Esco and applied that rate to Esco's average annual business income, which was adjusted to reflect a"reasonable" annual salary for defendant of $150,000. This figure was lower than defendant's actual compensation of $207,797 in 1996, the year immediately preceding the filing of the divorce complaint. Thus, Arlein added $57,797 to Esco's average annual income for that year. After making other adjustments*fn1, Arlein calculated Esco's adjusted total income for the years 1992 through 1996, computed an average income, subtracted Esco's income tax liability, and applied the twenty-four percent capitalization rate. This calculation yielded a $568,742 value for Esco, ...

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