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Howard v. Fortuna

July 15, 2009


On appeal from Superior Court of New Jersey, Chancery Division, Family Part, Essex County, Docket No. FM-07-2681-05.

Per curiam.


Argued March 24, 2009

Before Judges Parker, Yannotti and LeWinn.

In this matrimonial matter, defendant Nicholas Fortuna appeals from an amended judgment of divorce entered on May 3, 2007; and five post-judgment orders: three entered on July 20, 2007 granting plaintiff's motion for enforcement and counsel fees and denying defendant's motion for reconsideration; an order entered on September 24, 2007 denying defendant's motion for recusal of the trial judge; and an order entered on September 27, 2007 denying defendant's motion for a stay.


The parties were married in 1989 and had two children: a son, now age sixteen, and a daughter, now age fourteen. When they married, plaintiff had a Masters Degree in public policy and defendant had his law degree. In the early years of the marriage, plaintiff earned considerably more than defendant, who was beginning to build his law practice in New York City.

Plaintiff left her employment in 1996 to care for the children. In 1997, the parties purchased the marital home in Short Hills. In 2002, the parties hired an after-school babysitter so that plaintiff could assist defendant at the law firm after defendant bought his partner's interest. Plaintiff had law firm business cards listing her as "Administrator." She worked at the firm's New York City office and from home to increase the efficiency of the firm's billing and collection records. Among other things, plaintiff created monthly accounts receivable reports and summary spreadsheets listing the firm's matters, the outstanding balances and new invoices. Defendant acknowledged that plaintiff also managed the installation of all the computers and software at the firm.

At trial, plaintiff testified that through her efforts, "the firm revenues are fairly stable, but expenses have gone down significantly; and, therefore, the business profitability has gone up consistently since 2002." The only compensation plaintiff received was a lump-sum payment in 2004 of $7,500, which was actually paid by Millburn Management, a related company the parties had formed for tax purposes.

In April 2004, the parties contracted to purchase property in Naples, Florida. They paid $305,731 for the property and sold it in January 2005 for net proceeds of $357,169. In September 2004, they contracted to build a home in East Marion, Long Island, New York, for $670,000. In November 2004, they contracted to purchase a furnished condominium in Naples, Florida, for $285,000. The parties closed on the Florida condominium in January 2005, and stipulated the value of that property as $362,966.

At about the time they closed on the Florida condominium, plaintiff told defendant she wanted a divorce. As a result, in March 2005, they cancelled the contract for the Long Island home, losing about $65,000. Between January and June 2005, defendant claimed he spent $13,989.23 on furnishings, personalty and improvements for the Florida condo. Plaintiff disputed this, however, noting that they had purchased the condo furnished. In any event, approximately $12,000 of those purchases were made through Millburn Management.

On June 2, 2005, the parties signed an agreement in which they consented to joint legal custody of the children. On June 14, 2005, plaintiff filed the complaint for divorce. A consent judgment was entered on December 14, 2005, wherein the parties agreed that the children would spend sixty percent of their overnights with plaintiff and forty percent with defendant. In the consent judgment, the parties continued their agreement to share joint legal custody and to confer with each other before making decisions concerning the children's health, education and welfare. In the event they disagreed, they would retain a mediator to resolve those issues before resorting to litigation.

Prior to the complaint being filed, defendant diverted funds paid to his law firm and deposited them in an account in his own name. In April 2005, he deposited $42,000 in his account, $32,000 of which came from "draw checks" and $10,000 from the Millburn Management account. That same month, defendant deposited $1,000 toward the purchase price of $452,000 for a condominium in Maplewood. In May 2005, defendant paid an additional $44,200 on the condominium, and closed on that property in June 2005, and transferred $14,000 from the marital savings account to his individual checking account without telling plaintiff. The parties later agreed that plaintiff would receive credit for the $45,000 he had used from marital funds or defendant would pay her $22,600 from his share of the assets.

In June 2005 -- the month the complaint was filed -- defendant cancelled plaintiff's access to his American Express account and terminated her online access to their joint savings account. Plaintiff then transferred $34,500 of marital funds and $5,000 from a joint home equity account to her own checking account.

In September 2005, in accordance with a court order, plaintiff obtained employment as a manager for Jacobs Levy Equity Management, Inc. At the time of trial, she was earning $120,000 with the ability to earn a year-end bonus up to $30,000 and a deferred compensation bonus up to $20,000. Defendant's tax returns from 2004 indicated that his law firm earned $467,304 and Millburn Management earned $12,257. Based upon her knowledge of the firm's billing, accounting and collection systems, plaintiff maintained that defendant suppressed collection of receivables after January 2005. In January 2006, defendant made a mortgage application for a new home in Short Hills.

During the trial, numerous discrepancies in defendant's case information statement (CIS) were brought to light. He acknowledged not making certain court-ordered counsel-fee payments to plaintiff and making other payments from joint funds when he had been directed to use his own assets.

With respect to valuation of defendant's law firm, plaintiff's expert, Mark Bloomfield, testified at length as to how he valued the firm. He stated that he used the excess earnings approach, which he described as "a method between an asset approach and a capitalization of earnings." The excess earnings approach "is based on a methodology included in Internal Revenue Service Revenue Ruling 68609, which basically lays out a formula." The "formula attempts to capture not only an intangible good will value based on a revenue stream but also considers the tangible assets of the . . . entity that you're valuing." According to Bloomfield, "[t]hat approach is very commonly used in valuing professional practices." After extensive testimony about how he reached his conclusions, Bloomfield testified that the firm's good will was valued at $579,512 and added that amount to the net tangible assets of $441,660. As of June 30, 2005, he valued the practice at $1,020,000.

Several weeks after his testimony, Bloomfield supplemented his initial evaluation after receiving corrected billing information for June 2004 to June 2005. He indicated that the newly-provided billing information resulted in a revised value of defendant's interest in the law firm as $940,000 as of June 30, 2005 -- approximately $80,000 less than his initial appraisal.

Defendant's experts, David Politziner and Michael Yanoff, valued the law practice as of January 2006 at $379,000 using the capitalization of earnings method, and $303,000 using the asset approach. Politziner later amended his report and valued the firm at $340,000 using the capitalization of earnings method, and $541,000 using the excess earnings method. Politziner also testified at length as to how he reached his valuation.

With respect to the marital home, plaintiff's certified real estate appraiser valued the home at $960,000. Defendant's licensed appraiser valued the property at $1.3 million. Notwithstanding the difference in valuation, the balance on the mortgage as of March 2006 was $254,331.35. The parties agreed to share that balance equally.


After a ten-day trial, the court rendered a lengthy and detailed written opinion, setting forth the parties' stipulations and the court's findings of fact and conclusions of law on custody and parenting time, equitable distribution, alimony, child support, the distribution of tax exemptions and provisions, allocation of medical insurance and expenses, life insurance and counsel fees. The amended judgment of divorce was entered on May 3, 2007 and provided as follows:

1. The marital home in Short Hills was valued at $960,000, to be shared equally by the parties.

2. The condominium in Naples, Florida, was valued at $362,966, to be shared equally by the parties.

3. Defendant's law practice was valued at $960,000, to be shared equally by the parties. Defendant was ordered to pay $480,000 to plaintiff by way ...

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