May 10, 2010
KATHLEEN HALAKA, PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
GAMAL HALAKA, DEFENDANT-APPELLANT/CROSS-RESPONDENT.
On appeal from Superior Court of New Jersey, Chancery Division, Family Part, Hunterdon County, Docket No. FM-10-128-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 9, 2010
Before Judges Carchman and Parrillo.
Defendant Gamal Halaka appeals from those portions of a final judgment of divorce (FJD) awarding plaintiff Kathleen Halaka $55,000 in annual permanent alimony and $40,000 in counsel fees, and obligating him to pay a greater share of the marital debt. Plaintiff cross-appeals from that portion of the FJD requiring her to pay fifty-percent of the parties' home equity line of credit (HELOC). We reverse the alimony award and remand for reconsideration in light of this opinion, and affirm the FJD in all other respects.
The parties were married in 1987 and have two children, now ages twenty and eighteen. At the time of their marriage, plaintiff, fifty-six years old at trial, was employed as a secretary and remained so employed, earning as much as $27,000 annually, until the birth of her first child. She returned to work in 2005, as a substitute teacher, but cannot seek permanent employment as a full-time teacher because she has only an Associate's Degree in Secretarial Science. Plaintiff's employability expert opined her earning capacity is between $22,800 to $29,150 annually, while defendant's expert concluded she could earn between $35,000 and $38,000 per year.
Defendant, age fifty-three at the time of trial, operates his own physical therapy practice, which he began in 1991 and presently has a value stipulated at $75,000. Based on financial data from 2002 to 2006, plaintiff's own expert opined that defendant's practice generated, on average, gross income of $102,000 annually.*fn1
The parties jointly purchased a home in Long Valley shortly after they married, depositing $19,000 from the sale of defendant's first home as a down payment. They later sold the Long Valley home and in 1996, purchased a home in Califon for $518,000, which is currently valued at $749,000, with a first mortgage balance of $265,890 and a HELOC balance of $97,259.
The couple's lifestyle during the marriage exceeded their income. According to plaintiff's expert, the parties had expenses "in the range of $110,000 to $120,000 a year[,]...
[t]hat's a net number... net spending money." According to defendant, because of the parties' spending habits, he was not able to meet the family's monthly expenses from his income for several years, running a shortfall of anywhere from $2,000 to $4,000 per month. Consequently, defendant financed his family's monthly budget deficit by borrowing from the HELOC or the parties' credit cards. Thus, their HELOC account balance grew from $38,530 at the time the divorce complaint was filed in October 2006, to $97,259 at time of trial.*fn2 Also, at time of trial, the parties' credit card debt totaled approximately $53,000.
These sources also helped fund defendant's stock trading, of which plaintiff was apparently unaware. Defendant began trading on margin in 1999, largely from an A.G. Edwards account and, later, an E*TRADE account that he opened in 2004. These brokerage accounts were funded in part by a series of withdrawals, unbeknownst to plaintiff, from the parties' HELOC, including checks of $49,328, $44,777, $19,791 and $14,000 to A.G. Edwards, and multiple checks to defendant's E*TRADE account. In 2003 alone, defendant added $38,318 to his A.G. Edwards account, funded through the HELOC, and another $30,397 in deposits to the account, again funded through the HELOC. In June 2004, the account had $53,611 in it; at that time defendant emptied it in an effort to pay bills or pay down the HELOC.
Defendant suffered substantial losses almost from the outset and ultimately stopped day trading in November 2004. Defendant's Schedule D form on his 2004 tax return showed that defendant was involved in $9,440,307 worth of stock transactions, and his cumulative short-term capital loss over the years was estimated at $184,103. At time of trial, defendant claimed to have fully repaid his trading debt to his brokers.*fn3
Plaintiff filed her divorce complaint on October 17, 2006. On June 21, 2007, the parties were granted joint legal custody of their children, and plaintiff was designated the primary residential custodial parent. A pendente lite order of August 24, 2007, set defendant's interim financial obligations, restrained him from dissipating marital assets, and compelled him to submit a detailed accounting of all proceeds withdrawn from the parties' HELOC. A November 30, 2007 Family Part order, among other things, set aside the parties' pre-nuptial agreement,*fn4 and mandated compliance with its earlier August 24, 2007 order.
Following a six-day divorce trial, on March 9, 2009, the judge entered a FJD, equitably distributing the marital assets, allocating the marital debt, and establishing defendant's financial obligations to plaintiff, including permanent alimony of $55,000 annually, based on yearly income of $171,429 imputed to defendant.
On appeal, defendant raises the following issues for our consideration:
I. THE FAMILY PART'S IMPUTATION OF ADDITIONAL INCOME TO DEFENDANT WITHOUT NOTICE OR AN OPPORTUNITY TO BE HEARD VIOLATED MR. HALAKA'S DUE PROCESS RIGHTS UNDER THE CIRCUMSTANCES OF THIS CASE.
II. THE COURT'S ADDITIONAL IMPUTED INCOME TO THE DEFENDANT IS CONTRARY TO THE EVIDENCE.
III. THE PLAINTIFF'S ALIMONY MUST BE INCLUDED IN THE CHILD SUPPORT CALCULATION.
IV. THE CREDIT CARD DEBT AND THE HOME EQUITY LINE OF CREDIT SHOULD BE EQUALLY SHARED BY THE PARTIES.
V. THE TRIAL COURT'S AWARD OF ATTORNEY'S FEES MUST BE REVERSED.
Defendant's essential challenge is to plaintiff's alimony award of $55,000 per year ($4,583.33 monthly), based on income of $171,429 wrongly imputed to him. We agree.
"'[T]he goal of a proper alimony award is to assist the supported spouse in achieving a lifestyle that is reasonably comparable to the one enjoyed while living with the supporting spouse during the marriage.'" Steneken v. Steneken, 183 N.J. 290, 299 (2005) (quoting Crews v. Crews, 164 N.J. 11, 16 (2000)). Although "[t]he award of spousal support is broadly discretionary... the exercise of this discretion is not limitless." Steneken v. Steneken, 367 N.J. Super. 427, 434 (App. Div. 2004), aff'd in part, modified in part, 183 N.J. 290 (2005). Rather, "N.J.S.A. 2A:34-23(b) sets forth the [authority] of the trial court to award alimony and lists, on a non-exclusive basis, those factors the trial court must consider in that context." Steneken, supra, 183 N.J. at 300.
Moreover, income may be imputed to an obligor when fashioning an alimony award, see Pressler, Current N.J. Court Rules, comment 2.5.1 on R. 5:7-4 (2010), because the "calculation of imputed income... [is] within our courts' capabilities[,]" despite the fact that it is a "complex process" that at times yields imprecise results. Miller v. Miller, 160 N.J. 408, 424 (1999). Accordingly, "'[a] trial judge's decision to impute income of a specified amount will not be overturned unless the underlying findings are inconsistent with or unsupported by competent evidence.'" Overbay v. Overbay, 376 N.J. Super. 99, 106-07 (App. Div. 2005) (quoting Storey v. Storey, 373 N.J. Super. 464, 474-75 (App. Div. 2004) (citations omitted)).
Similarly, "[i]n reviewing an alimony award, '[w]e give deference to a trial judge's findings as to issues of alimony, if those findings are supported by substantial credible evidence in the record as a whole.'" Cox v. Cox, 335 N.J. Super. 465, 473 (App. Div. 2000) (quoting Reid v. Reid, 310 N.J. Super. 12, 22 (App. Div.), certif. denied, 154 N.J. 608 (1998)).
Governed by these principles, we conclude that the trial judge's calculation of defendant's gross income, upon which she based his spousal support obligation, is inconsistent with, and unsupported by, the undisputed evidence in the record. Therefore, we are constrained to reverse this feature of the FJD and remand for further consideration in light of the uncontradicted proofs.
In his opening, plaintiff's attorney stated that their expert "determined... that [defendant] has available to him $102,000 annually." Even on appeal, plaintiff acknowledges "cash flow to [d]efendant from his business was $102,000 gross per year." (Emphasis added). In fact, at trial, plaintiff's expert, based on historical financial data over a five-year period, concluded that, on average, defendant has "$102,000 of income available" yearly. The expert then compared defendant's yearly gross of $102,000 to the parties' annual expenses of between $110,000 to $120,000, to conclude that the couple had insufficient income to cover their living costs: "It appeared that their income was less than their cost of living."
Plaintiff's counsel reiterated this point later at trial, telling the judge that the expert "told us that his opinion... is $102,000. That's gross income. Obviously, that's his gross income before taxes." Counsel again noted that "no one is arguing that $102,000 is his spendable income. That's his gross income." Finally in his summation, plaintiff's counsel argued that:
Do I think [defendant has] millions of dollars in securities, or millions of dollars of money hidden? No. But I do believe, and I think the facts clearly show that he has the ability to earn what [the expert] said he had the ability to earn, $102,000. That money is... there, and he should pay based upon that.
Plaintiff herself did not argue additional income should be imputed to defendant and, in fact, requested only a spousal support obligation of $3,000 monthly, based on defendant's average gross annual income of $102,000, presented by her own expert. In summation, plaintiff's counsel reiterated plaintiff's request as well as its basis:
We say, and argue, that the wife and children need, in Virginia, the sum of $5,690 per month, that was plus tax.... That's in evidence. The wife's ability to earn, we take the position, is $2,083 per month. Now, that leaves -- that's $3,607 before tax. With the tax... [s]he needs about $4,148 a month. It's our position in this case that the Court should allocate $3,000 to the wife, $1,000 to the children for child support....
... When you look at the husband's gross income as testified by [the expert], it's $102,000. He pays his wife $36,000 in alimony. [(Emphasis added).]
Significant for present purposes, the trial judge, herself, at first reasoned that plaintiff's expert "concluded that [defendant] had a personal gross income of $102,000 on the average from 2002 through 2006 from his business," that such findings were "solidly grounded in the facts brought forth in the testimony, and the tax returns and other documents produced[,]" and that the expert's findings were not credibly refuted by the defendant.
Despite the undisputed proof, the trial judge, apparently based on the parties' annual expenses of up to $120,000, ascribed to defendant a higher income of $120,000 net, which, when adjusted for taxes, amounted to a gross of $171,429. Nowhere in the record, however, is there support for this calculation. Presumably, in arriving at the $120,000 net income figure, the judge either misinterpreted plaintiff's expert's opinion or ignored equally undisputed evidence that defendant subsidized the household's monthly budget shortfall through debt financing.
As to the former, the judge presumed defendant's business yielded more in annual earnings than the record evidence suggested:
As [defendant] was the only one gainfully employed, the court can conclude that this income, plus the additional amount necessary to pay the income taxes on it, came from [defendant's] business or his secret stock trading. However, because [defendant] claims that his stock market activities resulted in a large net loss, the court can further conclude that [defendant's] business not only kept the household infused with the needed funds, but also covered, through excess credit card and [HELOC] payments, the apparently frequent calls to cover his margin accounts.
Most likely, the potential source of confusion leading to the court's grossly inflated income figure was the following exchange between the judge and plaintiff's expert at trial:
Expert: So [defendant] indicated that the grand total for the budget is [$9,612] per month so that would be somewhere between [$110,000 to $120,000 annually]. And [plaintiff] indicated [$9,573], a very similar number.....
Court: And would that be a net income, [twelve] times the monthly budget or did you gross it up to include taxes?
Expert: I did not gross it up.
Court: So that [$110,000 to $120,000] would be - -....
Expert: That's a net number.
Court: A net.
Expert: Yes, a net spending money.
Obviously, the expert was referring to the parties' yearly "net" expenses, and was not offering, as seemingly interpreted by the judge, an alternative calculation of defendant's net income.
In any event, it was neither reasonable nor plausible to infer that the couple's yearly expenses were met entirely by defendant's income. The uncontradicted evidence demonstrates just the opposite. Whether to finance defendant's significant day stock trading activities or to meet lifestyle demands, or both, the parties amassed substantial marital debt and were living well beyond their means. It is such deficit financing, rather than inflated business earnings, that explains the parties' ability, short-term, to meet their marital standard of living. But, as the trial judge herself recognized, it is highly unlikely that the parties would be able to maintain their marital lifestyle post-divorce. And, in our view, no artificial inflation of defendant's income, or imputation of earnings, would render the unlikelihood of that occurrence any less so. Accordingly, because the trial court's calculation of defendant's gross income, upon which a monthly alimony obligation of $4,583.33 was based, is erroneous, we must remand on this feature of the FJD for reconsideration in light of this opinion.
We find no error, however, in the trial court's allocation of the burden of the marital credit card debt. In ordering defendant to pay $40,000 of the approximately $53,000 in credit card debt, the court found, among other things, that defendant's "lack of candor with [his wife] during the marriage was almost equaled by his lack of candor with this court[;]" that "[e]quity precludes [defendant] from benefiting from his complex cover-up of his stock trading activities[;]" and that although it was not clear how much of the parties' credit card debt was caused by defendant's stock trading, defendant's testimony suggested that at least some part of it was used for that purpose.
"In sum... '[t]he goal of equitable distribution... is to effect a fair and just division of marital assets.'" Steneken, supra, 183 N.J. at 299 (quoting Steneken, supra, 367 N.J. Super. at 434). "[T]he Legislature has enumerated various factors, N.J.S.A. 2A:34-23.1, which although not dispositive, are to be used in concert with the facts of each case in the determination of equitable distribution." Steneken, supra, 367 N.J. Super. at 434-35. One such factor to be considered is the party's "contribution... to the... dissipation... in the amount or value of the marital property...." N.J.S.A. 2A:34-23.1(i).
Although a trial judge's determinations regarding the eligibility and value of assets for equitable distribution are subject to the adequate credible evidence rule, Borodinsky v. Borodinsky, 162 N.J. Super. 437, 443-44 (App. Div. 1978) (citing Rothman v. Rothman, 65 N.J. 219, 233 (1974)), the allocation of those assets is within the trial judge's discretion. Id. at 444. As the court divides a couple's marital assets, it must also "take into account the liabilities... of the parties." Monte v. Monte, 212 N.J. Super. 557, 567 (App. Div. 1986). This court has found that "it may not be an abuse of judicial discretion to divide the assets of the parties equally without requiring them to share the debts." Ibid. (emphasis added).
Here, the evidence strongly suggests that defendant had exclusive control over the parties' finances during their marriage. By his own admission, defendant used the parties' credit cards to, at least partially, finance his secretive stock trading practices. Because his lack of candor and full disclosure, coupled with his failure to submit an accounting as ordered, made it difficult to discern precisely what amount of the marital credit card debt was attributable to defendant's stock trading, the court's uneven division of this marital liability, with defendant shouldering the lion's share, was fair and well within its inherent discretion, especially in light of defendant's far superior earning capacity. See N.J.S.A. 2A:34-23.1(g).
Nor did the court err in ordering defendant to pay approximately one-half of plaintiff's counsel fees. In so doing, the trial judge found that although both "parties will have substantial counsel fees as a result of trial... [plaintiff's] counsel fee will be significantly more because of [defendant's] refusal to engage in meaningful or timely discovery. Indeed, [defendant] refused to hire a lawyer or respond to [plaintiff's] lawyer until the eve of trial." Thus, the court ruled:
R. 4:42-9 and R. 5:3-5 authorize an award of counsel fees in family court actions. Those rules require consideration of several factors.
... The court finds the hourly rate to be reasonable considering [plaintiff's counsel's] seniority and experience, and the formidable reputation he has at the Bar. This case was tried over six non-consecutive days, requiring additional review and preparation for trial. The total fee, likely between $80,000 and $85,000[,] is reasonable considering the trial, and particularly the vexing experience of [plaintiff's counsel] attempting to obtain basic discovery from [defendant]. [Defendant] refused to hire counsel after firing his first attorney and simply shut off communication in an ill-conceived attempt to save on counsel fees. As a result[,] [plaintiff's] counsel had to pursue documentation through third parties and still lacked current numbers. When [defendant] finally hired new counsel on the eve of trial she was put in the unfortunate position of having to provide updated discovery as trial went along, under the constant complaint of [plaintiff's counsel] that he had not timely received it. While the court is sympathetic with [plaintiff's counsel's] frustration, the court needed much of the information to make an informed decision, so it was allowed into evidence. However, this process made [plaintiff's counsel's] preparation between trial dates all the more intense.
Although the legal issues in this case were not complex, the facts and [defendant's] persistent failure of disclosure, right through and including his often incredible testimony, made the case difficult and time-consuming for [plaintiff's] counsel.
N.J.S.A. 2A:34-23 authorizes a court to award fees for expert and legal services in a divorce action "when the respective financial circumstances of the parties make the award reasonable and just." This is a flexible standard, where counsel fees are awarded at the trial judge's discretion. Boardman v. Boardman, 314 N.J. Super. 340, 349 (App. Div. 1998). In determining whether such an award is proper, the court "shall consider the factors set forth in the court rule on counsel fees, the financial circumstances of the parties, and the good or bad faith of either party." N.J.S.A. 2A:34-23. Rule 4:42-9(a)(1) provides that fees may be awarded to any party in a family action, pursuant to Rule 5:3-5(c), which requires that the court consider a multitude of factors, specifically:
(1) the financial circumstances of the parties; (2) the ability of the parties to pay their own fees or to contribute to the fees of the other party; (3) the reasonableness and good faith of the positions advanced by the parties both during and prior to trial; (4) the extent of the fees incurred by both parties; (5) any fees previously awarded; (6) the amount of fees previously paid to counsel by each party; (7) the results obtained; (8) the degree to which fees were incurred to enforce existing orders or to compel discovery; and (9) any other factor bearing on the fairness of an award.
Essentially, in fashioning an award, the court's main focus must be on "the requesting party's need, the other party's ability to pay, and the good and bad faith of each party." Boardman, supra, 314 N.J. Super. at 349. Bad faith includes an "unwillingness or intransigence" during litigation to "fairly negotiate" an equitable distribution of the marital property, "intentional noncompliance with court-ordered obligations[,]" the pursuit of relief which one knew or should have known that he or she was not reasonably entitled to under the facts or law, the "intentional misrepresentation of facts or law" to avoid or unfairly limit equitable distribution or alimony, and "vexatious" or "wanton" acts or acts "carried out for oppressive reasons." Borzillo v. Borzillo, 259 N.J. Super. 286, 293-94 (Ch. Div. 1992).
Regarding the reasonableness of the counsel fees requested, "[a]n application for an allowance of counsel fees must be supported by an affidavit of services addressing the factors enumerated by Rules of Professional Conduct 1.5(a)...." Chestone v. Chestone, 322 N.J. Super. 250, 256 (App. Div. 1999) (citing R. 4:42-9(b)). Thus, when one party, "by virtue of his or her need, seeks to compel the other party to pay all or part of counsel fees incurred, only those fees that represent reasonable compensation for such legal services performed and were reasonably necessary in the prosecution or defense of the litigation may be awarded." Id. at 257 (citing Mayer v. Mayer, 180 N.J. Super. 164, 169 (App. Div.), certif. denied, 88 N.J. 494 (1981)).
We conclude that plaintiff's fee award was amply supported by the evidence and well within the trial judge's discretion. The judge expressly found that defendant behaved in bad faith in both the pre-trial and trial phases; that plaintiff's counsel's hourly fee was reasonable based upon his experience and standing in the legal community; and that the amount of time plaintiff's counsel spent on the case was reasonable, particularly in light of defendant's bad faith. Specifically, defendant failed to comply with the Family Part's pre-trial order to provide an accounting of his withdrawals from the HELOC, and throughout his trial testimony was evasive and continued to offer documents that were not disclosed in discovery. Moreover, the court considered "the income disparity between the parties[,]...
[d]efendant's role as the primary breadwinner[,]" and defendant's financial need. Under these circumstances, the counsel fee award was proper.
On plaintiff's cross-appeal, she argues that the trial court erred in requiring her to pay one-half of the HELOC balance. We disagree.
Although the HELOC was used to partially subsidize defendant's day trading activities, it was indisputably also used to pay marital expenses over and above what defendant's income was able to fund. In this regard, defendant testified that he used the HELOC to pay for his daughter's new car, and to pay off the remaining balance on his wife's car loan.*fn5 Even though defendant secretly withdrew monies to finance his stock transactions, we note that plaintiff would have been entitled to share any resulting investment gains and therefore should bear some of the burden for the consequent losses. On this score, we note that defendant ceased day trading in 2004, long before the court order restraining him from dissipating marital assets. Moreover, some of the monies used to pay for the marital home - the very asset securitizing the HELOC - may be traced to the proceeds from the sale of defendant's pre-marital residence. Considering the use of HELOC funds for marital purposes and defendant's contribution to the underlying marital asset, we find no abuse of discretion in allocating this particular marital debt evenly.
Reversed and remanded for consideration of the alimony award. In all other respects, the FJD is affirmed.