| Johnson v Chapin |
| 2008 NY Slip Op 02203 [49 AD3d 348] |
| March 13, 2008 |
| Appellate Division, First Department |
| Janet M. Johnson, Respondent, v Allan M. Chapin,Appellant. |
—[*1] Sheresky Aronson & Mayefsky, LLP, New York City (Allan E. Mayefsky of counsel), forrespondent.
Judgment of divorce and money judgment, Supreme Court, New York County (John E.H.Stackhouse, J.), entered May 17 and September 23, 2005, inter alia, distributing the parties'marital property and awarding plaintiff maintenance, child support and counsel fees, modified,on the law and the facts, (1) to reduce the wife's share of the enhanced value of the Claverackproperty to 25%; (2) to vacate the credit to the wife for 50% of the difference between the sumexpended on the Claverack renovations and the property's appreciated value; and (3) to credit thehusband (a) $548,460 for excess temporary maintenance payments and (b) $484,370.50, 50% ofthe mortgage and maintenance paid for the Fifth Avenue cooperative during the pendency of thedivorce action, and otherwise affirmed, without costs.
The parties, both attorneys, were married in January 1991. In October of the same year, theyhad a son. The husband was the father of four children by a prior marriage, which ended indivorce in 1990. The wife, who had graduated from law school in 1979, worked as an associateat a large New York City law firm for six years. She then left private practice and began to workin house at the Walt Disney Company (Disney). In 1991, when she married the husband, she wasthe corporate vice-president in the motion picture and television department of Disney. Hersalary in that position was $220,000 per year. The wife stopped working outside the home whenthe parties' son was three years old.
At the time of their marriage, the husband was a partner at another major New York City lawfirm, where he remained until the end of 1999. He then left the practice of law and became amanaging director at Lazard Freres & Company, where he earned an annual average salary of$2.1 million over the approximately 11 years that the parties were married. Throughout themarriage, the husband also served on the Board of Directors of a number of publicly tradedcompanies, from which he obtained additional income.
The parties lived an affluent life together that included fine dining, shopping at upscalestores, taking lavish vacations, employing household help, and sending their son to privateschool. They purchased a 3,700 square foot opulent cooperative apartment on Fifth Avenuebetween 94th and 95th Streets in Manhattan. At the time of trial, the apartment was worth [*2]between $10 and $12 million.
Before the marriage, the husband owned a small home and a tenant house on approximately160 acres of land in Claverack, New York. During the marriage, the parties invested close to $2million to remodel the house and make substantial improvements on the surrounding property.The house was expanded, and was fitted with a new large kitchen with indoor and outdoorcooking facilities, a two-story living room, a darkroom, a hot tub, a sauna and a wine cellar. Atennis court and a pond were also built into the property.
The parties agree that the husband played a larger role in the conceptualization and oversightof the Claverack improvements. However, the couple brought their son to Claverack for manyweekends and holidays while the renovation was being completed, and, while at Claverack andtaking care of the parties' son, the wife participated in some of the project's details, and providedfood for the workers as well as the family. For example, she testified that she "order[ed] pizzaand ma[de] coffee for the guys who were working" on the restoration. The wife also stated thatshe personally designed the entire interior of one of the new structures on the property, and thatshe matched the kitchen tiling to the plants that she grew in her organic vegetable garden on theproperty. She also related that much of the parties' weekend and vacation time was spent inClaverack and devoted to "going over plans or bills or budget or proposals or finished work forvarious workmen." The renovation project spanned virtually the entire 11-year period that theparties were married.
At some point after the wife left Disney, the husband's travel schedule changed. It allegedlyrequired him to work longer hours and travel internationally more frequently, leaving plaintiff assole parent in charge of raising the parties' son. Sometime in 2001, the husband began an affairwith a woman he met while traveling. In November of the same year, the wife commenced thisaction for divorce. In response, the husband immediately cut off her financial support. The wifespecifically alleges that the husband hid the family car, and "launched an insidious campaign toalienate [the parties' son] from his mother." She claims that the husband committed adultery andthat his treatment of her was cruel and inhuman. Her complaint demands a divorce judgment,equitable distribution of the parties' marital property, title to her separate property, custody of theparties' child, exclusive occupancy of the marital apartment, maintenance and child support.
In December of 2001, one month after the wife commenced this action, the husband left hisposition with Lazard Freres. Soon thereafter, he began working at Compass Advisors, a boutiqueinvestment bank and venture capital firm. The record and the transcript from the trial, which tookplace between 2003 and 2004, reflect that when defendant joined Compass, its "Deal Log" listed$97 million of deals at various stages of completion. The parties dispute whether Compass willbe retained on all of the deals in the Deal Log, as well as Compass's future. However, at the timeof trial, the husband was promised an annual base salary at Compass of $200,000 with a quarterlydraw of $100,000. The terms of his employment also included an equity interest in the company,various related bonuses, and other investment opportunities. While Compass's CFO testified thatas of 2003 the Compass partners had not yet received their quarterly draws, she also testified thatthe company's performance improved substantially between 2001 and 2003, the last year forwhich the parties had evidence. It remains the wife's position that the husband anticipated "paperlosses" in the early years at Compass which would be "handsomely rewarded" as deals maturedand business grew. Compass's CFO gave testimony which supported this position. For example,Compass's CFO testified that the [*3]company's retainers in 2003were $5,057,837 (items the firm had been contracted for), 10 times its retainers for 2001. Shealso stated that from 2001 to 2003, the company's revenue grew from approximately $2 millionto $11.8 million, that it expanded its offices and hired additional staff.
In 2002, prior to the trial, the wife made an application for interim relief. In response, thehusband insisted that he could not afford to pay the amount requested. He alleged that he was notearning much and had no future expectation of making the millions of dollars he had earnedduring the marriage.
The court recognized the husband's deception and nondisclosure of assets, and imputed anaverage annual income to him of $2,273,680. In an order entered May 16, 2002, the IAS courtawarded the wife $18,465 per month in pendente lite maintenance. The court also ordered thehusband to pay $10,625 per month in child support beginning June 1, 2002, plus the costs ofprivate schooling, tutors, summer camp, extracurricular and recreational activities andtransportation expenses. It found the husband responsible for "all medical, dental and otherhealth-related insurance coverage on behalf of [the wife] and the child" as well as "allunreimbursed, non-discretionary medical, dental, pharmaceutical, optical, [and] psychotherapyexpenses for [the wife] and the child." The husband was also required to pay for all householdexpenses for the marital residence. This included responsibility for all outstanding and ongoingcarrying charges, utility bills, upkeep and maintenance of the marital residence and expensesattributable to household help. Further, the husband was ordered to pay the wife's counsel fees of$100,000. The husband appealed. This Court affirmed, stating: "[T]he motion court, whenconfronted with [the husband's] apparently self-created unemployment and questionableclaim of limited future earnings, was warranted in imputing income to him on the basis ofhis past earnings and earning capacity" (299 AD2d 294, 295 [2002] [emphasis supplied]). In astipulation which was "so-ordered" and entered October 16, 2003, the parties resolved all issuesof custody and visitation.
The husband failed to pay the sums as ordered and built up arrears totaling more than$200,000. As a result, the wife was forced to move for an order enjoining the husband fromtransferring or spending money for any purpose other than to satisfy his outstanding supportobligations. The husband cross-moved for a downward modification of the maintenance andchild support awards and cancellation of his support and maintenance arrears. The IAS courtdenied the husband's application and set the arrears owed at $207,857.74 plus interest. It alsodirected that the husband not transfer certain funds out of his IRA accounts, and it restrained thehusband from dissipating the parties' 2000 tax refund, which had an estimated value of $510,000.
The court noted concrete evidence showing that, in fact, for the prior five years, the husbandhad an average income of approximately $3 million a year, that he was receiving revenue "fromnumerous corporations . . . , and [was] a partner in a very active rising investmentbanking company." It found the husband's "allegations of poverty to be spurious," noting that hespent approximately $63,000 a month on himself. It also stated: "I find [the husband's] argumentthat his earning position has greatly changed since September 11, 2001 to be correct. Hiseconomic position now is much, much better than it was in 2001. The [husband] has not[*4]demonstrated that he has suffered a substantial change incircumstance, financial hardship, loss of income, or loss of earning capacity. If anything, hisincome has increased" (emphasis supplied). The husband appealed. His appeal wasdismissed for lack of prosecution.
The parties were unable to settle their differences and a trial of all remaining financial issuesensued. This took place over approximately 14 days between October 2003 and April 2004. Ninewitnesses testified and hundreds of documents were introduced. The court found the testimony ofthe wife, and her witnesses, to be credible. By contrast, the court did not credit the testimony ofthe husband, or his witnesses.
In a careful and detailed decision after trial, the court reviewed the parties' marital history andenumerated the factors to be considered in an equitable distribution of marital property pursuantto Domestic Relations Law § 236 (B) (5) (d). The court expressed continued frustration atthe fact that the husband had "stonewalled" and erected numerous obstacles to the full discoveryof his income and assets. It stated: "The defendant posed every obstacle imaginable to prevent afair and orderly discovery of his income and assets. Just as he had stonewalled Justice MarjoryFields, hiding the five million dollars he had made in 2000, so too has he stonewalled this court.In a downward modification application to this court he falsely claimed that he earned 1 milliondollars less than he actually received in 2001. In addition to his salary, the defendant has been oris a director for a few very large publicly traded companies, both foreign and domestic, fromwhich he has earned substantial additional income."
The court recognized that the parties had substantial assets, primarily in real estate. Itconcluded that at the commencement of the marriage, the husband had over $4 million in assetsand the wife had $958,463. The husband had argued that he could no longer afford to support hiswife and child in the manner to which they were accustomed. However, the court cited evidencethat, despite his protestations of poverty, the husband continued to live a luxurious lifestyle, andthat he spent approximately $63,000 a month for his own needs and that of his paramour. Thisevidence included invoices or other records of transatlantic trips on the Concorde, the purchaseof fine jewelry and expensive clothing, and the maintenance of five residences (in New York andParis). The court also noted the husband's "severe lapses in memory" when questioned about thethousands of dollars of marital funds spent on his paramour.
The court found that other than their real estate investments, the parties' cash and investmentaccounts represented the most significant component of the marital property. These the courtcorrectly deemed active assets, and it determined their value as of the date of the commencementof the action. By contrast, the real estate holdings were deemed passive assets, which werevalued as of the date of trial.
The court itemized seven of the parties' cash and investment accounts, and determined thattheir cumulative value as of the date of the commencement of the action was $1,925,054. Itdetermined that the husband and wife were each entitled to 50% of this amount, or $962,527.Only one of the accounts, worth $38,793, was in the wife's name, and the court found that thehusband had depleted substantial funds in all of the other accounts. Thus, the court directedthat[*5]$923,734 owed to the wife was to be paid from thedistribution of the remaining accounts, or credited to the wife from the husband's share of theproceeds of the sale of the Fifth Avenue residence.
The court held that the Claverack estate was the husband's separate property. It concludedthat the main house and land were worth $556,000 as of the date of the parties' marriage, and thetenant house $357,000. Accepting the valuation of the wife's expert, the court determined that atthe time of trial, the value of the main house and property was $1,985,000, and the tenant house$516,000. The court held that the extensive renovations primarily accounted for the vast increasein value. Therefore, it held that the funds spent on the renovations were 100% marital propertysubject to equitable distribution. Because the court awarded 50% of the appreciation of theClaverack estate to the wife, it reduced the award for sums paid for improvements by theappreciated value of the property.
The court also reduced the husband's separate property by $1,282,138. This was the amountof marital property the husband used to pay his separate, premarital debt to his first wife. Thus,the court ordered that the wife be credited with 50% of $1,282,138, or $641,069.
The court determined that because the wife had not worked outside the home for nine years,she could not reestablish her legal career. It also concluded that it would take at least six years forher to develop her career in photography. The court thus awarded the wife durationalmaintenance of $6,000 per month for six years.
Finally, the court noted that the wife and her son "have suffered day to day crises resultingfrom the [husband's] harassment of them" with respect to every aspect of this protractedlitigation. It thus awarded the wife legal fees and expert fees to be determined by a referee.
A detailed divorce judgment was entered on May 17, 2005. A hearing before a referee washeld, and the court set the award at $800,000 for the wife's counsel fees, and $85,000 for herexpert fees.
The husband appeals from the judgment of divorce and the fee award. He contends that thecourt erred in making a distributive award to the wife for 50% of the cost of improvements to theClaverack property. He also asserts that the court grossly overvalued that property. The husbandalso claims it was error for the court to have compensated the wife for his payment of hispremarital obligations, and he challenges the award of $885,000 in counsel and expert fees. Inreply, the husband seeks a credit for his pendente lite support obligations in the distributiveaward.
The Domestic Relations Law contemplates an equitable division of assets based upon theparties' respective contributions to the marriage (see Domestic Relations Law §236 [B] [5] [d] [6]). The distribution of the assets depends not only on the financial contributionsof the parties, "but also on a wide range of nonremunerated services to the joint enterprise, suchas homemaking, raising children and providing the emotional and moral support necessary tosustain the other spouse in coping with the vicissitudes of life outside the home" (Price vPrice, 69 NY2d 8, 14 [1986] [internal quotation marks omitted]).
Under the Domestic Relations Law, there are two categories of property: marital property andseparate property. Upon divorce, marital property is subject to equitable distribution and separateproperty is not (Domestic Relations Law § 236 [B] [1] [c], [d]). The statute defines maritalproperty broadly as "all property acquired by either or both spouses during the marriage"(Domestic Relations Law § 236 [B] [1] [c]). The income of both spouses throughout themarriage [*6]is considered part of the marital estate and isutilized to calculate an equitable distributive award (Domestic Relations Law § 236 [B] [5][d] [1]). By contrast, separate property, which is not subject to equitable distribution, is explicitlydefined as property excepted from the marital estate. It is "property acquired before marriage orproperty acquired by bequest, devise, or descent, or gift from a party other than the spouse"(Domestic Relations Law § 236 [B] [1] [d] [1]). Separate property also includes "propertyacquired in exchange for or the increase in value of separate property, except to the extent thatsuch appreciation is due in part to the contributions or efforts of the other spouse" (DomesticRelations Law § 236 [B] [1] [d] [3]). The concept of separate property is interpretednarrowly (see Hartog v Hartog, 85 NY2d 36, 48 [1995]), and there is a presumption thatproperty is marital until one of the parties proves otherwise (LeRoy v LeRoy, 274 AD2d362 [2000]).
The court took testimony from a number of witnesses and considered the valuations of theparties' experts. It then made a detailed itemization of the parties' property and a detaileddistributive award. The court properly considered the factors set forth in Domestic Relations Law§ 236 (B) (5) (d), including the parties' respective contributions to the family economicenterprise (see Price, 69 NY2d at 14-15; O'Brien v O'Brien, 66 NY2d 576, 587[1985]).
The court determined that on the date of marriage, the value of the Claverack main house andland was $556,000 and the tenant house was worth $357,000. The husband was properly creditedthese amounts as separate property. The court then determined that on the date of trial the mainhouse and property were worth $1,985,000 and the tenant house $516,000. These values werebased upon the court's acceptance of the wife's expert's appraisals. This was proper given therecord evidence that the wife's expert was far more experienced in making the type of appraisalsnecessary here. Further, the wife's expert's report was full and accurate, while husband's expert'sreport was replete with errors and omissions (see Cash-Scher v Scher, 299 AD2d 193,193 [2002]; Charland v Charland, 267 AD2d 698, 700-701 [1999]).
The court appropriately held that extensive renovations accounted for the vast increase invalue and that all improvements were 100% marital. Evidence in the record reveals that theClaverack property, as renovated, bears little resemblance to the former modest country housepossessed by the husband when he entered into the marriage. Virtually all of the structures on theland, and the property itself, have been transformed. In awarding the wife half of the property'sappreciated value, the court considered both the wife's work implementing the renovations aswell as the fact that the improvements were paid for with marital funds (see Price, 69NY2d at 11 [where separate property appreciates "due in part" to efforts of nontitled spouse asparent and homemaker, amount of appreciation is marital property subject to equitabledistribution]). The Court of Appeals in Price held that where the nonmonied spousecontributes to the appreciation of the separate property of his or her spouse (through either directefforts, or by taking care of domestic responsibilities while renovation is in process), he or she isentitled to an equitable share of the value of the appreciation.
The Domestic Relations Law considers spouses as participants in a family economicenterprise. Here, both spouses spent a large amount of time and money refurbishing the countryhouse in Claverack. The wife spent many weekends and vacations with her husband and son inClaverack, and she contributed to the renovation of the property.
However, the court's award to the wife of 50% of the appreciation of the Claverack propertywas disproportionate (see Ritz vRitz, 21 AD3d 267 [2005]). Market forces over the approximately 11 years of marriageaccounted for some of the property's increased value. The [*7]wife was not entitled to a credit for any portion of this "passive"appreciation. Thus, a 75%/25% division of the appreciation of Claverack is a more equitableapportionment in the circumstances.
However, a point in the dissent on this issue requires response. The dissent states thatbecause the wife "had nothing to do with the roof replacement [on the tenant house atClaverack]," the "active" appreciation of that structure on the property, largely attributable to thenew roof, remains separate property. This analysis is in direct conflict with the Court of Appeals'holding in Price (supra). The Court in Price instructed that: "whereseparate property of one spouse has appreciated during the marriage and before execution of aseparation agreement or commencement of a matrimonial proceeding and where suchappreciation was 'due in part' to the contributions or efforts of the nontitled spouse as parent andhomemaker, the amount of that appreciation should be added to the sum of marital property forequitable distribution (§ 236 [B] [5]). Whether assistance of a nontitled spouse, whenindirect, can be said to have contributed 'in part' to the appreciation of an asset depends primarilyupon the nature of the asset and whether its appreciation was due in some measure to the timeand efforts of the titled spouse. If such efforts, . . . were aided and the time devotedto the enterprise made possible, at least in part, by the indirect contributions of the nontitledspouse, the appreciation should, to the extent it was produced by efforts of the titled spouse, beconsidered a product of the marital partnership and hence, marital property" (69 NY2d at 17-18).The record is plain that the entire renovation, including the work on the tenant house, took place"due in part" to the direct and indirect efforts of both spouses, including the wife's assistance atClaverack, either caring for the parties' son, cooking, providing meals to the workers, orotherwise contributing time and energy to a project which spanned the entirety of the parties'marriage. It cannot be determined, as a matter of law, on this record, that the wife was not at allinvolved in the renovation. Accordingly, under the Court's reasoning in Price, there is nobasis for determining that the "active" appreciation of that structure was not subject to equitabledistribution.
Because the appreciated value of the Claverack property was less than the near $2 millionexpended on the improvements, the court credited the wife with 50% of the difference betweenthe amount expended and the appreciated value. This was error.
The product of the parties' efforts, which including the $1.9 million investment andsubstantial time and work, was the appreciated value of the Claverack property. The wife doesnot contend that the Claverack improvements were a unilateral "dissipation of assets" on the partof the husband. The couple shared the risk that the property's appreciation would not equal theirinvestment, and there is no basis in law or equity to now shield the wife from the economicconsequences of a shared decision to renovate the Claverack property.
The dissent reaches this same result, for different reasons. First, it states that the $1.9 milliondollars the parties decided to invest in Claverack, income earned by the husband during themarriage, was not "marital property" because this action had not yet been commenced. It thendraws an analogy between the sums spent on the improvements and hypothetical expenditures bya husband or wife on "designer clothing" or "season tickets to sporting events." However, the$1.9 million renovation expenditure bears no useful analogy to one spouse's [*8]expensive hobby. This was a joint investment in a renovationproject that resulted in substantial appreciation of the husband's separate property.
The court also properly reduced the value of the husband's separate property due to hispayment of $1,282,138 in after-tax marital funds to pay his separate obligations to his first wife:$584,136 in maintenance and $698,002 in a prior equitable distribution award. These reductionswere deemed to increase the wife's distributive award by $641,069, also to be recouped from thehusband's share of the proceeds of the sale of the Fifth Avenue apartment.
There is ample authority for the proposition that contribution to the separate assets andliabilities of a former spouse may be recouped in an award of equitable distribution. For example,in Lewis v Lewis (6 AD3d 837[2004]) the Third Department upheld an equitable distribution award which allowed a plaintiff torecoup 50% of payments made during the marriage to reduce mortgage indebtedness on aresidence deemed to be the defendant's separate property. Citing numerous cases, the Courtemphatically reaffirmed the settled principle that: " 'marital funds should not be used to pay offseparate liabilities' and, whenever that occurs, the inequity may be remedied by permitting theinjured spouse to recoup his or her equitable share of the marital funds so used (Micha vMicha, 213 AD2d 956, 957 [1995]; see Carr v Carr, 291 AD2d 672, 676 [2002];Alessi v Alessi, 289 AD2d 782, 783 [2001]; Burgio v Burgio, 278 AD2d 767,769 [2000]; Markopoulos v Markopoulos, 274 AD2d 457, 458-459 [2000]; Carney vCarney, 202 AD2d 907, 908 [1994])" (6 AD3d at 839). Similarly, in Dewell vDewell (288 AD2d 252 [2001]), the Second Department held that the plaintiff was entitled torecoup 50% of marital funds used to reduce a debt incurred to obtain a medical license which, inthe circumstances of that case, was found to constitute the defendant's separate property.Applying this authority, the court properly held that plaintiff was entitled to recoup 50% ofmarital funds used to meet the husband's separate legal obligations to his former wife.
Kohl v Kohl (24 AD3d 219[2005]), cited by the dissent, is distinguishable on the facts. That case involved the treatment ofthe value of gifts to a former wife and children, not a legally enforceable debt. There is noconflict between our finding that the husband's separate premarital debt need not be shared by thewife, and the Kohl court's conclusion that gifts to a former spouse were not a "wastefuldissipation of marital assets." (Id. at 220.)
The essence of what the dissent characterizes as a "remarriage penalty" is the lot of anyindividual who enters into a marriage with outstanding debt. That this husband's debt stemmedfrom a former marriage does not distinguish it from educational debt, credit card debt, or anyother separate financial obligation.
The dissent criticizes this reasoning, posing a hypothetical to support the conclusion that ourposition "proves far too much." One of the hypothetical spouses, W, has $100,000 in educationaldebt (or medical debt or a judgment) incurred prior to the marriage, which the couple repays infull from W's earnings during the marriage. The dissent objects to a finding that H should beentitled to 50% of the marital funds used to satisfy W's debt. However, this was the holding inDewell v Dewell (288 AD2d 252 [2001], supra). The decision states: "Before themarriage, the defendant had incurred significant debt as a result of his having attended medicalschool. Despite having a separate and [*9]substantial stock andbond portfolio, he used marital funds to pay off $203,155.83 worth of debt. Under thecircumstances of this case, the plaintiff is entitled to an award in the amount of 50% of themarital funds that were used to reduce the defendant's debt incurred to acquire his medicallicense, which constitutes separate property (see, Markopoulos v Markopoulos, 274AD2d 457; Micha v Micha, 213 AD2d 956)."
The dissent portends that "the remarriage penalty" represents bad public policy because itwill improperly inject financial forecasting into decisions to divorce. This fear, as well as thedissent's musings as to treatment of legally unenforceable moral obligations on distributiveawards, are not pertinent to the distribution of these parties' assets under the governing law. Thefact that the maintenance obligation was incurred incident to a divorce which allowed this coupleto enter into a legally enforceable marriage is similarly immaterial. Applying settled precedent tothe facts of this case, the wife was entitled to recoup her share of marital property used to pay thehusband's separate debt as part of her distributive award (Lewis, supra;Dewell, supra).
The husband argues that the judgment inequitably directs that he pay $2,833 in monthly childsupport (plus the costs of school, medical bills, and other itemized necessities) and $6,000 permonth for six years in durational maintenance. He also seeks an equitable distribution credit foran alleged overpayment of pendente lite support. However, the court's durational maintenanceaward was not an abuse of discretion. The wife was 51 years old at the time of thecommencement of this action. She had been out of the work force for nine years, during whichtime she had primary responsibility for raising the parties' child. As such, it was both fair andrealistic for the court to have concluded that since it would take at least six years for the wife todevelop a career in photography, a six-year maintenance award of $6,000 a month would provideher with appropriate assistance in reaching her vocational goals and allowing her to becomeself-sufficient (see Atweh v Hashem, 284 AD2d 216, 217 [2001]; Kaplan v Kaplan, 21 AD3d 993,996 [2005]).
However, equity requires that the husband be awarded a distributive credit for $548,460, theamount that his pendente lite support payments exceeded what he would have been required topay consistent with the final maintenance award (Galvano v Galvano, 303 AD2d 206[2003]; Gad v Gad, 283 AD2d 200 [2001]). It also requires that the husband be credited$484,370.50, 50% of the $968,741 in mortgage and maintenance payments made for the maritalresidence during the pendency of the divorce action (Pickard v Pickard, 33 AD3d 202, 205 [2006], appeal dismissed7 NY3d 897 [2006]).
It is the dissent's position that the husband's maintenance, child support and additionalcourt-ordered financial obligations are excessive "in light of the husband's actual earned incomeof $330,000." The $330,000 figure for the husband's present income is derived from thehusband's assertion, at trial, and on appeal, that he receives a $200,000 salary at Compass and$130,000 in fees for serving on various boards. However, the husband has consistently not beenforthcoming regarding his income. The husband has been found incredible in his reporting of hisincome and assets by the motion court ruling on the pendente lite support order, by the courtreviewing the application for a downward modification of support, and by this Court on a priorappeal. Thereafter, the court which presided over the trial and rendered the judgment appealedexpressly found that the husband posed "every obstacle imaginable" to discovery of his actual[*10]income and assets.[FN*]It cited a false statement to the court regarding $1 million in income for 2001, and the husband'sgeneral history of under-reporting his income and hiding his assets. The court also noted that thehusband's claims regarding maintenance and support obligations are inconsistent with thedocumented $63,000 a month that he was spending on himself and his girlfriend. Over a year thiswould amount to $756,000, which is more than double the husband's $330,000 stated grossincome. Because the husband has provided no objective basis for overturning the court'sevaluation of his credibility on the issue of his income and assets, we see no basis for modifyingthe final maintenance and support awards.
Finally, the court's award of counsel fees and expert fees was appropriate. Under DomesticRelations Law § 237 (a), a court in a divorce action may award counsel fees to a spouse "toenable that spouse to carry on or defend the action or proceeding as, in the court's discretion,justice requires, having regard to the circumstances of the case and of the respective parties."Interpreting this section, the Court of Appeals has held that: "in exercising its discretionarypower to award counsel fees, a court should review the financial circumstances of both partiestogether with all the other circumstances of the case, which may include the relative merit of theparties' positions" (DeCabrera v Cabrera-Rosete, 70 NY2d 879, 881-882 [1987]).
Despite the husband's protestations to the contrary, an objective view of the record, includinghis imputed future earnings, shows that he is in a superior financial position. Further, the husbandhas engaged in a pattern of obstructionist conduct which unnecessarily delayed and increased thelegal fees incurred in the litigation (seeCooper v Cooper, 32 AD3d 376 [2006]; De Bernardo v De Bernardo, 180 AD2d500, 502 [1992]). Accordingly, the husband was properly ordered to pay the wife's legal fees.
Further, given that the wife was required to hire an expert to counter the husband's faciallyinaccurate valuation of the appreciation of the Claverack property, the court properly granted thewife an award for her expert's fees (Polychronopoulos v Polychronopoulos, 226 AD2d354 [1996]).
We have considered the husband's other arguments and find them unavailing.Concur—Tom, J.P., Mazzarelli and Buckley, JJ.
Friedman and McGuire, JJ., concur in part and dissent in part in a memorandum by McGuire,J., as follows: The majority is correct that the judgment of divorce and money judgment shouldbe modified so as to vacate those portions of the distributive award to the wife representing (1)50% of the amount by which the total of the expenditures during the marriage on improvementsto the [*11]Claverack property exceeded the appreciation of theproperty, and (2) 50% of the appreciation of the Claverack property over the course of themarriage. The majority is also correct that the wife should be awarded 25% of the appreciation ofthe Claverack property over the course of the marriage, and the husband should be awardedcredits against the distributive award in the amounts of (1) $548,460, representing the amount ofthe excess of the pendente lite maintenance award over the final maintenance award, and (2)$484,370.50, representing 50% of the amounts he spent during the pendency of the divorceaction on the marital apartment (i.e., the Fifth Avenue cooperative).
I write separately with respect to these conclusions in part because my reasoning differssomewhat from the majority, but also because I believe the facts supporting certain of theconclusions should be stated in more detail. In addition, I believe that certain arguments by theparties that the majority does not address should be addressed. However, with respect to twoother issues—Supreme Court's unprecedented award to the wife of more than $640,000,representing 50% of all the maintenance, child support and equitable distribution payments thehusband made during the marriage to his first wife (in accordance with his legal obligations tohis first wife and their children), and the husband's annual income as a partner of CompassAdvisors—I respectfully disagree with virtually everything the majority has to say.
With respect to the Claverack property, which was the husband's premarital property,Supreme Court did not err in accepting the valuation of the wife's expert (Cash-Scher vScher, 299 AD2d 193, 193 [2002]). Supreme Court did err, however, in two respects relatingto the Claverack property. First, Supreme Court should not have included within the distributiveaward an amount equal to 50% of the amount ($444,796) by which the total of the expendituresduring the marriage on improvements to the Claverack property exceeded the appreciation of theproperty. Supreme Court viewed these expenditures as "marital property," but, as the husbandcorrectly observes, "marital property" was not used to improve the Claverack property for thesimple reason that no "marital property" existed until the commencement of this matrimonialaction. As the Court of Appeals stated in O'Brien v O'Brien (66 NY2d 576, 583 [1985]),marital property " 'is a statutory creature, is of no meaning whatsoever during the normal courseof a marriage and arises full-grown, like Athena, upon the signing of a separation agreement orthe commencement of a matrimonial action' " (quoting Florescue, "Market Value,"Professional Licenses and Marital Property: A Dilemma in Search of a Horn, 1982 NY StBA Fam L Rev 13 [Dec.]). As is undisputed, the husband's income was the source of theapproximately $1.9 million expended on the Claverack property during the marriage.
That is not to say, however, that under no circumstances may a distributive award take intoaccount payments made during the course of a marriage that reduce the separate indebtedness ofone spouse or add to the value of one spouse's separate property. To the contrary, DomesticRelations Law § 236 (B) (5) (d) (13) expressly and broadly authorizes the trial court totake into account "any other factor which the court shall expressly find to be just and proper" indetermining an equitable distribution of marital property. Thus, in Carney v Carney (202AD2d 907, 908 [1994]), what were described as "marital funds"—proceeds of thepostjudgment sale of the marital residence—were used to pay the separate liability of thehusband, and the Third Department ruled that the wife was entitled to a credit of one half of theamount paid to satisfy the liability. In subsequently explaining that ruling, the Third Departmentstated that "[a]uthority for that resolution can be found in the traditional notion that equity willintervene to remedy one spouse's breach of fiduciary responsibility or unjust enrichment by [*12]virtue of his or her expenditure of marital funds" (Micha vMicha, 213 AD2d 956, 957 [1995]).
The funds expended by the husband to improve the Claverack property, however, certainlydid not entail any unilateral breach of his obligations to the wife. Indeed, there is no evidence thatthe wife ever protested these expenditures by the husband, and she has never claimed that shedid. At least some portion of the expenditures, moreover, was made for her benefit. Nor, giventhat the husband was the source of the funds expended on the Claverack property, can thiscomponent of the distributive award be justified as necessary or appropriate to remedy the unjustenrichment of the husband. The implications of Supreme Court's approach are even lessdefensible. Under that approach, a spouse who uses his or her own income or assets during themarriage and makes what turns out to be poor or less than wholly successful investmentdecisions (or who has expensive hobbies) could face significant and potentially ruinous liabilityto his or her spouse if the marriage eventually dissolves.
I do not mean to suggest that the absence of liability should turn solely on whether the fundsexpended can be sufficiently linked to the income or assets of the spouse who expends the funds.Marriage, of course, is an "economic partnership" (see Price v Price, 69 NY2d 8, 14-16[1986]). Accordingly, regardless of the extent to which the funds expended can be traced to onespouse or the other, a spouse who spends, with the knowledge of his or her partner, thousands ofdollars annually on designer clothing or for season tickets to sporting events, should not havehanging over his or her head the prospect of having to pay to his or her partner one half of all thefunds so expended in the event the marriage ultimately fails. At least in the absence of the kind ofcircumstances that support intervention by equity (see Micha v Micha, 213 AD2d at 957),the extent of the freedom of each marital partner is a matter for the partners and should not bepoliced on a retrospective basis by the courts upon the dissolution of a marriage.[FN1]
Second, Supreme Court erred in awarding the wife 50% of the appreciation of the Claverackproperty over the course of the marriage. Given that the marriage was not one of long duration,that the appreciation of the tenant house on the property was passive in nature (Price, 69NY2d at 18 [passive appreciation of separate property, as a general rule, remains separateproperty]), that the funds expended to improve the property were the husband's and that hisinvolvement in the renovations was far more extensive, an award of 25% of the appreciation ismore appropriate (see Ritz v Ritz,21 AD3d 267 [2005]).
With respect to the relative involvement of each spouse in the Claverack renovations, I notethat the wife conceded that the renovations were "primarily [the husbands'] artistic vision [as] hehas better artistic vision in that field than I do." The husband's testimony on the [*13]following points was undisputed: he acted as the generalcontractor for the renovations and thus he "supervised . . . and coordinated all of thepeople working on the project, from the people digging the foundations to the plumbers, to theelectricians"; he paid for all the improvements out of his own income; although he "consulted heron various things, [he] was really responsible for the renovations." As for the tenant house, thetrial evidence shows that with the exception of a new roof, only minor repairs and renovationswere made to the house. The wife, moreover, had nothing to do with the roof replacement.Accordingly, any appreciation of the tenant house on account of the new roof should not beconsidered marital property (Price, 69 NY2d at 18 ["where the appreciation is not due, inany part, to the efforts of the titled spouse but to the efforts of others . . . theappreciation remains separate property"]).[FN2]
The husband should have received a credit against the distributive award of $548,460,representing the amount of the excess of the pendente lite maintenance award over the finalmaintenance award (see Pickard vPickard, 33 AD3d 202 [2006], appeal dismissed 7 NY3d 897 [2006];Galvano v Galvano, 303 AD2d 206 [2003]; Gad v Gad, 283 AD2d 200 [2001]).Contrary to the wife's contention, the husband is not barred from raising the issue of whether heshould receive such a credit because of the dismissal for failure to prosecute of his appeal froman order of Supreme Court denying his motion for a downward modification of the pendente liteaward. In the first place, the bar that can arise when an appeal is dismissed for want ofprosecution is discretionary (see Rubeo v National Grange Mut. Ins. Co., 93 NY2d 750,756 [1999]). In any event, because a final award had not been made the husband could not haveraised the issue of a credit against a final award on that prior appeal (see Ruffing v Union Carbide Corp., 1AD3d 339, 340 [2003]). In the absence of any evidence that the pendente lite child supportpayments were not spent on the parties' child, I would reject the husband's contention that he alsoshould receive an additional credit of $342,848, the amount by which the pendente lite childsupport award exceeded the final child support award.[FN3]
Our decision in Pickard (33 AD3d 202 [2006]) provides decisive support for anotherof the husband's claims of error. In that case we ruled that the husband should not have received acredit of 100% of the amounts he spent during the pendency of the divorce action on the maritalapartment, a cooperative, for maintenance and insurance. Rather, "[s]ince these paymentsmaintained the value of the marital residence and both parties benefitted from the sale of theresidence, [the husband] should have received a 50% credit for these payments" (33 AD3d at205). Here, the marital apartment, a Fifth Avenue cooperative, was awarded to both spouses and,during the pendency of the divorce action, the husband made mortgage and maintenance [*14]payments totaling $968,741. Although I would reject thehusband's argument that he should receive a credit against the distributive award in the fullamount of these payments, under Pickard he plainly is entitled to a 50% credit.
Supreme Court also erred in including within the distributive award the amount of $641,069,representing 50% of the amounts of maintenance, child support and equitable distribution paid bythe husband during the marriage in accordance with his legal obligations to his first wife. As it isundisputed that the husband was the source of the more than $1.28 million that he paid to his firstwife during the second marriage, this component of the distributive award was erroneous foressentially the same reasons Supreme Court erred in awarding 50% of the excess of the amountsexpended to improve the Claverack property over its appreciation. As discussed below,moreover, this award represents bad public policy and is inconsistent with our recent decision inKohl v Kohl (24 AD3d 219[2005]).
In upholding this unprecedented award—the parties cite to no decision in which suchan award was made or upheld—the majority breathes new irony into Samuel Johnson'sfamous definition of remarriage as the triumph of hope over experience. What the majority failsto appreciate is that it thus raises the spectre of a remarriage penalty that will loom over manysecond marriages. Remarriage will be discouraged in the first instance whenever the previouslydivorced spouse is under an obligation to make maintenance, child support or equitabledistribution payments to his or her first spouse. The longer the second marriage lasts, the greaterthe potential financial penalty if it also ends in divorce. Even when it does not deter a secondmarriage, this remarriage penalty will encourage the remarried spouse to file for divorce soonerrather than later if the second marriage encounters difficulties. Under the circumstancespresented in this case, moreover, the penalty inflicted on the spouse who must pay once again asubstantial portion of all maintenance, child support and equitable distribution payments that heor she previously paid to a first spouse also represents a windfall to the recipient spouse.
Putting aside the fact that the majority's decision to uphold the award represents bad publicpolicy and that the majority, unsurprisingly, cites not a single case in which such an award wasmade or upheld, the majority's decision cannot be reconciled with our recent decision inKohl (supra). In Kohl we held as follows: "Nor was the moneygiven by the husband to his former wife and children of that marriage a wastefuldissipation of marital assets. Such gifts were not unreasonable in relation to the husband'sincome and were consistent with the type of gift giving he had engaged in throughout hismarriage to the wife" (24 AD3d at 219-220 [emphasis added]). The conflict is palpable. If aspouse is not on the hook upon the dissolution of a second marriage for 50% (or any portion) ofthe amount of payments made during the second marriage to a former spouse and the children ofthe earlier marriage that are gratuitously made but are not unreasonable in relation to thedonor spouse's income, it makes no sense to conclude that a spouse is on the hook upon thedissolution of a second marriage for 50% of the amount of such payments when they arerequired by law to be made and also are not unreasonable in relation to the income of thespouse obligated to make the payments. No rational public policy could support a rule of law thatthus favors the making of the gratuitous payment even as it discourages the making of the legallyrequired payment.
The majority attempts to defend this award of more than $640,000 as "the lot of any [*15]individual who enters into a marriage with outstanding debt."According to the majority, the husband's obligations to his former wife and their children areindistinguishable from "educational debt, credit card debt, or any other separate financialobligation."
In the first place, however, the husband's obligations can and should be distinguished from"educational debt, credit card debt [and] other separate financial obligation[s]." The husband'sobligations were essential components of the very judgment of divorce that permitted the secondmarriage lawfully to take place. Obviously, when a prospective spouse incurs any of these otherforms of debt, doing so does not enable him or her subsequently to enter into a legally validmarriage.
Moreover, the record establishes that the wife was aware, before marrying the husband, ofthe terms of his prior judgment of divorce. With the "good" of the husband's divorce judgment(i.e., the ability to marry the husband and the benefits, tangible and intangible, she realized overthe course of their marriage), the wife took the "bad" (i.e., the husband's financial obligations tohis former spouse and their children). Even putting aside that the risk the second marriage couldend in divorce was, as the majority puts it in a similar context, one "[t]he couple shared," themajority's determination to uphold the award is clearly wrong. To bestow upon the spouse anaward of 50% of the amounts paid by the husband in accordance with his legal obligations to hisfirst wife and their children wrongly assumes that the wife received no compensating benefits asa result of the marriage she was able to enter into because of the prior judgment ofdivorce.[FN4]Clearly, the wife believed there were such benefits when she entered into the marriage withknowledge of the legal obligations imposed on the husband by that judgment of divorce.
A second flaw in the majority's reasoning is that it proves far too much. Suppose that whenW and H marry, W has $100,000 in educational debt (or owes $100,000 to a hospital foruninsured emergency surgery or to a judgment creditor as a result of a business deal that soured),that during the first 5 or 10 years of their marriage W consistently earns significantly moreincome than H, and that during that period W's student loans (or the other debt) are repaid in fullfrom W's earnings. Under the majority's reasoning, W must pay $50,000 to H if the marriagethereafter ends in divorce. That, after all, "is the lot of any individual who enters into a marriagewith outstanding debt."
The absence of any limiting principle in the majority's reasoning prompts the followingquestion: what is the majority's position with respect to "the lot of an individual" who enters intoa marriage with what he or she regards as a moral obligation to a charitable organization? If thatindividual consistently earns significantly more income than his or her spouse and [*16]contributes $5,000 or $10,000 annually to the charity, does themajority believe that if the marriage ends in divorce the contributing spouse must pay to the otherspouse 50% of all the contributions (on a pre- or post-tax basis)? Given the majority's contentionthat its decision to uphold the award is consistent with the holding in Kohl, neither a yesnor a no answer from the majority would make any sense.
For these reasons, I would vacate the award to the wife of 50% of all the maintenance, childsupport and equitable distribution payments made by the husband to his first wife during theparties' marriage.
The other issue I disagree with the majority about is the husband's earnings at CompassAdvisors. Unfortunately, the majority's discussion of this issue and the history of this litigationon that issue is riddled with errors. To begin, although the majority states that the husband "left"his position with Lazard Freres, the uncontradicted testimony of the general counsel for Lazardwas that senior management decided and communicated to the husband in the fall of 2001, "atime of great tumult for Lazard" when it was going through a restructuring, that the husband"should find other employment" and that he did not have the option of continuing as a member ofLazard. Thus, if the majority means to suggest that the husband voluntarily left Lazard andincurred a huge decrease in his earnings, there is no support in the trial record for that notion.
With respect to his salary at Compass Advisors and the director fees he receives, the majorityasserts that the husband has been "found incredible" with respect to "his reporting of his incomeand assets by the motion court ruling on the pendente lite support order, by the court reviewingthe application for a downward modification of support, and by this Court on a prior appeal." Inkey respects, this assertion is manifestly wrong. In fact, the motion court made no findings at allwith respect to the husband's credibility on this or any other issue. The motion court did refer,however, to "some omissions by both parties in recent [financial] reporting" (emphasisadded). Notably, a review of the motion court's decision and order reveals that it was decidedbefore the husband had even begun working at Compass Advisors. Thus, the motion court couldnot possibly have made any findings on the husband's credibility regarding his earnings atCompass Advisors.
Relatedly, the majority also writes that the motion court "imputed an average annual incometo [the husband] of $2,273,680." But this reflects no finding that the husband voluntarily hadreduced his income. Rather, it is also clear from the decision and order that the sole basis for thecourt's decision to impute that amount of income to the husband was that it reflected his averageannual income from 1998 through 2001. The majority suggests otherwise. That is, it suggests thatfindings of wrongdoing by the husband were decisive in the motion court's imputation of$2,273,680 in annual income to the husband. Thus, it states that the motion court "recognized thehusband's deception and nondisclosure of assets, and imputed an average annual income to himof $2,273,680." The motion court, however, made neither a finding nor even a reference to"deception" by the husband. With respect to nondisclosure of assets, as noted above, the motioncourt stated that there were "some omissions by both parties in recent reporting" and commentedsomewhat cryptically that "[h]iding" one of the cars they owned was "not appropriate behavior"by the husband.
Nor did this Court find the husband "incredible" on the issue of his "reporting of his incomeand assets" (or any other issue) when it affirmed the motion court's pendente lite award. Rather,this Court stated only that "the motion court, when confronted with [the husband's] apparentlyself-created unemployment and questionable claim of limited future earnings, was warranted[*17]in imputing income to him on the basis of his past earningsand earning capacity" (299 AD2d 294, 295 [2002]). Of course, this Court did not have before itthe trial record. As noted above and as will also be discussed below, the trial record establishesthat the husband's unemployment was not self-created and his future earnings did declineprecipitously.
It is true, however, that when Supreme Court denied the husband's motion for a downwardmodification of the pendente lite child support and maintenance awards, it rejected the husband'scontention that his income had drastically decreased. In doing so, Justice Stackhouse, who alsopresided at trial, did not purport to find the husband "incredible." It appears, moreover, that themotion was decided on the papers. As the majority stresses, Justice Stackhouse stated that thehusband's " 'economic position now is much, much better than it was in 2001' " and that "'[i]f anything, his income has increased' " (emphasis added by majority).
But if these pretrial findings were refuted by the trial evidence, they would be irrelevant. Themajority believes they were substantiated by the trial evidence. In this regard, it statesthat "the wife's position [is] that the husband anticipated 'paper losses' in the early years atCompass which would be 'handsomely rewarded' as deals matured and business grew." Themajority then asserts that the CFO of Compass Advisors "gave testimony which supported thisposition." As a review of the CFO's testimony makes clear, the CFO's testimony unequivocallysupported the husband's position in every relevant respect.
The CFO, Lorraine Costelloe, testified, without contradiction by any other trial evidence, tothe following: the husband's annual base salary was $200,000, and he thus received slightly morethan $100,000 in 2002 (reflecting the fact that he began working at Compass Advisors inmid-2002) and $200,000 in 2003; neither the husband nor any other partner had ever received abonus payment; the husband never received any quarterly draws; the salary payments in 2002 and2003 were the only compensation he received from the firm; in September of 2002, he loaned thefirm $120,000 (and other partners also loaned money) because of the firm's cash flow problems;in 2003, he loaned the firm about $29,000 (and other partners also loaned money) for the samereason; none of the loans by the husband have been repaid; in 2003, also for this reason, the firmstopped paying partners for six pay periods and the firm cut costs by, among other steps, reducinghealth insurance coverage and increasing co-pay requirements and deductibles and eliminating itslife insurance plan; for a period of some months in 2003 the firm was in default with respect tointerest payments owed to Commerzbank; the firm had an operating loss of just over $8,000,000in 2001; the audited financial statement of the firm for 2002 (by KPMG) reflected an operatingloss of $6,567,000; as Ms. Costelloe testified on January 4, 2004, an audited financial statementfor 2003 had not been completed but the firm expected to break even due to a large fee of$3,000,000 that it had received in December; some $1,200,000 of that fee was used to paybonuses to between 25 and 35 employees (not partners) of the firm.
With respect to Ms. Costelloe, the majority is correct only when it notes that she was amongthe trial witnesses who were found to be credible by Justice Stackhouse. The majority's assertionthat Ms. Costelloe "gave testimony which supported [the wife's] position" is breathtakinglywrong. As is evident, just the opposite is true.[FN5]Not surprisingly, the majority [*18]offers nothing by way of anattempt to respond to any of the points I make regarding its erroneous reliance on the CFO'stestimony.[FN6][*19]
The judgment of divorce requires the husband to pay tothe wife: (1) taxable maintenance of $6,000 per month ($72,000 per year) for six years; (b) childsupport in the amount of $2,833 per month (approximately $34,000 per year); and (c) 100% of alladditional costs for school tuition, inclusive of room and board, camp and medical expenses, anamount the husband asserts without contradiction to be approximately $40,000 per year.Whatever the precise tax rate for the husband would be, he clearly could not meet theseobligations without gross annual income substantially in excess of the annual sum of theseobligations (approximately $146,000), even considering that he can deduct the maintenancepayments.
In making these awards and this determination, Supreme Court inexplicably and erroneouslyconcluded that at the time of trial the husband's annual income as a partner at Compass Advisorswas $600,000 annually (a salary of $200,000 and quarterly draws of $100,000). As discussedabove, the uncontradicted testimony of Ms. Costelloe established that the husband neverreceived a quarterly draw and that the firm had never made profits that could bedistributed to the partners. Even assuming that the future prospects of the firm are bright, thepermanent maintenance and child support awards and the direction that the husband pay 100% ofthe additional costs are excessive in light of the husband's actual earned income of $330,000annually (his salary at Compass Advisors plus the fees he received for serving as a director ofcertain entities).
Supreme Court, moreover, appears not to have considered or to have given insufficientconsideration to the substantial investment income that the wife will be able to realize as a resultof the equitable distribution to her of assets with a value in excess of $5 million (DomesticRelations Law § 236 [B] [6] [a] [1]; Carman v Carman, 22 AD3d 1004, 1006, 1009 [2005]; Love vLove, 250 AD2d 739, 740 [1998]). Nor did Supreme Court give adequate consideration tothe wife's ability to resume her legal or business career. Rather, without any evidentiary support,Supreme Court simply dismissed as "unlikely" that the wife could reestablish any such career.Obviously, as a former associate at a major New York City law firm who rose to the position ofvice-president of business affairs of a division of the Walt Disney Company, the wife is a personwith considerable talents, intelligence and experience. Indeed, Justice Fields stated in herdecision on the pendente lite motion that in 1995, when the wife last was employed, "she earnedabout $930,000 in salary and stock options at the Walt Disney Company."
As the majority stresses, Supreme Court found that during the pendency of the divorce actionthe husband was "spending approximately $63,000.00 a month for his own needs and those of hisparamour." Even assuming the accuracy of this finding—it was and remains vigorouslydisputed by the husband—it does not follow that it reflects hidden income. To thecontrary, it also is possible that, as the husband maintains, preexisting assets rather than currentincome were used to make pendente lite payments to the wife and to support himself. Of course,the extent of the husband's personal spending after the action was commenced might support areasonable inference that he had undisclosed sources of income or expected his income toincrease substantially in the near future. In making the permanent maintenance and supportawards, however, Supreme Court did not purport to impute income to the husband on the basis ofeither inference. Nor did Supreme Court purport to find that existing assets were not the sourceof his spending. Rather, Supreme Court made the inexplicably wrong finding that "[a]t the timeof trial [the husband] was earning a base salary of $200,000.00 annually and a quarterly draw of$100,000.00 which provided total annual earnings of $600,000.00."
The extent of the misconduct by the husband during the pendency of the action relating to[*20]his financial affairs is simply not a matter that is before thisCourt for decision.[FN7]Whatever the extent of that misconduct may be, the husband was entitled to have the permanentmaintenance and child support awards computed on the basis of findings that are supported bythe evidence. Supreme Court's finding concerning the husband's earnings at the time of trial,however, is manifestly wrong. The majority does not and cannot dispute this critical fact. Indeed,the majority ignores it.
Accordingly, I would remand for a new trial limited to the issues necessary to determine theappropriate amount of maintenance and child support (including the appropriate level ofresponsibility of the husband for the additional costs).[FN8]
Footnote *: The decision underlying thedivorce judgment was issued after the husband began his work at Compass Advisors. In addition,the court's conclusions about the husband's efforts to frustrate discovery of his actual incomewere made notwithstanding the fact that it expressly credited the testimony of the CFO ofCompass Advisors.
Footnote 1: The majority appears to disagreewith my position, based on the language quoted above from O'Brien (66 NY2d at 583),that the $1.9 million expended on the Claverack property was not "marital property." Themajority, however, neither discusses O'Brien nor offers any reason to conclude that thesefunds were "marital property." The majority does not and cannot dispute that the husband'sincome was the sole source of funding for the renovations. Curiously, the majority makes nomention of this uncontroverted fact in explaining its conclusion that a 75%-25% division of theappreciation "is a more equitable apportionment in the circumstances." Presumably, itnonetheless considers this fact to be of more than passing relevance.
Footnote 2: In disputing this point, themajority overlooks the testimony that the tenant house was across a road from the main houseand the other structures (and grounds) that were the subject of the extensive renovations.Moreover, there is no testimony from the wife or anyone else that she had anything to do with, asshe put it, the "minor repairs and renovations" to the tenant house. Finally, it was undisputed attrial that some of the renovations to the tenant house occurred prior to the marriage.
Footnote 3: The majority also rejects thisclaim, albeit without stating its rationale for doing so.
Footnote 4: Of course, a different resultmight well be appropriate if the source of the funds used by the previously divorced spouse tosatisfy, in whole or in part, his or her financial obligations to a former spouse is the income orseparate assets of the second spouse. In such a case, equity might intervene to prevent unjustenrichment (Micha, 213 AD2d at 957). For this reason, my position is by no meansinconsistent with the decision of the Second Department in Dewell v Dewell (288 AD2d252 [2001]), a case upon which the majority relies. The opinion in Dewell, after all, doesnot indicate whether the income of the wife, the husband or both spouses was used to reduce thehusband's separate debt.
Footnote 5: Just before its assertion that Ms.Costelloe's testimony "supported [the wife's erroneous] position," the majority writes that "[t]herecord . . . reflect[s] that when defendant joined Compass, its 'Deal Log' listed $97million of deals at various stages of completion." This statement adopts the position asserted bythe wife in her brief (and at trial) that "[w]hen [the husband] joined Compass Advisors, the firmboasted $97 million of deals in various stages of completion." Again, however, the recordsquarely contradicts this effort by the wife to portray Compass Advisors as a firm on the brink ofachieving staggering profits. To be sure, at one point on cross-examination, Ms. Costelloeanswered "Yes" to a question asking her with respect to the "Deal Log" whether "they [were] atvarious stages of completion." But this isolated snippet of testimony gives a misleading accountof the "Deal Log." In fact, Ms. Costelloe testified, and no other trial evidence contradicted her, tothe following: the "Deal Log" was prepared in the beginning of 2002; the firm had been retainedon only three of the deals, earning $1,700,000 in fees; every other deal, listed under variouscategories, reflected "prospective clients," "prospects" or business the firm "hope[d] to get"; as ofJanuary 2004 the firm no longer maintained such a "Deal Log." Moreover, placing such a rosyspin on the "Deal Log" is at odds with the uncontradicted testimony of Ms. Costelloe that theseprospective deals in the beginning of 2002 did not keep the firm from losing over $6.5 million in2002 or from just breaking even in 2003. On this score, finally, two other points should be made.First, the majority's reliance on increases in the firm's gross revenues between 2001 and 2003 isingenuous. Obviously, the majority should not wholly ignore the expense side of the ledger; nor,of course, should the majority ignore as well the actual results for 2002 and 2003. Second, themajority is misleading with its reference to Ms. Costelloe's testimony to the effect that from theend of 2001 to the end of 2003 the firm had a ten-fold increase in its retainers. As Ms. Costelloealso testified, the firm grew substantially during the same period by, among other things, openinga London office and increasing the number of employees. Again, the majority myopically focuseson only one side of the financial ledger. Furthermore, Ms. Costelloe's uncontradicted testimonyregarding the actual results for 2002 and 2003 is surely of transcendent importance relative to theincrease in its retainers.
Footnote 6: The majority misleadingly statesthat Ms. Costelloe "testified that as of 2003 the Compass partners had not yet receivedtheir quarterly draws" (emphasis added). The word "yet" is entirely the majority's. Contrary tothis effort to suggest that Ms. Costelloe testified that the partners were on the verge of receivingquarterly draws, Ms. Costelloe gave no such testimony.
Footnote 7: I would note, however, thatdespite Justice Stackhouse's statement that the husband "stonewalled Justice Marjory Fields. . . [by] hiding the five million dollars he had made in 2000," Justice Fields madeno such finding in her written decision. Rather, Justice Fields simply noted that although thehusband's memorandum of law "states he 'was earning a substantial income as a partner' at theinvestment banking firm [Lazard], . . . there is no hint of his 2000 income in any ofhis papers." Surely, neither the husband nor his counsel thought that the obvious—theabsence of any statement about his 2000 income—could be hidden. And, as the husbandhas argued, his motion in March of 2002 before Justice Fields for a reduction in the pendente litepayments was based on his income in 2002, after his employment at Lazard ended and before hebegan working at Compass Advisors.
Footnote 8: The husband would be free tomaintain that he should receive an additional credit against the distributive award to the extentthe permanent maintenance and child support awards were reduced on remand. I would alsomake clear that the parties would be free to take whatever action they deemed appropriate in theevent either or both of them believed a change in circumstances since the trial warranted amodification of the awards.