Title: Marilyn A. Steneken v. Gary L. Steneken

State: new-jersey

Issuer: New Jersey Supreme Court

Document:

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). Plaintiff-Respondent, v. GARY L. STENEKEN, Defendant-Appellant. Argued November 9, 2004 Decided May 18, 2005 On certification to the Superior Court, Appellate Division, whose opinion is reported at 367 N.J. Super. 427 (2004). Todd M. Sahner argued the cause for appellant (Marcus, Brody, Kessler, Sahner & Weinstein, attorneys). Bonnie C. Frost argued the cause for respondent (Einhorn, Harris, Ascher, Barbarito, Frost & Ironson, attorneys). JUSTICE RIVERA-SOTO delivered the opinion of the Court. This appeal requires that we address whether, in setting an award of alimony and in establishing equitable distribution in respect of a closely-held corporation, the trial court must use the same income determination. As differently posed by defendant, the question is whether it is impermissible double counting to use actual income for alimony purposes but a lower normalized income amount when valuing a closely-held business for equitable distribution purposes. We hold that a trial court s determination of the interplay between an alimony award and equitable distribution is subject to an overarching concept of fairness, bearing in mind the interrelated yet separate purposes of alimony versus equitable distribution. In specific, we hold that, for purposes of computing the proper alimony award, actual income of the paying spouse is the lodestar for determining the extent of that party s alimony obligation. We further hold that, for the purpose of valuing a closely-held corporation in determining the proper equitable distribution thereof, proper valuation techniques, which may include the normalization of excess salary expenses, are to be applied. [Steneken v. Steneken, A-3882-99T5 (App. Div. Apr. 10, 2002) (slip op. at 26-27).] On remand, the trial court determined that it was apparently in error in utilizing [the $150,000 a year normalized income figure for defendant] when it came time to make a determination as to how much alimony if any plaintiff was entitled to receive. After applying the criteria set forth in N.J.S.A. 2A:34-23 b , See footnote 1 and considering the income plaintiff was then receiving in her recently renewed career as a school teacher, the trial court awarded plaintiff alimony in the amount of $5,500 per month, an increase of $1,500 per month from the trial court s earlier alimony award. It was then defendant s turn to appeal. Before the Appellate Division, and again before this Court, defendant claimed that the trial court s use of different income figures for alimony and equitable distribution purposes constituted impermissible double counting. According to defendant, the Appellate Division accurately framed the issue as whether it is impermissible double counting to value defendant s business based on his reasonable, rather than actual, compensation and then to calculate alimony based on the same excess salary that was added back to business income, thus increasing the value of the corporate asset for which plaintiff already received her share in equitable distribution. [Steneken v. Steneken, 367 N.J. Super. 427, 430 (App. Div. 2004).] In the Appellate Division s view, the last paragraph of N.J.S.A. 2A:34-23b sets forth the full extent of New Jersey s prohibition on double counting assets for alimony versus equitable distribution purposes: When a share of a retirement benefit is treated as an asset for purposes of equitable distribution, the court shall not consider income generated thereafter by that share for purposes of determining alimony. Thus, the Appellate Division reasoned: In New Jersey, the bar against double counting of pensions is restricted to income from pension benefits that have been treated as an asset for equitable distribution purposes. Conversely, the rule does not bar counting as income for determining alimony that portion of the former spouse s pension attributable to post-divorce employment, and therefore not subject to division as marital property at time of divorce. In other words, a supporting spouse s pension may be considered for purposes of alimony to the extent that post-divorce earnings enhance its value. By the same token, although assets purchased with the proceeds of a divisible pension award are not income for alimony purposes to the extent they reflect return of the principal, income generated by the principal is eligible for inclusion in the calculus used in revising an alimony award. [Steneken v. Steneken, supra, 367 N.J. Super. at 437-38 (citations omitted).] The Appellate Division concluded that New Jersey is not alone in restricting the prohibition against double counting to pension benefits. Id. at 438. We granted certification, 180 N.J. 357 (2004), and subject to the modifications that follow, affirm the judgment of the Appellate Division. In contrast, equitable distribution determinations are intended to be in addition to, and not as substitutes for, alimony awards. As the governing statute makes clear: Incident to the grant of divorce . . . the court may make . . . [an] award or awards to the parties, in addition to alimony and maintenance, to effectuate an equitable distribution of the property, both real and personal, which was legally and beneficially acquired by them or either of them during the marriage. [Painter v. Painter, 65 N.J. 196, 205 (1974) (citing N.J.S.A. 2A:34-23h).] When we first spoke of the concept of equitable distribution as originally adopted in L. 1971, c. 212, effective September 13, 1971, and now codified at N.J.S.A. 2A:34-23, we explained the rationale for equitable distribution as follows: [T]he division of property upon divorce is responsive to the concept that marriage is a shared enterprise, a joint undertaking, that in many ways is akin to a partnership. Only if it is clearly understood that far more than economic factors are involved, will the resulting distribution be equitable within the true intent and meaning of the statute. The widely pervasive effect this remedial legislation will almost certainly have throughout our society betokens its great significance. [Rothman v. Rothman, 65 N.J. 219, 229 (1974) (citation omitted).] In sum, as the Appellate Division here succinctly stated, [t]he goal of equitable distribution . . . is to effect a fair and just division of marital assets. Steneken v. Steneken, supra, 367 N.J. Super. at 434. The conclusion that alimony and equitable distribution are separate yet interrelated and ultimately subject to an overriding sense of fairness is buttressed by our statutory scheme, where the separate powers to award alimony and determine equitable distribution are codified. N.J.S.A. 2A:34-23b sets forth the power of the trial court to award alimony and lists, on a non-exclusive basis, those factors the trial court must consider in that context. Again, in contrast, N.J.S.A. 2A:34-23.1 implements the trial court s power to award equitable distribution, also listing those non-exclusive factors that the trial court must consider. There are strong parallels between these two statutorily required lists of factors; they, however, are not entirely congruent. Thus, for example, although N.J.S.A. 2A:34-23b(10) makes relevant to an alimony award [t]he equitable distribution of property ordered and any payouts on equitable distribution, directly or indirectly, out of current income, to the extent this consideration is reasonable, just and fair, no parallel or equivalent provision appears in the equitable distribution statute. See footnote 2 Each of the statutory considerations for an award of alimony and the considerations for equitable distribution remains true to its respective original and independent goals -- for alimony, 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, Crews v. Crews, supra, 164 N.J. at 16, and for equitable distribution, to effect a fair and just division of marital assets. Steneken v. Steneken, supra, 367 N.J. Super. at 434. Principles of fairness that properly account for the dichotomy between alimony, on the one hand, and equitable distribution, on the other, are what inform our analysis. [Steneken v. Steneken, supra, 367 N.J. Super. at 441.] Where, as here, the major marital asset is a closely-held corporation and the supporting spouse has determined what his or her income was during the marriage, the supported spouse is entitled, post-divorce, both to alimony sufficient to maintain a reasonably comparable lifestyle and to a fair division of the asset. We do not agree with defendant s view that this analysis effects a windfall to the supported spouse. Trial courts remain free to consider, in the exercise of their discretion and in accordance with the statutory guidelines, See footnote 5 the fair and proper quantum of alimony and equitable distribution attendant to each case before them. Plaintiff-Respondent, v. GARY L. STENEKEN, Defendant-Appellant. JUSTICE LONG, dissenting. As the majority points out, there is authority for and against the proposition that using a single income stream to value a business, and as an alimony source, is double-counting. Indeed, the view of the New York Court of Appeals is directly contrary to that adopted by my colleagues: We agree with the defendant that the Supreme Court impermissibly engaged in the double counting of income in valuing his business, which was equitably distributed as marital property, and in awarding maintenance to the plaintiff (see Grunfeld v. Grunfeld, 94 N.Y.2d 696, 709 N.Y.S.2d 486, 731 N.E.2d 142; McSparron v. McSparron, 87 N.Y.2d 275, 639 N.Y.S.2d 265, 662 N.E.2d 745). Here, the valuation of the defendant s business involved calculating the defendant s projected future excess earnings. Thus, in valuing and distributing the value of the defendant s business, the Supreme Court converted a certain amount of the defendant s projected future income stream into an asset. However, the Supreme Court also calculated the amount of maintenance to which the plaintiff was entitled based on the defendant s total income, which must have included the excess earnings produced by his business. This was improper. Once a court converts a specific stream of income into an asset, that income may no longer be calculated into the maintenance formula and payout. (Grunfeld, v. Grunfeld, supra, at 705, 709 N.Y.S.2d 486, 731 N.E.2d 142; see McSparron v. McSparron, supra). [Murphy v. Murphy, 775 N.Y.S.2d 370, 372 (N.Y. App. Div. 2004 ); see also Sodaro v. Sodaro, 729 N.Y.S.2d 731 (N.Y. App. Div. 2001) (stating court engaged in improper double counting in valuing husband s psychiatry practice while awarding maintenance to wife based on husband s total imputed income).] A similar result was reached by the New Hampshire Supreme Court in Rattee v. Rattee, 767 A.2d 415 (N.H. 2001). There, the trial court, in valuing the parties interests in the defendant s business for equitable distribution, normalized defendant s salary from an average of $326,000 to $100,000 per year because the defendant s income exceeded the reasonable compensation for his services. Id. at 418. The difference between those figures was added back into the company s operating income for valuation. For alimony purposes, the court used the same normalized income figure. The New Hampshire Supreme Court held that, to avoid double-counting when calculating alimony, the trial court properly considered the defendant s income to be the normalized $100,000, reasoning that his income in excess of $100,000 had already been taken into account in valuing defendant s interest in the company for equitable distribution. Id. at 420; see also Gary Trugman, Understanding Business Valuation: A Practical Guide to Valuing Small to Medium Sized Businesses 862 (2d ed. 2002). To be sure, what occurred in this case, and what occurs in cases like it, is not dollar-for-dollar double-counting because more than Mr. Steneken s excess earnings played a role in the ultimate valuation of Esco. (The fair market value of real estate and a payable mortgage were also included.) It included the asset value of the business.) Nor is it the classic double-dipping that has been interdicted in the pension area. In those cases, in which the value of the pension has been equitably distributed, the double-dipping is said to occur when one party later seeks to tap the other s periodic pension payments as income for alimony. Concededly, what happened here is quite different. Nevertheless, it cannot be denied that by using Mr. Steneken s full salary for alimony while pouring a portion of it back into Esco to estimate the company s future earning capacity, thus ratcheting up its value, the court considered the same income stream twice. It is the majority s unrestrained approval of that circumstance that is the source of my disagreement. To me, the answer is neither to allow the unfettered dual use of a single income stream nor to require the rigid reconciliation adopted by the trial judge who felt compelled to use the same figure for both calculations. Rather, judges should be able to use the real income for alimony and the normalized income for the corporate valuation so long as the ultimate outcome recognizes that a single income source (the difference between the real and normalized income) played a part in both. That modified approach is the one the Appellate Division adopted and the majority specifically rejects. supra, ___ N.J. ___, ____ (2005). Although the Appellate Division refused to categorize what occurred in this case as double-counting, Judge Parillo, who penned the decision for the court, was careful not to adopt a categorical rule approving that procedure in all instances: We decline to adopt the either-or notion inherent in the so-called double-counting rule, certain that in appropriate instances, proper adjustments to equitable distribution on the one hand, or the alimony award on the other, or both, may be made to satisfy its underlying goal of fairness. Indeed, to the extent the rule is designed to avoid unfairness by carefully considering the division of assets and the probable effect of that division on the need for spousal support, it is not only theoretically sound, but squarely consistent with the statutory command to take into account an asset s role in equitable distribution in setting a proper amount of alimony. See N.J.S.A. 2A:34-23(b). In our view, the extent to which the asset may be looked to as a source of alimony should be influenced by the extent to which its value was distributed to the supported spouse as part of the equitable division of marital property. Our quarrel is with the rule s absolute ban on dual consideration. Although in certain circumstances it would be unfair to look to a marital asset as a source for both alimony and equitable distribution, it is simply too categorical to conclude that because an asset is treated as a marital asset for the purposes of equitable distribution, it can never be regarded as a partial source of alimony. Such an absolute bar on counting the asset in the property division and the alimony formula disregards the interrelationship between the two and impermissibly encroaches on the judicial function to consider all relevant circumstances. The Wisconsin Supreme Court s cautioning in Cook, supra, against application of the double-counting rule in a rigid way, bears repeating here: Such an inflexible rule runs counter to the equitable nature of these determinations and to purposes underlying the broad legislative authorization that the circuit court consider relevant financial information in dividing the property and setting the level of maintenance . . . . Rather, the double[-]counting rule serves to warn parties, counsel and the courts to avoid unfairness by carefully considering the division of income-producing and non-income producing assets and the probable effects of that division on the need of maintenance . . . . [367 N.J. Super. at 442 (quoting Cook v. Cook, 560 N.W.2d 166, 252 (Wis. 1997)(emphasis added).] I would adopt that analysis. Rather than a hard and fast rule, I would instead encourage courts to carefully analyze the facts in each case and to consider modulating either the corporate value or the alimony award to the extent that the same income was considered in both calculations. I would therefore reverse and remand the case to the trial judge for application of that flexible approach to the issues before him. Justices Zazzali and Albin join in the dissent. MARILYN A. STENEKEN, Plaintiff-Respondent, v. GARY L. STENEKEN, Defendant-Appellant. DECIDED May 18, 2005 Chief Justice Poritz PRESIDING OPINION BY Justice Rivera-Soto CONCURRING/DISSENTING OPINIONS BY DISSENTING OPINION BY Justice Long