Court Opinion

ID: 9693864
Source: CourtListenerOpinion
Date Created: 2023-08-25 17:05:25.515364+00
Date Added: 2024-06-11T12:08:21.061579
License: Public Domain

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 thd 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 *305specific 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, 6 A.D.3d 678, 775 N.Y.S.2d 370, 372 (N.Y.App.Div.2004); see also Sodaro v. Sodaro, 286 A.D.2d 434, 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, 146 N.H. 44, 767 A.2d 415 (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.) 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. *306Nevertheless, 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, 183 N.J. 290, 303, 873 A.2d 501 (2005). Although the Appellate Division refused to categorize what occurred in this ease 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 *307disregards 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____Bather, 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, 843 A.2d 344 (quoting Cook v. Cook, 208 Wis.2d 166, 560 N.W.2d 246, 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 ease 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.
For affirmance — Chief Justice PORITZ and Justices LaVECCHIA, WALLACE and RIVERA-SOTO-4.
For dissent — Justices LONG, ZAZZALI and ALBIN — 3.