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Division Stage - Unequal Division of Liquid Assets Upon Divorce
© 2005 National Legal Research Group, Inc.
MASSACHUSETTS: Sampson v. Sampson, 62 Mass. App. Ct. 366, 816 N.E.2d 999 (2004).
The trial court erred by awarding the husband 71% of the proceeds from the sale of the marital home, while awarding the wife a substantial deferred distribution of the husband's retirement benefits. The result was to divide the liquid marital assets unfairly in the husband's favor. The marital estate was not large enough to permit an immediate offset of the husband's entire pension, but the case was remanded with a suggestion that the wife be awarded part of her interest in the pension as a lump-sum immediate offset award, so that she would receive a larger percentage of the liquid assets. The trial court also erred by valuing the wife's business under the capitalization-of- earnings method, without treating a reasonable salary for the wife as a business expense.
After a marriage of long duration, the parties divorced. The court divided the marital assets, which consisted of the marital home, the husband's interest in another parcel of realty owned along with his siblings, the husband's state pension and other retirement-related and deferred compensation accounts, and the wife's insurance business. The trial court also made an award of alimony. The wife appealed.
In dividing the marital assets, the court concluded that as the parties had contributed equally to the marriage, albeit in different ways, it would divide the marital assets in an approximately equal manner. It awarded the wife the following: her business, which was valued at $175,000; $121,100 from the proceeds of the court-ordered sale of the marital home (a buyout requirement), whose equity value was $417,200; $62,000 in other assets; and 46.5% of the husband's pension benefits accrued as of the date of the judgment. The husband was awarded the following: $296,100 from the sale of the marital home; his interest in the parcel of realty owned with his family members; $50,150 in other assets; and the remainder of his pension benefits.
The appeals court noted that, by this division, the trial judge apparently believed he was making an approximately equal distribution of the marital assets. It concluded, however, that upon a close examination of the judge's findings and judgment, it was revealed that this purported evenhanded treatment was illusory. The property division failed to consider sufficiently the consequences of the asymmetric treatment and the apparent double- counting of the assets, all to the benefit of the husband and to the detriment of the wife.
First, as to the fairness of the asymmetric buyout requirement, the judge awarded to the husband $296,100 from the proceeds of the sale of the marital home. The wife was awarded $121,100 from those proceeds. This was the only asset that at the time of the divorce had any significant, readily accessible cash value. This 71% to 29% split in favor of the husband of the usable capital produced by the marriage was caused by the court's order that the husband receive cash to offset the value of the wife's business with no comparable order that the wife receive cash to offset the present value of the husband's pension benefits. Although the judge appeared (in his chart accompanying his order of distribution) to divide this present value, thus leaving the impression that the wife presently had access to additional liquid assets, he in fact employed the alternative method for dividing pension rights, on an "if and when received" basis. Under Massachusetts case law, it is recognized that where there are sufficient assets available, the present assignment of a percentage of the present value of future pension benefits is the preferable approach. The appeals court acknowledged that while the parties' assets here were insufficient to distribute to the wife her full share of the husband's pension, an assignment of a percentage of the present value of the future pension benefits could have been made to the extent that a hardship did not result for the husband, with the wife's remaining interest in such pension being realized if and when those benefits were actually received. The court concluded that a highly disproportional and apparently inequitable split in the marriage's only significant liquid assets had occurred arising out of an asymmetric application of the buyout requirement, i.e., the division of the proceeds from the sale of the marital home that could have been avoided by the adoption of the preferred approach to the assignment of the pension benefits. The court ordered a remand so that the trial judge could fashion a new financial award for the parties.
Second, as to the wife's claim of double-counting, the appeals court noted that the trial judge had accepted the husband's expert's $175,000 valuation of the wife's insurance business. That valuation was based on the capitalization-of-earnings method. That expert estimated the wife's annual "total weighted average projected earnings" ($41,912), divided it by a percentage capitalization rate (19.1%), discounted the resulting value by a percentage for lack of marketability (20%), and arrived at a present fair market value of $175,000. The wife argued that because the judge converted her anticipated future income into property, assigned the husband $175,000 (out of the proceeds from the sale of the marital home) to offset the wife's retention of this asset, and then gave the husband the full benefit of the same future income to offset his alimony obligation, the husband received a double credit, and she received a double debit, for the same source, namely, her future income.
The court recognized that the decisions are not in agreement as to what constitutes double-dipping in the context of equitable distribution and support awards, whether it should be prohibited as a matter of law, and, if not so prohibited, whether it is inequitable in the circumstances of a particular divorce settlement. In addition, the court indicated that where, as here, the asset in question is an owner-operated business that is being valued but not being sold, and therefore will be the source of ongoing support for one spouse or both, the analysis is even more complicated.
In reviewing the record and the trial judge's findings, the appeals court concluded that there appeared to be some double-counting and other inequities present, all to the benefit of the husband, who was the higher earner. The court questioned the appropriateness of the trial court's acceptance of the expert's valuation, which, as noted, utilized the capitalization-of-earnings method, in that the expert failed to subtract from the business income a reasonable salary expense for the operator of the business. Without such a subtraction, declared the court, there was a significant concern that the business could be overvalued. It pointed out that where such a subtraction occurs, it facilitates the identification of those portions of a given asset providing separate bases of property assignment and alimony. An examination of the record by the appellate court demonstrated that while the expert testified that an owner-operator's salary should be subtracted, he did not do so in his actual calculations, relying instead on a subtraction of the much lower salary of the business's sole employee. Furthermore, when considering the wife's income for determining her need for support, the trial judge made no adjustments, concluding that she would earn $41,912 per year. This figure, noted the court, was based on what she was earning from the business without recognizing that some of the income had been attributed to the value of the business itself, for which the husband had already been compensated by the disproportionate division of the sale proceeds of the marital home. In other words, the court was concerned that either the value of the business had been inflated by artificially deflating the wife's salary as owner-operator, or, conversely, that the wife's income was inflated when determining her need for support. Because of these concerns and because it appeared that the trial judge's findings and conclusions failed to demonstrate whether he even had considered if double-dipping had occurred, a remand was ordered.
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