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Beth Keller v. Richard Keller
MEMORANDUM OF DECISION
This matter was returnable to judicial district of Stamford on June 6, 2011. Despite the fact that both sides filed numerous pendente lite motions in the first days and weeks of the case, temporary orders were entered by agreement very early in the case concerning custody and exclusive use of the marital home. That level of accommodation between the parties did not last long and a hearing was held in early August 2011 regarding the temporary financial orders. Those orders were based on findings of the court, Wenzel, J., that the plaintiff who was not employed had an earning capacity of $3,000 per month and that the defendant had an earning capacity of $25,000 per month. The defendant was ordered to pay to the plaintiff $9,000 per month as unallocated alimony and child support, pendente lite, as well as pay other designated expenses. The defendant appealed that decision alleging it was an abuse of the court's discretion because it was based on the defendant's gross income and not his net income. In a decision officially issued on April 2, 2013 shortly before the matter was to begin trial the Appellate Court reversed the trial court's pendente lite orders and remanded the matter “for further proceedings according to law.” Keller v. Keller, 141 Conn.App. 681, 685, 64 A.3d 776 (2013).1
Although the matter had been referred to the Regional Family Trial Docket (RFTD) as a fully contested case, the parties reached a settlement of the parenting issues at their special master's pretrial and entered into a final parenting plan in June 2012. The financial issues were tried by the court for eleven days commencing on April 23, 2013 and finishing on May 29, 2013.
Several intermediate disputes arose including the defendant's motion to modify the parenting plan (# 363.00) filed in January 10, 2013. The court ruled on April 22, 2013 (# 396.00) that it must reconsider the parenting plan based on the allegations raised in the motion and continued the trial to allow for an updated evaluation by the court appointed evaluator, Eric Frazier. Additionally, and given the considerable delay such a process would entail, the court also ruled that it would hold a hearing on the plaintiff's motion for support, pendente-lite (# 101.01 & 101.02), as well as the defendant's motion for reimbursement (# 389.00) now rather than at the end of the trial. Accordingly, a separate hearing was held on the pendente lite motions from July 9 through July 10, 2013.2 Much of the evidence heard during the financial portion of the trial is applicable to the pendente lite motions so that the court limited the testimony at the July 2013 hearing to material not covered earlier and that the court could consider facts from 2011 and not just the present circumstances.3
Not a great deal had changed regarding the respective financial positions of the parties from that pendente lite hearing in the mid summer of 2011 to the present. The parties married on August 15, 1992 and have three children ages seventeen (17), fourteen (14) and eleven (11). They had moved into the current marital home in Greenwich in 1999, just before the birth of their second child. The plaintiff, now forty-eight (48) years old, has been a full-time mother and homemaker for the greatest portion of the marriage. She has an undergraduate degree in general studies and a masters degree from Boston University in clinical nutrition. She worked in public relations doing food and nutrition marketing, but until recently, has not worked outside of the home for the last fourteen years and her work history between the birth of the first and second child was rather limited.
Since she filed for dissolution, she testified that she has been attempting to find meaningful employment; her success has been limited. She did a number of pro bono jobs to refresh her skills in the nutritional marketing area and make some contacts. Currently she has an arrangement with Co–Communications of Westchester, New York to work for this public relations company without pay, but to earn a commission for new clients she brings to the firm. She has limited success and earned approximately $2,500 to $3,500 during the current year. She has no steady employment with a regular paycheck and has not applied for such work. She does her public relations work, D.B.A. Betsy Keller PR. The issue as to whether she can be successful in the job market going forward is one for the final orders, but for purposes of pendente lite orders is fair to say that her present earnings are quite meager.
What is more significant as far as the plaintiff's immediate finances are concerned is the financial support she has received from others primarily her parents. Her testimony, both at the trial and pendente lite hearing, was that her mother has been giving her $1,000 a month, as far back as 2010, before the commencement of this action. As of the first few days of the trial, the total funds provided for her use by her parents totaled more than $776,500. The plaintiff has characterized this money as a series of loans. The defendant argues that the facts would indicate that although the funds are labeled as loans, they are in fact gifts or perhaps an advance on a future inheritance.
Money given to a party by family members during a dissolution proceeding is almost always suspect. Whether it is a true loan or a disguised gift is typically the question the court must address in such situations. “[P]ayments that are made regularly and consistently to one of the former spouses are to be considered by a trial court in setting financial orders,” Zahringer v. Zahringer, 262 Conn. 360, 369, 815 A.2d 75 (2003). Contributions from third parties that are gifts may be considered income; whereas, contributions that are loans are liabilities and are not to be considered. Id., 365.
The plaintiff supports her claim that the money is a series of loans by pointing to the fact that she has signed promissory notes almost from the very beginning and that it was her plan to repay her parents from her share of the property division at the end of dissolution proceedings. It was her belief that the equity in the house would be sufficient to cover the loans and now, that it is clearly not the case, she argues that she never expected the litigation to be so lengthy and so expensive. She also testified that she became very concerned about the amount of money being given to her and how that was having a very negative impact on her parents' health. It is uncontroverted that she actually stopped sending her parents certain bills and just did not pay them.
The defendant counters that she did not even keep track of the amount she was borrowing and just signed the notes when asked. If the money declared to be loans was a true obligation, the defendant argued, one would expect that the plaintiff would at least keep track of how much she was borrowing. He also argues that the plaintiff and her family knew that by calling the money a loan it would enhance her position in the dissolution trial and create a huge obligation for her to repay. By his own arguments and testimony, however, the defendant has criticized the plaintiff for her very poor money management skills. He claims that she spent far too much money with little or no concern for where the funds might come from and could never give him a clear accounting of her budget or spending. He also had the plaintiff admit in her testimony that some of the money supplied by her parents was not a loan. For example, she testified that her father was paying the unreimbursed portion of her psychiatrist bills with no obligation for repayment and she did not even know how much that entailed. The bills, not covered by insurance, went directly to her father and he paid them. Finally, the plaintiff could not testify whether the $1,000 per month she started to receive in 2010 was part of the loan obligation; she simply did not know.
“It is the sole province of the trial court to weigh and interpret the evidence before it and to pass on the credibility of the witnesses ․ It has the advantage of viewing and assessing the demeanor, attitude and credibility of the witnesses and is therefore better equipped than we to assess the circumstances surrounding the dissolution action.” (Emphasis in original; internal quotation marks omitted.) Zahringer v. Zahringer, 124 Conn.App. 672, 679–80, 6 A.3d 141 (2010). The loans in total cannot be seen as credible obligations. It may well have been the plaintiff's original intent to repay the debt, but that morphed over time into outright support by her parents that must be factored into the finances as income to her. While there is no evidence at this time that the money is continuing with the last loan testified to being the note she signed on April 9, 2013, there is no reason to believe that the plaintiff's family will not continue to support her if they feel that she is need of such assistance.
Understanding the defendant's finances is no less difficult. Educated as a lawyer and a member of the Connecticut and New York state bars, the defendant has spent most of his adult career in finance. There is no dispute that up to the end of 2010, he was the owner and moving spirit behind a hedge fund that he started in 2006 named “Angler” after his love of fishing. His testimony that he had between 50 and 100 investors and managed up to $150,000,000 in assets, but that it crashed horribly in the fall of 2008 and was closed out finally effective December 31, 2010. He lost a very substantial part of their wealth as well as that of his investors.
The issue of his financial future consumed the major portion of time during the trial. Each side produced an expert to opine on the defendant's likely options and what income he was likely to earn. Additionally, the defendant testified at great length about what he was doing and what efforts he was making to support himself and his family. Part of that effort was to borrow substantial amounts of money from his family. The evidence being that he borrowed as much as $640,000 and then repaid most of the principal plus interest. He also borrowed an additional sum in excess of $300,000 from a friend. In 2012, the defendant received a large payout of an investment he owned prior to his starting his own fund. It was that money, in excess of $900,000, that allowed him to repay much of his family loans and fund other expenses. Originally, he was expecting a second payment to be made from the same source very shortly, but when he testified in July he reported that the payment has been delayed for several years and is subject to potential deductions. Unfortunately, the total of the two payments are, according to his testimony, taxable income to him for 2012, despite the fact that he did not actually receive the entire sum.
The defendant has made his living by investing both for himself and others. His Angler Fund had enjoyed success prior to the economic troubles that impacted the American economy in 2008. Since the disaster that destroyed his fund, he has been attempting to rebuild. The question for the court is can he accomplish that goal. The plaintiff's expert says he can and the defendant's expert says that he cannot. The defendant's own actions suggests strongly that he believes, despite the opinion of his expert, that he can, but from 2010 to the present he has not been able to achieve that goal in any meaningful way.
The defendant called as his expert Steven Shapiro, Ph.D. Shapiro is an economist with excellent credentials dating back to the 1970s. In addition to being a professor of economics and being the author of many scholarly articles, Shapiro has also been active in the peer review of the work of other professionals in his field. In 1996, he started Analytical Services, LLC, a consulting company dealing in litigation support in his area of expertise.
Shapiro testified about potential employment opportunities for the defendant and what level of compensation he might receive in each. It was his opinion that although the defendant was a member of two state bars, he was unlikely to gain employment at any meaningful level as an attorney. His law-related employment was too far in the past to be useful today. The witness also testified that the defendant was unlikely to find a high level position in the private equity or hedge fund arena due to the failure of his fund and the harm that did to his reputation in that field. He noted also, that the defendant's fund was based on a rather unique investment strategy that was not part of the mainstream so that he might not be successful finding employment in this very small and egocentric industry. It was his opinion, to a reasonable forensic economic probability, that the defendant could find employment as an investment analyst in the private equity or hedge fund industry as a business development specialist. Such a position would provide an annual income of between $60,000 and $175,000.
The plaintiff's expert was Edwin Mruk. Mruk has his own consulting firm in executive placement. He has enjoyed a lengthy career in advising clients on issues of executive placement including appropriate compensation for such positions. He also has a separate firm dealing in litigation support for issues of forensic employment and compensation including such positions in the financial industry. Unlike Shapiro, this witness is not an academic. He did earn a bachelor's degree from John Hopkins in business and psychology, but his real training has been developed “on the job.” His lack of an academic research background allowed the defendant to criticize Mruk's opinion with considerable success. His work was not based on a careful analysis of the data and his methodology would never pass a peer review for publication in a scholarly journal. His work and his opinion was based, in his words, on his long experience to finding employment for people such as the defendant. Despite the very effective criticism mounted against his expert witness by the defendant, one cannot ignore his opinion as someone actually in the placement field dealing with individuals such as the defendant.
The plaintiff's expert opined that the defendant had the capacity to earn between $800,000 and $1.5 million considering base salary, bonus and carried interest in a senior level job with a hedge fund or private equity fund. It was his opinion that the defendant had an impressive employment history and many years in the industry with many connections and acquaintances. He believed that he could use this network to learn of opportunities and openings for employment. He agreed with Shapiro that the loss of his fund tarnished his reputation, but it did not totally destroy that reputation.
Mruk's opinion is supported in the court's view by two very important factors. First, the earning capacity range suggested by him is the compensation level that the defendant had enjoyed in the past. Second, and even more importantly, the defendant's actions over the last two and half years suggests that he agrees with Mruk. In his testimony, the defendant made it extremely clear that his efforts have not been based primarily on job searches, but on developing investment opportunities. He, despite his allegedly very limited income and resources, has continued to live the life of the successful hedge fund manager because, in his words, by not living such a life would essentially eliminate him from the possibility of success in that field. The defendant believes that he can be successful in his field once again. His actions and his efforts ever since the case began endorse the opinion of the plaintiff's expert.
The obvious counter to that argument is that he has not been successful since the loss of his fund. So the court finds itself with two parties that each claim that they believe they can be successful in their respective chosen fields, but have not demonstrated that success to date. Is that due to the fact that their optimism is misplaced or have they not honestly tried to be successful while the litigation grinds on? Does a failure to succeed place them in a better position for the purposes of the litigation than does success? Such a tactic would hardly be unique in family litigation.
The court finds both these parties to be credible and sincere in their efforts. Of course, the extensive litigation must be a factor in their employment efforts simply due to the tremendous amount of time being spent both in court, in depositions and in preparation for those activities. The court believes that they have tried, but have yet to be successful in any meaningful way. The court also believes that they each have the capacity to succeed and that they will succeed. For the moment, however, and for the purposes of pendente lite orders, the court must deal with the immediate reality that each party currently faces as well as what they have had to deal with over the last two years. See Zahringer v. Zahringer, supra, 124 Conn.App. 689 (“The court may examine the changes in the parties' incomes and needs during the time the motion is pending to fashion an equitable award based on those changes”), citing Hartney v. Hartney, 83 Conn.App. 553, 559, 850 A.2d 1098 (“[t]rial courts are vested with broad and liberal discretion in fashioning orders concerning the type, duration and amount of alimony and support, applying in each case the guidelines of the General Statutes” [emphasis added] ), cert. denied, 271 Conn. 920, 859 A.2d 578 (2004).
At the present time, the court finds that the plaintiff has an earning capacity of $26,000 gross annually and the defendant has an earning capacity of $175,000 gross annually. If the allocation of the children were made so that both could file as head of household with the defendant claiming the two younger children for tax purposes, an unallocated order of $7,000 per month would, after all tax consequences, provide an equitable division of the money for the pendente lite period given the available income based on the court's determination of their respective earning capacities.4 Said order shall be retroactive to the date of the original pendente lite orders, August 1, 2011.
The concept of basing financial orders on a party's earning capacity as opposed to one's actual earnings is well established in our statutes and case law. General Statutes § 46b–82 directs the court to look to a series of factors in setting an alimony award including but not limited to “occupation, amount and sources of income, vocational skills, employability ․” In our case law this has come to mean that “[e]arning capacity ․ is not an amount which a person can theoretically earn, nor is it confined to actual income, but rather it is an amount which a person can realistically be expected to earn considering such things as his vocational skills, employability, age and health.” (Internal quotation marks omitted.) Weinstein v. Weinstein, 280 Conn. 764, 772, 911 A.2d 1077 (2007). “[T]he trial court may under appropriate circumstances in a marital dissolution proceeding base financial awards on the earning capacity of the parties rather than on actual earned income ․ Moreover, [l]ifestyle and personal expenses may serve as the basis for imputing income where conventional methods for determining income are inadequate.” (Internal quotation marks omitted.) Auerbach v. Auerbach, 113 Conn.App. 318, 334–35, 966 A.2d 292, cert. denied, 292 Conn. 901, 971 A.2d 40 (2009).
As to the defendant's motion for order regarding reimbursement, the court finds such an action appropriate given the payments made under the now remanded orders. The defendant paid $9,000 monthly as of August 2011 through March 2013, a period of nineteen (19) months for an overpayment of $2,000 per month, based on the present order, totaling $38,000. From April 2013, the defendant testified that he was making $1,000 per month voluntary payments of support to his wife pending the new orders. Assuming that he has indeed made such payment each month from April 2013 to the present, he would have paid $5,000 ($1,000 x 5 months) instead of the ordered $35,000 ($7,000 x 5 months) leaving a short fall of $30,000. If all payments assumed have been made, the defendant would be entitled to a reimbursement of alimony and support in the amount of $8,000. Said reimbursement will be dealt with as part of the final financial orders issued by the court.
Having considered all the evidence presented including the testimony of all relevant witnesses, the exhibits admitted by the court, the relevant statutory criteria and the applicable case law, the court makes the following findings:
A. The original pendente lite orders were effective as of August 1, 2011;
B. The defendant paid all pendente lite orders pending the outcome of the appeal;
C. The original orders were vacated by the Appellate Court as of early April 2013;
D. The defendant made voluntary support payments to the plaintiff in the amount of $1,000 per month starting in April 2013;
E. The plaintiff has a current earning capacity of $26,000 annually;
F. The defendant has a current earning capacity of $175,000 annually;
G. The presumed child support payment by the defendant to the plaintiff based on those earning capacities would be $466 per week for the three minor children and 82 percent of unreimbursed and/or uncovered medical and dental expenses for said children;
H. Based on the overall finances of the parties and the tax planning considered by the court, adoption of the guideline amounts would be inappropriate and inequitable. Accordingly, a deviation from the guidelines is appropriate in this matter;
I. The defendant paid a total of $171,000 in unallocated support and alimony payments under the remanded pendente lite order between August 2011 and March 2013 ($9,000 x 19 months);
J. Based on the new pendente lite orders the defendant overpaid in the amount of $38,000;
K. Commencing in April 2013 and continuing to the present, the defendant made voluntary support payments in the amount of $1,000; and
L. Based on the new pendente lite orders the defendant underpaid in the amount of $30,000.
Accordingly, the court hereby
ORDERS
1. The plaintiff's motion for alimony and support, pendente lite (# 101.01 & 101.02) is granted;
2. The defendant shall pay to the plaintiff as unallocated alimony and support, pendente lite, the sum of $7,000 per month commencing with August 1, 2013;
3. The parties shall share equally all unreimbursed and/or uncovered medical and dental expenses for the three minor children;
4. The defendant's motion for order re: reimbursement (# 389.00) is granted and the plaintiff shall reimburse the defendant the sum of $8,000 at a time and in a manner as detailed by the court in its final orders;
5. The defendant shall continue to provide medical and dental insurance for the plaintiff and the minor children, pendente lite;
6. Each party shall be responsible for their own housing and transportation expenses regardless of which spouse is the title owner of any real property or vehicle; and
7. No attorney fees are awarded to either party.
Adelman, J.
FOOTNOTES
FN1. The defendant had appealed on a number of different grounds including a claim that the defendant did not have adequate notice that the plaintiff intended to rely on an imputed income level for the plaintiff. The court did not deal with that claim or the others having decided the matter on the failure to use net income for the determination of the financial support orders.. FN1. The defendant had appealed on a number of different grounds including a claim that the defendant did not have adequate notice that the plaintiff intended to rely on an imputed income level for the plaintiff. The court did not deal with that claim or the others having decided the matter on the failure to use net income for the determination of the financial support orders.
FN2. An additional day of hearings was held on July 11, 2013 of a different and unrelated motion.. FN2. An additional day of hearings was held on July 11, 2013 of a different and unrelated motion.
FN3. The plaintiff argued that under the holding in Zahringer v. Zahringer, 124 Conn.App. 672, 6 A.3d 141 (2010), the court was to rule on the current financial circumstances for support as opposed to the date of the original orders for a property division on remand. Zahringer, however, permits the court to look back if there is a retroactive element to the proposed award. There is an element of retroactive application as well as the defendant's motion for reimbursement. Such rulings would require the court “take into account the long time period between the date of the filing, and the date that the motion is heard, which in this case spans a number of years. The court may examine the changes in the parties' income and needs during the time the motion is pending to fashion an equitable award based on those changes.” Id., 688–89.. FN3. The plaintiff argued that under the holding in Zahringer v. Zahringer, 124 Conn.App. 672, 6 A.3d 141 (2010), the court was to rule on the current financial circumstances for support as opposed to the date of the original orders for a property division on remand. Zahringer, however, permits the court to look back if there is a retroactive element to the proposed award. There is an element of retroactive application as well as the defendant's motion for reimbursement. Such rulings would require the court “take into account the long time period between the date of the filing, and the date that the motion is heard, which in this case spans a number of years. The court may examine the changes in the parties' income and needs during the time the motion is pending to fashion an equitable award based on those changes.” Id., 688–89.
FN4. This amount was calculated using the net incomes available to each party.. FN4. This amount was calculated using the net incomes available to each party.
Adelman, Gerard I., J.
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Docket No: MMXFA114014330
Decided: August 06, 2013
Court: Superior Court of Connecticut.
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