MICHAEL KRAVCHENKO v. IRINA KRAVCHENKO

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1564-05T51564-05T5

MICHAEL KRAVCHENKO,

Plaintiff-Respondent,

V.

IRINA KRAVCHENKO,

Defendant-Appellant.

_______________________________________

 

Argued May 31, 2006 - Decided June 28, 2006

Before Judges Axelrad and Sabatino.

On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Middlesex County, FM-12-1306-04H.

Margaret Goodzeit argued the cause for appellant (Greenbaum, Rowe, Smith & Davis, attorneys; Ms. Goodzeit, of counsel and on the brief; Jemi M. Goulian, on the brief.)

Lawrence H. Bloom argued the cause for respondent.

PER CURIAM

Defendant Irina Kravchenko appeals the Family Part's denial of her motion pursuant to R. 4:50-1 to reopen her Final Judgment of Divorce. The wife's motion was based upon her discovery that her unemployed ex-husband, plaintiff Michael Kravchenko, had apparently spent over a half million dollars in cash on a new home, two luxury cars and jewelry within two months of the divorce judgment. Because we perceive from this unusual record that the Family Part judge denied the ex-wife's motion prematurely, we vacate the order denying relief under R. 4:50-1, and remand the matter for discovery and further proceedings.

I.

Michael and Irina Kravchenko were married on March 7, 1981. Two children were born of the marriage: a daughter born in 1982 who is now emancipated and a second daughter who was born in 2000. After over twenty-two years of marriage, the parties separated in the fall of 2003. The husband then filed through his counsel a complaint for divorce in the Family Part in January 2004. The wife, also represented by counsel, filed an answer and counterclaim in March 2004.

The husband filed and served a Case Information Statement (CIS) pursuant to R. 5:5-2 on February 9, 2004. At the time the husband was employed in New York with the Daily Racing Form publication. He reported on his CIS an average gross monthly income of $14,167, or $170,004 per year. The husband's CIS listed no other sources of income. After subtracting taxes and other payroll deductions, the husband reported $8,649 in net average earned monthly income. Against that income stream, the husband's CIS showed $8,304 in combined monthly expenses for him, his wife, and their younger daughter.

With respect to assets, the husband's CIS form identified the marital residence (estimated to be worth $650,000, with an offsetting mortgage and home equity loan totaling $278,000), a checking account balance of $34,300, stocks and bonds worth $62,500, a Lexus in the wife's possession worth nearly $20,000, furniture in the wife's possession estimated at $20,000, a vacation time share, pension accounts, and a variable life insurance policy. The CIS also disclosed that the husband owned a partnership interest in an entity affiliated with his employer known as DRF Acquisition LLC ("the LLC"). He valued that partnership interest, as of December 2003, at $15,000, which was completely offset by a corresponding note for $15,000 also disclosed on his CIS. Thus, the husband's February 9, 2004 CIS portrayed his LLC partnership interest as having zero net value.

On the whole, the husband's CIS estimated the parties' net worth at $545,317, a sum largely attributable to the $372,000 estimated net equity in the marital residence.

The wife, then a homemaker, filed her own CIS on April 23, 2004. She estimated on the CIS, which was mainly handwritten, that her husband had earned $218,000 in gross income in 2003, and she reported no unearned income. The wife listed monthly expenses for herself and her younger daughter at $5,720.00. The sole assets she identified were the marital residence, the parties' time share, and the Lexus. She did not identify the husband's partnership interest in the LLC as a marital asset.

During the course of the litigation, the parties exchanged certain discovery, although there was no discovery sought by the wife specifically concerning the husband's interest in the LLC. The record reflects no substantive motion practice for pendente lite financial relief. After the discovery period expired, the parties through their counsel reached a Property Settlement Agreement (PSA), which the husband and wife signed and placed before the Family Part in an uncontested divorce proceeding in September 23, 2004.

Under the PSA, the wife retained primary residential custody of the unemancipated daughter, with the husband having parenting time principally on alternate weekends. The wife was permitted to remain with the daughter in the marital residence, subject to the wife remitting 30% of the net equity in the home to the husband if she sold the premises. In exchange for her higher percentage in the marital residence, the wife agreed to waive her interest in the husband's three pension/retirement plans. The wife also obtained sole ownership of the Lexus and the parties' vacation time share. The parties mutually waived any claims for equitable distribution to any other personal property in the other spouse's sole name or possession. The PSA made no specific reference to the husband's partnership interest in the LLC.

With respect to support, the PSA recognized that the husband had been "laid off" from his employment with the Daily Racing Form, and that the wife was presently unemployed but anticipated resuming work prior to the expiration of the alimony period. As to alimony, the parties agreed that the husband would pay the wife $2,500 per month (or $30,000/year) for six years. The parties specifically waived in paragraph 4 of the PSA any right to seek further modification of that alimony amount, notwithstanding New Jersey case law that otherwise permits such modification upon a showing of sufficient changed circumstances. Additionally, the parties agreed in the PSA that the husband would pay $1,700 per month in child support, an amount represented to be "at a rate to which he would otherwise have been obligated to pay under the [New Jersey] Child Support Guidelines." The husband also agreed to bear one-half of the younger daughter's nursery school expenses.

In paragraph 20 of the PSA, both parties respectively acknowledged, among other things, that they had entered into the settlement on his or her "own accord, without any coercion or pressure of any kind," that they had each "received full disclosure of the assets, liabilities, and income" of the other spouse, that they each had "sought and obtained independent advice," and that they considered the terms of the PSA to be "fair and equitable," and were "satisfied" with these terms and with the legal representation received from his or her own attorney.

At the uncontested divorce proceeding, both parties were represented by counsel and sworn as witnesses. The parties reaffirmed before the court, consistent with paragraph 20 of the PSA, that they regarded the terms of the divorce to be fair and equitable. Although the court had some colloquy with the wife and her counsel about the wife's waiver of any interest in her husband's pension, there was no discussion whatsoever on the record about the husband's partnership interest in the LLC. The wife's attorney conducted no cross-examination of the husband concerning his assets. The judge approved the final judgment and duly entered it that same day.

Nearly a year later in August 2005, the wife, represented by new counsel, filed a motion to vacate the financial terms of the final judgment pursuant to R. 4:50-1. In her supporting certification, the wife attested that she had learned that her ex-husband, within twenty days of the September 23, 2005 judgment, had purchased a home in Marlboro, New Jersey for $425,000. Her certification attached a copy of the deed for that purchase dated October 13, 2004, reflecting that the seller had received the full $425,000 sale proceeds in cash, with no mortgage. She further asserted that her ex-husband had since made approximately $200,000 in renovations to his new home. He also allegedly purchased two new luxury vehicles, a diamond-studded Rolex watch valued above $30,000, a diamond ring for his new wife and other expensive items. The wife also alleged that after the divorce, her ex-husband had bragged to third parties that he had hidden assets from her during the divorce litigation. Surmising that her ex-husband had used former marital assets to make these expensive purchases, the wife sought relief under R. 4:50-1(c) on grounds of fraud, misrepresentation and misconduct and also under the equitable principles of R. 4:50-1(f).

The husband filed a responsive eighty-paragraph certification to his ex-wife's post-judgment motion. In that certification, the husband acknowledged that he had purchased a new home without a mortgage. He did not contest that he had also purchased the two new luxury cars, the Rolex watch, and the diamond ring, and had paid for renovations to his new home. The husband's certification did not expressly identify the source of the funds for these purchases. However, the certification did acknowledge that the husband had enhanced, and then received a distribution of, his partnership interest in the LLC after filing his February 9, 2004 CIS but before the entry of the final divorce judgment.

Specifically, the husband certified that on February 15, 2004, six days after his CIS filing, he purchased additional equity in the LLC, enhancing its value to $26,000, secured by an offsetting $26,000 promissory note back to the LLC. He further acknowledged that on May 24, 2004, while the divorce action was still pending, the LLC sold its assets and that, three days later on May 27, 2004, he received his distribution of the proceeds of that asset sale.

The husband's certification does not reveal the amount of his distribution from the LLC. However, his counsel has represented to the court that the husband's $425,000 home purchase and the other purchases identified in the wife's motion papers were paid for out of the funds that the husband received when the LLC was liquidated.

The wife's motion under R. 4:50-1 was heard by the same Family Part judge who had presided over the parties' uncontested divorce. In a bench ruling supplemented by a written statement of reasons, the judge denied the motion on the basis that the wife's former attorney had failed to pursue adequate discovery of the husband's assets before the uncontested hearing on September 23, 2005. In particular, the judge emphasized that the wife's former counsel had simply accepted the husband's February 9, 2004 CIS at face value and did not question the accuracy or current nature of the asset valuations disclosed on that CIS. The judge reasoned that since the husband had disclosed his interest in the LLC on the CIS form, it was incumbent upon the wife's attorney to pursue whether or not that interest had been fairly valued, or if it had changed in value in the interim between February 9 and September 23. The judge also pointed out that the wife's former attorney had failed to question the husband about his assets at the uncontested hearing. Accordingly, the judge found no fraud by the husband, nor any other grounds under R. 4:50-1, to warrant post-judgment discovery or any other relief.

The wife appeals, arguing that she was entitled to have the judgment vacated under R. 4:50-1 or, at a minimum, an opportunity for post-judgment discovery of the husband's financial dealings after February 9, 2004 and a potential plenary hearing following such discovery.

II.

This appeal does not require us to resolve the merits of the wife's motion to vacate her divorce judgment. Rather, we only need to consider the threshold question of whether the record sufficiently raises genuine issues that warrant further discovery and, depending upon what that discovery reveals, a potential plenary hearing on the wife's motion.

Although we understand the Family Part judge's reasons for faulting the wife's former attorney in failing to investigate the husband's assets with greater diligence, as well as the general importance of achieving finality in litigation, we are persuaded that the apparent magnitude of the funds that the husband received from the LLC after filing his CIS form and which he did not thereafter disclose, as well as his copious expenditures after the divorce was finalized, require a deeper examination of those transactions before the wife's motion to set aside the divorce judgment is definitely resolved on its merits.

R. 4:50-1 provides, in pertinent part, that:

On motion, with briefs, and upon such terms as are just, the court may relieve a party or the party's legal representative from a final judgment or order for the following reasons . . . (c) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; . . . or (f) any other reason justifying relief from the operation of the judgment or order.

[R. 4:50-1.]

We recognize that motions to set aside final judgments under the Rule are only to be granted "sparingly." Pressler, Current N.J. Court Rules, comment 1.1 on R. 4:50-1 (2006). Nevertheless, the Rule does allow for relief where the facts and equities compel it, particularly in contexts involving the equitable distribution of marital assets. "The equitable authority of courts to modify property settlement agreements executed in connection with divorce proceedings is well established . . . . The agreement must reflect the strong public and statutory purpose of ensuring fairness and equity in the dissolution of marriages." Miller v. Miller, 160 N.J. 408, 418 (1999). "Applications for relief from equitable distribution provisions contained in a judgment of divorce are subject to [R. 4:50-1] and not, as in the case of alimony, support, custody, and other matters of continuing jurisdiction of the court, subject to a 'changed circumstances' standard." Eaton v. Grau, 368 N.J. Super. 215, 222 (App. Div. 2004)(quoting Pressler, Current N.J. Court Rules, comment 1.7 on R. 4:50-1 (2004)(citing Miller, supra, 160 N.J. at 418)).

As the focus of her application for relief, which is cast alternatively under grounds of fraud, misrepresentation, or misconduct under R. 4:50-1(c) or on equitable grounds under R. 4:50-1(f), the wife stresses her ex-husband's failure to disclose, before the divorce judgment was entered, the monies he admittedly received from the LLC in May 2004 after filing his CIS in February 2004. In that regard, she invokes R. 5:5-2(c), a provision that discusses when and how matrimonial litigants are to amend their CIS disclosures. That Rule recites as follows:

Amendments. Parties are under a continuing duty to inform the court of any changes in the information supplied on the case information statement. All amendments to the statement shall be filed with the court no later than 20 days before the final hearing. The court may prohibit a party from introducing into evidence any information not disclosed or it may enter such other order as it deems appropriate.

[R. 5:5-2(c).]

The wife argues that under the first sentence of R. 5:5-2(c), her ex-husband was "under a continuing duty to inform the court [and opposing counsel] of any changes in the information supplied on the case information statement." Ibid. Relying upon that seemingly broad mandate, the wife argues that she did not need to serve a discovery request or initiate some other demand upon her husband to trigger his duty to update his CIS form once his partnership interest in the LLC had been distributed to him in May 2004.

Although the wife's argument has considerable force, we hesitate to adopt her interpretation of the Rule at this time for a number of reasons. The second and third sentences of the Rule seem to envision a duty to amend the CIS in anticipation of a contested proceeding. In that vein, the Rule prescribes that all amendments shall be filed "no later than 20 days before the final hearing." Ibid. (emphasis added). As a sanction for a litigant's failure to do so, the Rule authorizes the courts to "prohibit a party from introducing into evidence any information not disclosed or it may enter such other order as it deems appropriate." Ibid. (emphasis added). This language in the Rule's second and third sentences could be reasonably viewed as a qualification on the broad language expressed in the Rule's first sentence.

The background of the adoption of R. 5:5-2(c) does not resolve whether its drafters intended the reference in its second sentence to the "final hearing" to sweep in uncontested divorce hearings, proceedings at which the parties ordinarily appear before the court with a signed property settlement agreement and are simply placing the terms of that agreement formally on the record. More recently, the Court has authorized certain uncontested divorce matters to be presented "on the papers", which is even a step further removed from the conventional notion of a "hearing."

We have examined the N.J. Admin. Office of the Courts, Final Report of the Supreme Court Committee on Matrimonial Litigation, July 16, 1981, at p. 3, the Committee which recommended R. 5:5-2(c) to the Supreme Court. We cannot determine from the Report with assurance whether the Committee intended a party's continuing duty to update the CIS, as expressed in the Rule's first sentence, to apply in circumstances where there is no trial or pendente lite hearing at which the court must evaluate the parties' competing economic claims on the merits. The Report does state that "[t]he Committee also proposes that counsel have a continuing duty to update the [CIS] information until 20 days prior to trial." Id. at 19 (emphasis added). However, we have no explanation of why the final version of R. 5:5-2(c), as adopted by the Supreme Court, used the term "final hearing," a phrase which conceivably could encompass an uncontested divorce proceeding, rather than the word "trial."

At oral argument before us, both counsel acknowledged that it is not the prevailing custom for matrimonial attorneys and litigants, notwithstanding the first sentence of R. 5:5-2(c), to file updated CIS forms unless and until there is an external stimulus to do so - such as an adversary's demand, a court's case management directive, or an upcoming trial or pendente lite motion. We are also mindful that it could be burdensome for parties to be required to submit a new CIS form automatically every time their savings accounts are enhanced by regular interest payments, or when there are modest fluctuations in income levels, household expenses, account balances and the like. On the other hand, there may be good sense in requiring parties to update their CIS filings unilaterally, with or without an adversary's demand to do so or an upcoming court event, when they have experienced a material increase or decrease in their income, expenses, assets or liabilities. As presently drafted, however, the Rule does not have an explicit condition of materiality.

We need not resolve these thorny questions concerning R. 5:5-2(c) at this time, for we determine that, even if R. 5:5-2(c) is construed not to have imposed an affirmative duty on the husband to update his CIS after receiving his May 2004 distribution from the LLC, there are ample independent reasons under R. 4:50-1 to require further discovery and investigation of these matters below. In particular, the record before us is unclear on several issues that could shed light on whether the husband's non-disclosure of his May 2004 LLC distribution before the divorce judgment could rise to the level of fraud or misconduct under R. 4:50-1(c), or could tip the equitable scales under R. 4:50-1(f).

First, we note that it is not apparent from the record whether the husband's investment in the LLC was, in full or in part, a marital asset. The wife did not list the LLC as a marital asset on her own CIS form in April 2004, even after seeing the husband's February 2004 CIS disclosing that asset. If the evidence shows that the LLC was not a marital asset, then the question becomes whether there were other marital assets hidden from the wife which the husband then utilized, in full or in part, to fund his cash purchases of over $500,000 shortly after the divorce. Further discovery of these matters is warranted, particularly given the large sums of money involved.

Second, it may be significant whether or not the husband reasonably anticipated when he filed his CIS on February 9, 2004 whether his employer, the Daily Racing Form, would soon be dissolving the LLC and making large distributions to its investors. The husband's increased investment in the LLC six days after filing his CIS form raises concern that he did anticipate such a forthcoming financial benefit, and that his characterization of his interest in the LLC as a "wash" on the February 9, 2004 CIS could have been misleading. Again, this is an issue that requires further exploration.

Third, the record does not indicate whether the wife had any prior discussions with the husband about, or otherwise knew of, the upside potential of the husband's interest in the LLC. If so, she could have been alerted to the significance or insignificance of the "zero net value" portrayal of the LLC assets on her husband's CIS form, thus diminishing her claims of fraud and misrepresentation for lack of reliance. See DSK Enterprises, Inc. v. United Jersey Bank, 189 N.J. Super. 242 (App. Div. 1983)("absent reasonable reliance by the complaining party, there can be no actionable equitable fraud"), certif. denied, 94 N.J. 598 (1983). If the wife had such reason to believe the LLC had potential great value, that awareness also bears upon the fairness of enforcing the wife's acknowledgment in paragraph 20 of the PSA that she had an adequate opportunity to discover her husband's finances. Again, the record needs to be amplified on these matters.

Fourth, the record was not developed on the disputed claim by the wife that the husband had boasted to friends after the divorce about hiding assets from her. Such boasts, if proven, may amount to declarations against interest under N.J.R.E. 803(c)(25) and could also affect the balance of equities.

Given all of these factual uncertainties, and the potentially enormous sums that the husband reaped after filing his CIS form in February 2004 without further amendment, we deem it prudent to vacate the order denying the wife's R. 4:50-1 motion, and to remand the matter for further discovery and investigation. Depending on what such discovery reveals, the trial judge should reconsider conducting a plenary hearing to resolve contested issues of material fact, before deciding anew the R. 4:50-1 motion on its merits. See Eaton v. Grau, supra, 368 N.J. Super. at 222 ("[a] party is entitled to a plenary hearing on her motion [under R. 4:50-1] where the evidence shows the existence of a genuine issue of material fact that she is entitled to relief.")

We do not preordain whether such a plenary hearing will be required, and leave it to the trial judge to make that fresh assessment with the benefit of information adduced in the post-remand discovery process. Additionally, the wife is also free to pursue an adjustment of child support based upon an allegation of changed circumstances, see Lepis v. Lepis, 83 N.J. 139, 158 (1980)(a child support obligation may be modified upon a showing of changed circumstances), and to pursue appropriate financial discovery on that related issue as well.

Vacated and remanded. We do not retain jurisdiction.

 

No child support worksheet with corresponding calculations was attached to the final judgment, notwithstanding the requirement for one under R. 5:6A.

We do find inapposite the wife's reliance on Von Pein v. Von Pein, 268 N.J. Super. 7 (App. Div. 1993), a case in which the husband had concealed various investment accounts and did not identify their existence in discovery. Here, the husband at least identified his interest in the LLC in his February 2004 CIS filing.

In light of the broader ramifications of this discussion, we are circulating this opinion to the Council of Presiding Family Part Judges and to the Supreme Court Committee on Family Practice for their consideration of the issue, and for possible amendment or clarification of the Rule.

(continued)

(continued)

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A-1564-05T5

June 28, 2006