NANCY T. THALMANN v. FREDERICK E. THALMANN, JR.
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
DOCKET NO. A-5229-03T25229-03T2
NANCY T. THALMANN,
FREDERICK E. THALMANN, JR.,
Argued: October 11, 2005 - Decided May 22, 2006
Before Judges Cuff and Gilroy.
On appeal from the Superior Court of New Jersey, Chancery Division-Family Part, Essex County, Docket No. FM-7-99-00.
H. Curtis Meanor argued the cause for appellant (Podvey, Sachs, Meanor, Catenacci, Hildner & Cocoziello, attorneys; Mr. Meanor and Thomas V. Hildner, of counsel and on the brief; Ingrid D. Johnson, on the brief).
Peter G. Bracuti argued the cause for respondent (Walder, Hayden & Brogan, attorneys; Robert L. Penza, of counsel and on the brief; Mr. Bracuti, on the brief).
This appeal arises from a dispute concerning equitable distribution of a 9.81% equity interest acquired by defendant Frederick Thalmann in a closely held corporation. The matter returns to this court following a remand to reconsider the allocation of this asset. Defendant argues that the trial judge misapprehended or misinterpreted our mandate and awarded a disproportionate share of the asset to plaintiff Nancy T. Thalmann. We agree, and because this matter was remanded once, we now opt to exercise our original jurisdiction, Rule 2:10-5, and fix the amount due to plaintiff.
We refer to our prior opinion dated July 10, 2003 (A-2091-01T2 and A-3321-01T2) for a full explication of the facts. Briefly, the parties married in 1974. During the course of the marriage, plaintiff inherited a large sum of money. The parties also acquired a number of assets, including an equity interest in Jamison, Eaton & Wood (Jamison), an investment management group. Defendant borrowed the entire sum of his investment, $150,000, from plaintiff.
Following a trial, the judge valued the equity in Jamison at $650,000. The judge also found that the value of the asset should be reduced by 20% because defendant held a minority interest in the firm. Therefore, for equitable distribution purposes, the judge valued the Jamison equity interest at $520,000 and each party received 50% of the asset. The judge also required defendant to pay $120,800 to plaintiff as the balance of the principal and interest due on the $150,000 loan from plaintiff.
Defendant appealed and we held that the record did not support an award to plaintiff of 50% of defendant's equity interest in Jamison because the allocation of this asset did not reflect defendant's obligation to repay to plaintiff the funds borrowed from her to acquire the asset. Therefore, we remanded for specific findings of fact and consideration of the source of the funds to acquire the asset. We directed that on remand, all factors enumerated in N.J.S.A. 2A:34-23.1 should be considered to effect an equitable distribution of this asset.
On remand, the trial judge eliminated the minority discount and found that plaintiff was entitled to $295,000 or approximately 45% of defendant's equity interest in Jamison. He did not alter his prior order for defendant to pay $120,000, the balance of the principal and interest due on the loan. In other words, following remand, plaintiff was entitled to $295,000 plus $120,800, or $35,000 more than initially ordered by the trial judge.
On appeal, defendant argues that the trial judge erred in eliminating the minority discount of the Jamison asset, the amount of the loan should have been deducted from the value of the asset before distribution, and the award to plaintiff of 45% of the value of Jamison is not supported by the record. Plaintiff responds that the decision on remand was within the mandate and discretion of the trial judge and that the proportion of the asset distributed to plaintiff is supported by the record.
Defendant argues that the amount distributed to plaintiff on remand is derived from this court's erroneous holding that the trial judge should not have applied a minority discount in his valuation analysis. Defendant notes that plaintiff had not filed a cross-appeal challenging the valuation of the Jamison equity interest; therefore, we addressed an issue not properly before us. Plaintiff concedes that she had not filed a cross-appeal, but argues that the discussion of use of the minority discount was dicta.
In our initial opinion, we commenced our consideration of the equitable distribution of the Jamison equity interest by observing that this court had issued an opinion following entry of the Judgment of Divorce that it was inappropriate to reduce the value of an asset because one of the spouses held a minority interest. We said:
First, we note that in Brown v. Brown, 348 N.J. Super. 466, 483-88 (App. Div.), certif. denied, 174 N.J. 193 (2002), we ruled that absent extraordinary circumstances, it is inappropriate to reduce the share of a marital partner's stock interest in a business by a marketability or minority discount. Here, there were no extraordinary circumstances demonstrated.
[Thalmann v. Thalmann, No. A-2091-01 (App. Div. Jul. 10, 2003) (slip op. at 15-16).]
We proceeded to discuss the factors ignored by the trial judge in fashioning an equal allocation of the equitable distribution award. We commenced that discussion using the phrase "more importantly." We then observed that the findings of the trial judge concerning the value of the Jamison equity interest were supported by substantial, credible evidence in the record. Finally, we provided instructions on remand that were concerned wholly with the share each party should receive of this asset, taking into account the loan from plaintiff to defendant. Although we acknowledge some ambiguity in the opinion, we consider the reference to Brown, supra, and the applicability of a minority discount to this asset to be dicta. Unfortunately, but understandably, the trial judge considered elimination of the minority discount as part of our mandate.
We required the trial judge to determine the appropriate distribution of the Jamison equity interest through an analysis of the statutory factors. N.J.S.A. 2A:34-23.1. We specifically directed the judge to consider that the purchase price of the interest was derived wholly from defendant's funds. We also cautioned the judge that defendant's contention that deduction from the gross valuation of the asset of the cost of the interest or the balance due on the loan that funded defendant's purchase was too simplistic.
On remand, the judge made the appropriate findings regarding age, health, education, earnings history and earnings potential of each party. He also considered the equitable distribution of the other marital assets. Having done so, the judge concluded his analysis as follows:
In determining the ultimate distribution of Jamison for reasons incorporated by reference from the Court's October 1, 2001 opinion and for all of the above reasons including but not limited to the defendant's ability to acquire his equity interest from the loan from the plaintiff, the defendant's income stream available to him from his equity interest and the repayment of the loan to the plaintiff, the court awards the defendant his shares of stock in Jamison, Eaton & Wood valued at $650,000. For the same reasons, the court awards the plaintiff the sum of $295,000 as her share of equitable distribution of Jamison; $295,000 or approximately 45% of the $650,000 value. N.J.S.A. 2A:34-23-1; Rothman v. Rothman, supra, [ 65 N.J. 219, 228-29 (1974)]. . . .
Based on our review of the record and the mandate of our prior opinion, we conclude that this disposition is not in accord with our directions.
The clear import of our prior opinion was that the distribution of the Jamison equity interest to plaintiff was too great. That flaw has not been cured on remand. In fact, the disproportionate allocation of the asset to plaintiff has been exacerbated due to the treatment of the source of the funds used by defendant to acquire this asset. The current allocation ignores the fact that the judge has made defendant wholly responsible to repay plaintiff the full amount of the investment in Jamison. Under this scheme, defendant paid the entire cost of the Jamison investment with his own funds.
We exercise our original jurisdiction, Rule 2:10-5, based on the well-supported fact-finding accomplished by the trial judge, as well as our consideration of the relevant statutory factors as they apply to the distribution of this asset.
In achieving an equitable distribution of this asset, we must not only address the distribution of the asset itself, but also the debt incurred to acquire it. Defendant urges that we deduct the cost of the investment, $150,000, from the value of the asset. We have already suggested that such an approach is too simplistic. We remain convinced that this would be inappropriate because it assumes that the $150,000 was derived from marital assets or a jointly incurred debt as in Pascarella v. Pascarella, 165 N.J. Super. 558 (App. Div. 1979). That is not this case. Defendant borrowed the money from plaintiff's non-marital assets, executed a promissory note, and had repaid $29,200 by the time the marriage dissolved. Under these circumstances, deduction of the amount used to acquire the asset from the valuation of the asset is entirely inappropriate.
The record also suggests that it is not necessarily appropriate for defendant to be required to repay the entire amount of the loan. Defendant was able to acquire the interest in Jamison only because plaintiff had substantial assets and was willing to provide defendant with the funds to acquire this interest. Although she expected repayment, she was also clearly willing to assume some risk that the investment would redound to benefit the marital enterprise. She also bore some of the cost of this investment because she lost the opportunity to invest the funds to obtain greater growth and income than provided by the terms of the note.
In this sense, the couple engaged in a joint venture. Plaintiff provided the funds to acquire the asset at the cost to her of lost income and growth. She also maintained the home while defendant developed the skills necessary to advance in his chosen field. Defendant provided the expertise garnered by years of professional development in the investment field. Viewed in this light, each should share in the asset on an equal basis and each should be equally responsible for the $150,000 acquisition cost, or $75,000 each.
Defendant has already paid plaintiff $29,200; therefore, he owes her $45,800 on the loan. Bearing in mind the absence of a cross-appeal and our reference to the ruling in Brown as dictum, we utilize the $520,000 valuation. Plaintiff is, therefore, entitled to receive $260,000 as equitable distribution of the Jamison interest, plus $45,800 as the balance due from defendant to plaintiff for repayment of the loan. The total amount due to plaintiff is $305,800.
We, therefore, reverse the April 15, 2004 order and remand solely for entry of an order amending the Judgment of Divorce to reflect this disposition.
Initially, plaintiff was due $380,800. Following the initial appeal and remand, plaintiff was due $415,800.
May 22, 2006