Kaplan v Kaplan

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[*1] Kaplan v Kaplan 2009 NY Slip Op 50897(U) [23 Misc 3d 1123(A)] Decided on January 10, 2009 Supreme Court, Nassau County DeStefano, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on January 10, 2009
Supreme Court, Nassau County

Natalie Kaplan, Plaintiff,

against

Ronald Kaplan, Defendant.



202269-05



COUNSEL FOR PLAINTIFF:

Peter J. Galasso, Esq.

Galasso, Langione & Botter

377 Oak Street

Suite 101

Garden City, NY 11530

(516) 222-6500

COUNSEL FOR DEFENDANT:

Alexander Potruch, Esq.

Potrauch & Daab

666 Old Country Rd.

Suite 700

Garden City, NY 11530

(516)222-6500

Vito M. DeStefano, J.

Decision after Hearing

Findings of Fact and Conclusions of Law

On August 15, 2007, the defendant former husband ("former husband") moved for an [*2]order, in effect, modifying the parties' judgment of divorce and stipulation of settlement by reducing the amounts owed thereunder for child support and maintenance. The plaintiff former wife ("former wife") opposed the motion and cross-moved, inter alia, for a money judgment of "support arrears".

In a decision and order dated December 7, 2007, the court (Iannacci, J.) set the motion down for a hearing to determine "whether the [former] husband suffered a new severe bona fide financial reversal' as required pursuant to the parties' June 13, 2006, modification stipulation." Regarding the cross motion, the court went on to note that "a hearing would be required to determine the amount, if any, of the money judgment for arrears."

Sometime subsequent thereto, the matter was transferred by administrative order to the undersigned. After reviewing the motion, cross motion and court's decision, this court conducted a hearing on the issue of whether the former husband suffered a "severe bona fides financial reversal"—the precise language utilized in the parties' September 3, 2002 post nuptial

stipulation—which remained in effect when the agreement was modified in June 2006.[FN1]

In reliance on the Second Department's decision in Heller v Heller (43 AD3d 999 [2d Dept 2007]), this court stated that the issue, as raised in the parties' papers, was a "threshold issue", which, if decided in the former husband's favor, would require a further showing by him under Domestic Relations Law § 236 B(9)(b), of substantial change in circumstances and extreme hardship, to warrant downward modification of child support and maintenance obligations, respectively.[FN2] [*3]

The court notes some confusion regarding the standard to be applied in determining the former husband's request for downward modification. In this regard, it was alternatively argued by the parties that Heller did not apply and that the standard for modification of the former husband's child support and maintenance obligations, as set forth in the parties' stipulations, was intended to supplant the legal standard for modification as set forth in Domestic Relations Law § 236 B(9)(b). In fact, the former husband suggested that the standard articulated in the parties' stipulations was intended to lower the standard necessary to obtain downward modification; in contrast, the former wife argued that the standard for modification was raised by the parties' stipulations.

It was also suggested by the former husband that in light of Justice Iannacci's decision, the law of the case doctrine would be violated if the court were to apply the holding of Heller at bar.

However, prior to the hearing, the court pointed out that Heller was, in fact, cited in the parties' motion papers. In addition, the court noted that the wording of Justice Iannacci's decision in no way expressed that the "severe bona fides financial reversal standard" in the parties' stipulations was meant to alter or replace the legal standard for modification contained in the Domestic Relations Law, or that it was other than a threshold issue. In any event, the holding of Heller was applicable to every case in the Second Department, including the one at bar. Finally, the interpretation of contracts and the meanings of the unambiguous terms therein, presented questions of law for the court regardless of the arguments or interpretations offered by the parties, and there was no reason to interpret Justice Iannacci's decision in a manner that conflicted with the holding of Heller (see, e.g., Ruttenberg v Davidge Data Systems Corp., 215 AD2d 191 [1st Dept 1995]).

Accordingly, the sole issue addressed at the hearing was whether the former husband suffered a severe bona fides financial reversal. The court limited the evidence presented to the issue of the change in the former husband's financial circumstances allegedly occurring between the date on which the parties modified their stipulation of settlement (June 13, 2006), which was incorporated and not merged in the judgment of divorce, and the date that the motion was made (August 15, 2007).[FN3]

Based on the evidence adduced at the hearing, the court concludes that the former husband failed to establish a severe bona fides financial reversal. [*4]

At the hearing, the parties' post nuptial stipulation and modification stipulation were admitted into evidence. Under the post nuptial stipulation (which is dated Sepetmber 13, 2002), the former husband agreed to pay, inter alia, $6,667.67 per month taxable maintenance to the former wife, which amount was to be increased to $13,333 per month upon the emancipation of the parties' two children. In addition, the former husband agreed to pay $13,333 per month as child support for the children (Exhibit "K" at pp.10-11).

In April 2005, the former husband moved for downward modification of his maintenance and support obligations based on alleged "severe bona fides financial reversal". On June 13, 2006, the parties settled the motion "by entering into" the modification stipulation, in which the former husband's maintenance and support obligations were reduced as follows: the former husband agreed to pay $4,166.67 per month retroactive through December 1, 2008; $4,999.67 per month commencing January 1, 2009, with maintenance obligations terminating after 10 years (or upon a delineated triggering event); and lump sum payments of $10,000 for three years (Exhibit "L" at p.7). It was also agreed that upon emancipation of the children, "the maintenance payment to the Wife shall be in the sum of $12,500 or $13,333.33, respectively" (Id. at p.8). Regarding child support, the former husband, under the modification stipulation, was required to pay $8,333 per month retroactive to January 1, 2006 which amount would be reduced to $6,250 upon emancipation of one of the children (Id. at p.10)

According to the modification stipulation, the parties waived the right to fix child support under the Child Support Standards Act. The parties noted that their combined adjusted income (as listed in the joint 2004 income tax return) was $143,746 ($3,200 of which was attributable to income from the former wife, with the balance from the former husband) (Id. at p.11)[FN4] and that the former husband's child support obligations under the Child Support Standards Act would be $19,600 per year (representing his obligation up to $80,000) and $15,618 per year (representing his obligation over $80,000) (Id. at p.12). The former husband's total (modified) child support obligation was approximately $100,000 per year.

In his post-hearing memorandum, the former husband argues that because of the parties' reference in their modification stipulation to 2004 income tax returns, in determining whether he has suffered a severe bona fides financial reversal, "we must compare his financial circumstances of 2004 with those pertaining * * * on * * * August 15, 2007" ("Defendant's Post-Trial Memorandum of Facts and Law" at p.4). According to the former husband, in 2004, he had W-2 income of $124,500 "as well as other funds available to him which totaled approximately $389,059" (Id. at p.3). Thus, on October 11, 2005, "he had amassed assets of over $850,000 with no liabilities" (Id. at p.4). Further, as of June 13, 2006, the former husband "still had most of the assets * * * [he had] in * * * October, 2005 * * * [and] [a]lthough the gross receipts of [one of the former husband's businesses, Empire State News ("Empire")] had been reduced by approximately $100,000, he still obtained a distribution of approximately $45,000 in 2005 * * * [*5][and] by May of 2006 * * * had sold his 50% interest in 7th Avenue [Restaurant] and netted an additional $100,000" (Id.). In addition, as of the date of modification, the former husband had "a regular draw from [another restaurant] Destino of $1,000 per week * * * [and] a salary of more than $1,000 per week from Empire News" (Id. at p.4).

Seven months after the modification stipulation was signed, according to the former husband, the Empire State Building management relocated ticket booths and entrances in the building which negatively impacted on Empire. As a consequence, he stopped paying rent and closed one of two kiosks operated by Empire. In 2008, the former husband closed the business altogether.

A review of the income tax returns of Empire, the parties and the former husband reveals that in 2004, Empire's gross revenue was $1,086,480, yielding a profit of $76,859. The former husband's salary from Empire in 2004 was reportedly $93,000 (Exhibit "N"). In 2005, Empire's gross revenue was $914,292; its profit was reported as $44,438. The former husband's salary from Empire in 2005 was $72,500 (Exhibit "H"). In 2006, Empire's gross revenue was $611,111; Empire's reported loss in 2006 was $28,788. The former husband's salary from Empire in 2006 was $37,500 (Exhibit "I"). In 2007, Empire's gross revenues were $497,450; its loss was reported as $15,670. The former husband's salary from Empire in 2007 was $26,000 (Exhibit "J").

In addition, in 2004, the parties reported income (from Empire and other sources) of $159,630, with an adjusted gross income of $142,475 (Exhibit "N"). In 2005, the former husband reported income of $60,582, with an adjusted gross income of -$33,708 (Exhibit "H"). In 2006, the former husband reported income of -$115,426 and an adjusted gross income of -$168,819 (Exhibit "I"). In 2007, the former husband reported income of $101,552, with an adjusted gross income of $76,552.

Based on the foregoing, the court does not find a severe bona fides financial reversal occurring from June 13, 2006 and August 15, 2007, the former husband failing to establish a significant reduction in earnings between those dates. In fact, Empire's losses were apparently reduced between 2006 and 2007. Moreover, irrespective of the years considered, the former husband's income from 2004, and for each year thereafter, was insufficient to meet either his $20,000 per month maintenance and support obligations under the post nuptial stipulation or the approximately $12,500 per month he was obligated to pay under the modification stipulation.

Last, the court notes that Empire's 2007 tax return (Exhibit "AA") incorrectly reported $110,130 in rent as a business deduction, when, in truth, no rent was paid during that time. Under the circumstances, the court rejects the former husband's testimony concerning the extent of funds—and his ignorance with respect thereto—available to him between 2004 and 2006.

Regarding the former husband's reference to other financial setbacks in support of his claim that he suffered a severe bona fides financial reversal, the following is noted: [*6]

First, the former husband's attempt to establish a severe bona fides financial reversal based on a reduction in his personal savings that occurred between 2005 and 2007 is misplaced considering, as stated above, the gross disparity between his reported income and maintenance and support obligations. A reduction in savings is also understandable considering that the former husband reported monthly personal expenses of approximately $10,000.

Second, regarding the former husband's business investments, the former husband failed to establish a severe bona fides financial reversal. To the contrary, the former husband's testimony established that he is an entrepeneur who has invested monies in a number of successful business ventures, including Destino. That restaurant, although reporting losses in 2006 and 2007 (Exhibits "I" and "J" respectively), was sold by the former husband in 2007 for $570,000, an amount which enabled him to recover his entire investment, plus a profit, and to pay other investors. Other investments include 17th Street Restaurant, in which the former husband invested $65,000 in January 2007. As noted in the former husband's post-hearing memorandum, he sold his interest in that restaurant in September 2007 for $200,000, yielding a substantial profit.

In conclusion, the former husband failed to meet his threshold burden on the motion. Accordingly, the motion is denied.

The cross motion is decided as follows: Branch "A", which seeks a judgment in favor of the former wife and against the former husband for arrears in maintenance and child support, the amount of which was not disputed, is granted. The former wife is directed to submit proposed judgment on notice.

Branch "B", which seeks an order awarding the former wife counsel fees, is granted (see, Domestic Relations Law § 237 (b)). In determining that an award of counsel fees is appropriate, the court notes that it has considered the financial status of both parties, the relative merits of the parties' positions and the complexity of issues involved (3-38 New York Civil Practice: Matrimonial Actions § 38.05). The parties are, therefore, directed to appear for an inquest on February 23, 2009 to determine the amount of fees to be awarded, or the parties may, on mutual consent and with leave of court, submit the issue for determination on papers.

Branch "C", which seeks an order directing the former husband to post security in the amount of $100,000 from his retirement accounts, is granted to the extent that the former husband is directed to post $100,000 in security from any available source of funds. The court notes that the amount of arrears at issue warrants the posting of security (cf., Levinson v. Levinson, 97 AD2d 458 [2d Dept 1983]).

This constitutes the decision and order of the court after hearing. The attorneys for the parties are directed to participate in a telephone conference with the court on January 22, 2009 at 9:15 a.m. [*7]

Dated: January 10, 2009

__________________________

Hon. Vito M. DeStefano J.S.C. Footnotes

Footnote 1:The post nuptial stipulation provides, inter alia, that (Exhibit "K" at pp.14-15): "D. Modification. The parties agree that in the event of a severe bona fides financial reversal, the Husband shall have the right to apply to a court of competent jurisdiction to modify the maintenance and support provisions of this Article. Conversely, in the event of a substantial increase in the financial circumstances of the Husband, the Wife shall have the right to apply to a court of competent jurisdiction to modify the maintenance and support provisions of this Article. In the event that either party secures an order of a court of competent jurisdiction modifying downward the support and/or maintenance provisions of this Article, this agreement shall be deemed similarly modified to reflect the terms of the court order."

Footnote 2:The essential holding of Heller is that where the parties have stipulated to permit one to "apply for a reduction" of maintenance and support obligations, the legal standard for modification (as delineated in the Domestic Relations Law) remains applicable. In Heller, the parties entered into a stipulation of settlement of their matrimonial action in which it was agreed that the plaintiff could "apply for a reduction" of maintenance and support obligations if his income fell below a certain monetary threshold. The Second Department, on an appeal by the plaintiff challenging, inter alia, the scope of the hearing conducted, remitted the matter for a limited hearing determining: first, whether the plaintiff was entitled to apply for a downward modification in his child support and maintenance obligations, and, if so, whether such a modification was warranted and, only if warranted, for a new hearing to determine the reduced amount of child support and maintenance.

Footnote 3: The former husband asked to expand the scope of the hearing to include evidence of severe bona fides financial reversal arising subsequent to August 15, 2007, however, under the circumstances, and because an issue was raised regarding the law of the case doctrine and this court's possible misapplication of the law, the scope of the hearing was limited. Thereafter another motion was made by the former husband seeking, inter alia, downward modification of his child support and maintenance obligations based on facts arising after the making of the motion. Significantly, submission of that motion was held in abeyance, pending the decision on the instant modification application.

Footnote 4:It is noted that the combined adjusted gross income reported in the parties' 2004 income tax return is $142,475 (Exhibit "N": 2004 Tax Return).



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