MARILYN P. HAGELIN v. REED G. HAGELIN

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1770-05T31770-05T3

MARILYN P. HAGELIN,

Plaintiff-Respondent/

Cross-Appellant,

v.

REED G. HAGELIN,

Defendant-Appellant/

Cross-Respondent.

________________________________________________

 

Argued November 26, 2007 - Decided

Before Judges A.A. Rodr guez, C.S. Fisher and C.L. Miniman.

On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Essex County, Docket No. FM-07-13001-92.

Bruce M. Pitman argued the cause for appellant/cross-respondent (Pitman, Mindas, Grossman and Lee, attorneys; Mr. Pitman and Rimma Razhba, on the brief).

Angelo Sarno argued the cause for respondent/cross-appellant (Weinstein Snyder Lindemann Sarno, attorneys; Mr. Sarno, of counsel; Mr. Sarno and Scott I. Orgel, on the brief).

PER CURIAM

In their cross-appeals in this post-judgment matrimonial matter, the parties argue, among other things, whether defendant's alimony obligation should have been terminated, whether it was reduced to an appropriate level, and whether there is support for the judge's award of counsel fees in favor of plaintiff. We conclude there is ample evidence to support the judge's findings and that correct legal principles were applied. We, thus, affirm in all respects except that we will vacate the judge's decision to terminate the alimony obligation on a future date.

I

For a full understanding of our disposition of these cross-appeals, it is necessary to review in some detail the history of the parties' marriage, the terms of their divorce, and certain events that followed.

The parties were married on September 8, 1962, and had two children, both of whom are now emancipated.

Defendant Reed G. Hagelin (Reed) spent his entire career in the funeral-services business. He served a three-year apprenticeship and thereafter worked full-time at the McCracken Funeral Home until 1970, when he purchased the Gallagher Funeral Home, which he renamed and operated as the Gallagher-Hagelin Funeral Home.

In 1984, Reed formed a business relationship with J. Patrick Growny, which resulted in the merger of the Gallagher-Hagelin and the Growny Funeral Home businesses within two corporate entities: Heritage Funeral Service, Inc. and Heritage Livery Service, Inc. (hereafter collectively referred to as "Heritage"). At the same time of this merger, Reed and Growny purchased the McCracken Funeral Home. The purchase was financed entirely through debt; they borrowed funds for part of the purchase price and the balance was given in the form of personal guarantees. As a result of these transactions, Reed and Growny owned and operated by late 1984, through Heritage, three funeral homes.

Other than what was described as "two little part-time [bookkeeping] jobs" that she held in the early 1980s, plaintiff Marilyn P. Hagelin (Marilyn) was not employed outside of the home during the marriage. Instead, she worked without pay in the aforementioned funeral-services business as "decorator," public-relations and community-contact person, receptionist, and cleaning person.

During the marriage, the family's income was derived from the funeral-services business. From 1970 to 1984, Reed's annual salary, as reported to taxing authorities, ranged between $25,000 and $40,000. His salary increased in 1984, when Heritage began operating the three funeral homes. Between 1987 and 1993, Reed's reported annual salary from the business ranged between $80,000 and $118,000.

However, Reed's reported salary reveals only part of the family's financial picture. During the marriage, the family lived in a ten-room apartment on the second-floor of the Gallagher-Hagelin building, and the funeral-services business paid all of the family's living expenses associated with that apartment during the marriage. Additionally, the business paid for the family's automobiles, automobile repairs and insurance, gasoline, and medical expenses, along with any property taxes, and the business provided funds for the parties' memberships in two country clubs. Also, under the classification of "entertainment," the business purchased a condominium in Hilton Head, South Carolina, and shouldered all its expenses.

As a result, the family enjoyed the benefit of having many living expenses of significant value filtered through and paid by the funeral business. According to Reed, a "fair representation" of the value of the family expenses borne by the business ranged between $100,000 and $110,000 annually -- essentially doubling the amount of the income reported to the taxing authorities. Also, through Heritage, Reed was able to utilize a "loan account" to pay other personal expenses. By December 1, 1993, the loan account had a balance due of $1,064,085.94.

During the marriage, the parties also purchased a 6,000 square-foot building, which was located next to the Gallagher-Hagelin building. And Heritage purchased a nearby house and garages; this property (the garage property) was used as garage space for Heritage's vehicles.

II

The parties separated in February 1988, evidently because Reed was having an affair with Barbara Brady, one of the business's employees. Marilyn continued to thereafter reside in the second-floor apartment in the Gallagher-Hagelin building, while Reed lodged elsewhere.

In 1992, Reed was served with two complaints. The first was Growny's action against Reed for misappropriating funds from Heritage. The second was Marilyn's action for divorce.

A

Reed settled the litigation with Growny in 1993 by purchasing Growny's interest in Heritage. He financed this purchase by obtaining a $4,000,000 loan. From these loan proceeds, Reed paid $1,750,000 to Growny, $1,500,000 to the bank that had previously financed the purchase of McCracken, $400,000 to the seller of McCracken in satisfaction of the outstanding personal note, $150,000 to Marilyn in partial pre-payment of her anticipated future award of equitable distribution, and $200,000 in professional fees.

As a result of this transaction, Reed retained in his own name or in Heritage's name: Gallagher-Hagelin, McCracken, the Hilton Head property, and the garage properties; Growny became the owner of the Growny Funeral Home.

B

On December 18, 1995, Reed and Marilyn were divorced pursuant to a judgment that incorporated a property settlement agreement (PSA).

The PSA required that Reed pay $35,000 per year in direct permanent alimony to Marilyn. This "direct alimony" would be increased to $60,000 annually if Marilyn ceased dwelling in the Gallagher-Hagelin apartment. The PSA provided that, other than Marilyn's death or cohabitation, Reed's alimony obligation would be reviewable only upon Reed's reasonable retirement from his funeral-services business "in accordance with case law which exists at the time of his retirement."

The PSA resolved any disputes about the disposition of the parties' marital property. It provided that Reed would receive the real estate owned by Gallagher-Hagelin and McCracken, the business and capital stock of Heritage, the garage property, and the Hilton Head property. Marilyn received the office building, $555,000 in "initial equitable distribution," and $500,000 to be paid later when Reed sold the business. In terms of the value of these assets, Reed received about $2,846,000 in equitable-distribution proceeds, while Marilyn received about $1,423,000.

The PSA also provided that Reed would pay for and maintain a sizable amount of insurance on his life for Marilyn's benefit. At the time of the execution of the PSA, Reed was obligated to maintain a life insurance policy in the amount of $2,000,000. The PSA allowed for reductions in the amount of that death benefit at various times and for various reasons.

When they executed the PSA, the parties executed an employment agreement and an agreement entitled "Statement of Intent -- Explanation of Spousal Support for Interrelated Marital Agreements" (the intent statement). The employment agreement obligated Reed "and/or Heritage" to provide Marilyn with: a salary of $10,000 per year; housing, including all utilities, insurance, repairs, and maintenance, for a period of at least five years on the apartment at Gallagher-Hagelin; medical and dental insurance; payment for unreimbursed medical expenses, not to exceed $2,500 annually; and automobile expenses, not to exceed $500 per month. The intent statement represented the parties' effort to clarify any "ambiguities" in the PSA and employment agreement, which the parties viewed as being "integrated and interrelated." The intent statement restated in abbreviated form Reed's obligations to pay to Marilyn alimony, certain housing expenses, medical and dental expenses, country club dues, and automobile expenses. The intent statement also repeated the PSA's provision that the only event that would compel a review of Reed's alimony obligation is Reed's retirement "in accordance with case law."

III

In January 1996, about three weeks after entry of the judgment of divorce, Reed married Barbara Brady and moved into her home in Bloomsbury. He continued to work at the funeral-services business.

According to Reed, his business declined in 1997 because fewer people were dying in New Jersey, as well as nationwide, and, consequently, fewer funerals were being conducted. Heritage's income was adversely affected, bills were not being paid, and, by December 1997, creditors were threatening legal action. As a result, the business sought protection under the bankruptcy laws on December 29, 1997.

At this juncture, Reed received offers from several entities to purchase Heritage. He soon elected to sell Heritage to SCI New Jersey Funeral Services, Inc. (SCI). This transaction was memorialized in four separate agreements: (1) SCI purchased the Heritage capital stock and business for $8,000,000; (2) SCI purchased the real property from which Heritage operated Gallagher-Hagelin and McCracken for $1,700,000; (3) Reed promised not to compete with SCI for a period of fifteen years -- within a 30-mile radius of the business locations in Union and Caldwell -- in exchange for $3,100,000, payable in monthly installments over a ten-year period commencing in April 1998; and (4) Reed agreed to provide consulting services to SCI for $60,000 per year for a five-year period commencing in April 1998.

In closing this transaction with SCI, Reed was required to pay off various mortgage debt, unpaid income and property taxes, and counsel fees. In addition, Reed paid Marilyn $825,735.33 in satisfaction of his remaining equitable distribution obligation. He also paid $1,150,000 in satisfaction of an outstanding personal loan that he had obtained through the Heritage loan account. As a result, Reed emerged from this transaction relatively free of debt and with the prospect of a sizable monthly income from the non-competition and consulting agreements; he also retained ownership of the garage and Hilton Head properties. In addition, Reed received $985,000 in cash at the closing with SCI.

The SCI transaction, however, also had the consequence of requiring that Marilyn move from the apartment at Gallagher-Hagelin. In October 1998, she purchased a townhouse in Roseland for $382,500. Pursuant to the intent statement, Reed began paying Marilyn $25,000 more in yearly alimony because she was required to vacate the apartment; as a result, Reed's yearly alimony obligation increased from $35,000 to $60,000.

In May 1998, following the sale of the business, Reed purchased three parcels of undeveloped land adjacent to Barbara Brady's home in Bloomsbury for $700,000. Reed acknowledged that the purchase was for "aesthetic" purposes only; he had no intention of ever developing the land.

The record reveals that Reed spent lavishly during the years following the sale of the funeral-services business. The parties stipulated that between April 1998 and June 2002, Reed received $5,488,389.38 from all financial sources, of which only about $135,000 remained by June 30, 2002. In other words, Reed spent approximately $5,350,000 during that same period. After deducting Reed's obligations to pay alimony, various taxes, investment losses, medical insurance, and his $700,000 purchase of vacant land in Bloomsbury, Reed spent approximately $1,545,000 on "lifestyle" expenses, including automobiles, horseback riding, and vacations, and incurred $324,443 in "credit card activity." Thus, the record showed that, during the fifty-one month period from April 1998 through June 2002, Reed spent approximately $362,500 per year (roughly $30,000 per month) on lifestyle expenses.

IV

On November 19, 2001, toward the end of the fifty-one month spending spree described above, Reed filed a motion to terminate his alimony obligation. The filing of this motion also coincided with the contractually-triggered reduction of the monthly payments due Reed under the non-competition agreement with SCI from $51,666.68 to $14,761.90. Reed alternatively sought a reduction in alimony, as well as a plenary hearing on the alimony issue, and a determination of whether or to what extent he should remain obligated to maintain life insurance for Marilyn's benefit.

In response, on January 21, 2002, Marilyn filed a cross-motion, seeking an award of counsel fees.

On February 22, 2002, the motion judge found that Reed had shown a prima facie change in circumstances that necessitated further discovery and a plenary hearing on the alimony and life insurance issues. He denied without prejudice Marilyn's motion for counsel fees.

When no plenary hearing on the alimony and life insurance issues occurred, Reed moved again on February 4, 2003 to terminate or reduce his alimony obligation. Reed asserted that the impetus for this second motion was his imminent loss of $60,000 in annual income from the SCI consulting agreement.

On February 28, 2003, Marilyn filed a cross-motion, seeking both counsel fees and the summary denial of Reed's requests for relief.

At some point, the motion judge ceased handling this matter. A plenary hearing was conducted by another judge (hereafter "the trial judge") on July 23, 24, and 28, September 3, and October 1, 2003. The trial judge reserved decision.

In the interim, Reed ceased making alimony payments. His last full support payment was made in August 2003, although it appears that amounts less than required were forwarded for a short while thereafter. His alimony arrearages as of March 2004, according to Marilyn, totaled $42,766.62. As a result of Reed's failure to pay support, Marilyn filed a motion on March 17, 2004 to compel Reed to recommence payment of alimony, to pay all arrearages, and for counsel fees. Reed cross-moved, requesting again that the trial judge terminate or reduce his alimony obligation. On April 30, 2004, the trial judge entered an order, which essentially denied the parties any relief pending his disposition of the issues explored at the plenary hearing.

On July 15, 2005, the trial judge issued a written decision regarding the issues considered at the 2003 plenary hearing. He denied Reed's motion to terminate his alimony obligation entirely, but reduced the amount to $5,000 per month. He also denied Reed's request to make the reduction retroactive to November 2001, when the original motion was first filed; instead, the judge made the reduction retroactive to April 1, 2004, by which time Reed had turned sixty-five years of age and could have reasonably been expected to have retired from the funeral-services business.

The judge reasoned that an alimony reduction was required because a portion was "dependent upon the business perks [that are] no longer in existence." But the judge also found that the approximate $177,000 that Reed annually received as payment under the non-competition agreement was sufficient to support Reed's continued payment of alimony at the rate of $5,000 per month from April 1, 2004, onward. Additionally, the judge determined that Reed owed and must pay $130,279.92 in alimony arrearages. He also ordered the immediate termination of Reed's obligation to maintain life insurance for Marilyn's benefit. And, the judge also concluded that the alimony obligation should terminate on April 1, 2008, because, at that time, Reed would stop receiving payments pursuant to the non-competition agreement.

In addition, the trial judge ordered Reed to pay $34,211 toward the counsel fees incurred by Marilyn with regard to the conduct of the plenary hearing. He based the fee award largely upon Reed's lack of good faith, as exhibited by his failure to make alimony payments for two years, despite having the financial means to do so. The judge also considered Marilyn's good faith in making what turned out to be an unsuccessful attempt to settle the case "once discovery was completed and the financial information was not in dispute."

An order memorializing the trial judge's written decision was entered on September 12, 2005.

On October 7, 2005, Reed moved for reconsideration. He requested that the judge provide more expansive findings of fact and conclusions of law. He also sought a hearing on the parties' current financial condition, a credit against the alimony arrearages for certain payments made by him to Marilyn, a reduction or elimination of his alimony obligation of $5,000 per month, and an elimination of the counsel fee award. Reed also asked that the trial judge "determin[e] that the non-competition agreement . . . is not subject to the award of alimony because it is part of the distribution of assets which have already been divided pursuant to equitable distribution."

In response, on October 20, 2005, Marilyn filed a cross-motion, asking that Reed be denied any relief and seeking enforcement of the September 12, 2005 order.

After hearing oral argument on these motions on November 14, 2005, the trial judge amplified his earlier written decision. While denying Reed's motion for reconsideration, the trial judge determined that the alimony arrearages should be reduced from $130,279.92 to $112,847.92 because of certain non-credited alimony payments made by Reed. The judge also refused to award counsel fees to either party in connection with the motion for reconsideration. An order memorializing the judge's decision on the motion for reconsideration was entered on December 12, 2005.

Reed appealed, seeking our review of the orders entered on September 12 and December 12, 2005, and arguing:

I. THE TRIAL COURT ERRED IN DETERMINING ALIMONY, INSOFAR AS THE TRIAL JUDGE FAILED TO MAKE SPECIFIC FINDINGS OF FACT AND CONCLUSIONS OF LAW TO SUPPORT THE BASIS UPON WHICH THE ALIMONY DETERMINATION WAS MADE, PURSUANT TO R. 1:7-4.

II. THE COURT'S CONCLUSION THAT THE AGREEMENT PROVIDED THAT THE ALIMONY REVIEW COULD OCCUR ONLY WHEN [REED] REASONABLY RETIRED IN ACCORDANCE WITH CASE LAW IS INCORRECT. THE MODIFICATION SHOULD HAVE BEEN RETROACTIVE TO THE DATE OF FILING OF THE MOTION TO REDUCE OR ELIMINATE ALIMONY IN NOVEMBER, 2001.

III. MONIES RECEIVED BY [REED] PURSUANT TO THE SALE OF THE BUSINESS THROUGH AN AGREEMENT NOT-TO-COMPETE REPRESENT HIS SHARE OF MARITAL PROPERTY DIVIDED BY EQUITABLE DISTRIBUTION, ARE NOT INCOME [FOR] THE PURPOSES OF DETERMINING HIS ABILITY TO PAY ALIMONY, AND SHOULD NOT BE PAID TO [MARILYN] AS SUPPORT AS SHE RECEIVED HER SHARE OF THIS EQUITY BY THE PAYMENT OF ADDITIONAL EQUITABLE DISTRIBUTION.

IV. THE TRIAL COURT ERRED IN FAILING TO EVALUATE [MARILYN'S] NEEDS, [REED'S] ABILITY TO PAY AND THE MARITAL LIFESTYLE IN DETERMINING ITS AWARD OF ALIMONY.

V. THE COURT'S AWARD OF COUNSEL FEES TO [MARILYN] AGAINST [REED] WAS PUNITIVE, NOT CONSISTENT WITH THE CASE LAW OR RULES AND MUST BE REVERSED.

Marilyn filed a notice of cross-appeal seeking our review of that part of the September 12, 2005 order that provided for the termination of the alimony obligation on April 1, 2008. She also then raised an issue regarding the calculation of alimony arrearages, but later advised of her abandonment of that issue.

We reject all of Reed's arguments, and we agree with Marilyn's argument that the trial judge mistakenly set a future date for the termination of alimony. Accordingly, except for a modification based upon Marilyn's argument, we affirm. Those arguments that we have not discussed in this opinion are of insufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

V

In considering Reed's contentions regarding the judge's alimony findings, we first must recognize that our scope of review is limited. Findings rendered by a trial judge sitting without a jury, as here, are binding on appeal when supported by adequate, substantial, credible evidence. Cesare v. Cesare, 154 N.J. 394, 411-12 (1998) (citations omitted). Such findings should not be disturbed on appeal unless they are "'so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.'" Id. at 412 (quoting Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974)).

The record created at the plenary hearing reveals that the judge rendered entirely appropriate and well-grounded findings and conclusions regarding (a) the appropriate amount of alimony, (b) the effective date of the modification, and (c) counsel fees.

A

In challenging on appeal the sufficiency of the judge's determinations regarding the continuation and appropriate level of alimony, Reed chiefly argues that the trial judge did not make specific findings of fact or appropriate conclusions of law concerning: (1) the standard of living enjoyed by the parties during the marriage, (2) Marilyn's financial need for alimony and her ability to meet that need, and (3) Reed's continued financial ability to maintain Marilyn at the marital standard of living.

1. Standard of Living.

The experienced trial judge certainly understood, when he weighed the facts and circumstances adduced at the plenary hearing, that the marital standard of living "is an essential component in the changed-circumstances analysis when reviewing an application for modification of alimony." Crews v. Crews, 164 N.J. 11, 25 (2000). See also Innes v. Innes, 117 N.J. 496, 504 (1990); Lepis v. Lepis, 83 N.J. 139, 152-53 (1980). Reed's contention concerning the marital standard of living, however, is that although the trial judge found that the parties "enjoyed an upper middle class lifestyle on an income of over $200,000 a year," the judge "made no other findings of fact whatsoever as to marital lifestyle."

In his written decision, the trial judge noted that the parties' income during the marriage was generated "exclusively" by the funeral-services business and that the parties "neither accumulated substantial savings and/or investments, nor incurred marital debt" during the marriage. And, while the evidence demonstrated that Reed "ran the business," the judge noted that other evidence revealed that Marilyn "assumed the role of administrative assistant and as such [she] was an active partner" in the business during the marriage. As is then apparent, the judge made findings concerning the parties' marital living standard, as well as their individual contributions to that living standard.

These findings were in addition to the judge's observation that the parties enjoyed an annual "200,000-dollar lifestyle." In his decision on the motion for reconsideration, the trial judge indicated that the parties' situation concerning the marital standard of living presented "one of the easiest calls the [c]ourt could make on lifestyle" because "[t]hese people spent a considerable number of years with that same lifestyle." We agree that these facts were abundantly demonstrated by the evidence, if not essentially undisputed. Indeed, Reed presented evidence that supported the trial judge's finding concerning the level of the parties' marital income and resulting lifestyle. His proofs revealed that, in the later years of the marriage, the tax-reported income generated by the business was between $100,000 and $120,000 per year and that the parties enjoyed an additional $100,000 "for living expenses paid for through the business."

Perhaps the best indicator of how extensive was the contribution that the business made to the marital lifestyle is the intent statement, which details the many expenses (housing expenses, all automobile expenses, medical and dental expenses, life insurance, and country-club membership) that the business would continue to pay on Marilyn's behalf following the divorce. These same types of expenses, plus property-tax payments and access to the Hilton Head vacation home, were paid on behalf of the family by the business during the marriage.

Additionally, in his written decision, the trial judge noted that he accepted the analysis of Marilyn's financial-planning expert, David H. Bugen. Bugen testified that he relied upon a report from Reed's forensic accounting expert, Edward S. Dratch, for information concerning the parties' standard of living during the marriage. And significantly, Dratch's report indicated that Reed's tax-reported income in the later years of the marriage was around $105,000 and that this income was augmented by "business provided perquisites." Reed testified a "fair representation" of the value of those perquisites ranged between $100,000 and $110,000 annually. Thus, the parties' experts and the parties themselves both provided more than ample evidence to support the trial judge's finding of a marital lifestyle in excess of $200,000 per year.

Accordingly, Reed's contention that the trial judge failed either to make adequate findings concerning marital lifestyle or to support those findings with evidence contained in the record must be rejected.

2. Marilyn's Need and Her

Ability to Meet that Need.

Reed also argues that the trial judge did not set forth his findings concerning both Marilyn's need for continued alimony and her ability to meet that need. According to Reed, "[t]here is no basis whatsoever for the [c]ourt's apparent conclusion that [Marilyn] actually needs $60,000 per year in alimony in order to maintain a lifestyle reasonably comparable to that of the marriage." Reed is again mistaken.

Concerning Marilyn's continued need for alimony, the trial judge explicitly accepted and applied the testimony of her financial-planning expert, Bugen, in support of the finding that Marilyn "is still dependent upon the level of alimony called for in the [PSA] to maintain the same lifestyle enjoyed during the marriage."

Bugen testified at his deposition that, under "Scenario 1," if Marilyn, who was then sixty-two-years-old, received $65,000 in alimony annually through 2008, "she had a 100 percent probability of her assets lasting to age 70, a 45 percent probability of her assets lasting to age 80, a 14 percent probability of her assets lasting to age 90, and a 6 percent probability that her money would last to age 100." In making this projection, Bugen assumed that Marilyn had an annual financial need of $100,000 in order to maintain the marital standard, which she could meet through $65,000 in alimony, $30,000 in rental income from the office building, and $7,829 in Social Security benefits.

Bugen agreed that he performed "no independent analysis" to determine that Marilyn required $100,000 annually to maintain her marital standard of living, but relied instead upon information provided to him by Marilyn and her counsel. Bugen explained that:

[w]hen [Marilyn] came to us in 1998 one of the issues was how do you design a portfolio to meet her needs, and one of the things we had asked her to determine for us was what her living need was, and at that time she had gone through her records, her projected spending estimates, and projected that she would need $100,000 a year.

After he adjusted for inflation that 1998 projection, Bugen testified that Marilyn's need for alimony in order to maintain the marital standard of living as of 2004 would be approximately $112,000 to $113,000 per year.

Bugen's projection was supported at trial by Marilyn's testimony that she was unable to maintain the same lifestyle that she had enjoyed during the marriage because "everything's much more costly." In January 2000, Marilyn's alimony and other support was fixed at approximately $82,600 per year, payable at the rate of $6,909.99 per month, which consisted of $5,000 in alimony and $1,909.99 representing expenses that had previously been paid by the funeral-services business.

However, by the time of the plenary hearing in 2003, Marilyn indicated that her expenses for housing, medical insurance, unreimbursed medical expenses, property taxes, utilities, and country-club dues had increased over the years beyond the amounts that were common during the marriage. As a result, Marilyn indicated that she then spent much less on clothing, vacations, and gifts than she did during the marriage. However, even though she spent less on such things, Marilyn testified that, because of other increases, her monthly expenses totaled $11,172, or about $134,000 per year.

As to this point, Reed also mistakenly argues that the trial judge failed to consider Marilyn's "ability to contribute to her own [financial] needs," especially through the use of some of her financial assets. The judge recognized that Marilyn's physical condition negated any ability on her part to work and earn income. Marilyn was sixty-two years of age at the time of the plenary hearing. She had been diagnosed both with breast cancer in 1993 before the divorce and with "non-Hodgkin's lymphoma" in 1997. She received extensive chemotherapy and radiation treatment, along with "a stem cell transplant," over the years for both conditions. Marilyn testified that, as a result of these medical treatments, she has experienced severe bone-joint deterioration and other conditions that have prevented her from seeking gainful employment. There was no genuine dispute about this.

The judge also noted that Marilyn had sold the office building she received by way of the PSA's equitable distribution provisions, thereby losing the benefit of about $30,000 in yearly income. As part of his financial analysis, Bugen had projected that Marilyn would receive that annual income well into the future. The judge recognized that because this income was "no longer there," the loss of that $30,000 in annual income would adversely affect Marilyn's ability to support herself in the future.

The point is that the trial judge did make findings concerning Marilyn's ability to meet her financial needs. The judge found that she had no ability to earn income, and the income upon which she relied had been reduced by $30,000 per year. Reed has not presented any substantial argument in support of his contention that these findings are not deserving of our deference.

Additionally, we observe that the trial judge rejected Reed's argument that Marilyn was required to further deplete her assets in order to meet her financial needs. The judge noted that Marilyn had received fewer marital assets from equitable distribution than did Reed, but had managed those assets well, while Reed's financial assets had declined largely due to the elevated lifestyle he pursued following the sale of the business. This is demonstrated by the transactions entered into by Reed at or about the time he first moved for a termination or reduction of his alimony obligation, which we have already discussed.

The evidence revealed that soon after the filing of Reed's initial motion, which coincided with the reduction of the non-compete payments, Reed sold the garage properties, receiving net proceeds of $211,073, and the Hilton Head property, which realized approximately $17,000. In the fall of 2002, Reed and his second wife purchased a $600,000 home on 87 acres of land in Galway, New York. This purchase was financed by their obtaining a $650,000 mortgage on the undeveloped Bloomsbury real estate. From this loan, $400,000 was utilized as a down payment on the Galway property and the remainder for various fees and to pay off the mortgage on his second wife's home. Reed and his second wife also obtained a $200,000 mortgage loan to finance the balance of the purchase price of the Galway property.

Reed testified that he purchased the Galway property for his home because the "living expenses [in upstate New York] are considerably less than they are in the State of New Jersey." Curiously, however, he purchased the New York property before the sale of his undeveloped land or his second wife's home. As a result, Reed was effectively paying for two homes during a period when he was purportedly trying to reduce his living expenses.

By April 2003, Reed received the last of his monthly $5,000 payments pursuant to the consulting agreement with SCI. Thereafter, by September 2003, Reed made his "last full support payment" to wife, thus failing to meet fully his alimony obligation from that time until the period following the plenary hearing.

As a result of all these circumstances, the judge found it simply inequitable to compel Marilyn "to use her assets and her investments [to support herself] without any contribution from [Reed], notwithstanding the length of the marriage." He concluded that Marilyn required at least $100,000 per year to maintain herself at the marital standard of living. The judge thus satisfied his duty to make a factual finding on Marilyn's continued financial need for alimony, Crews, supra, 164 N.J. at 25-26, which was fully supported by Marilyn's testimony, as well as Bugen's report and testimony, Cesare, supra, 154 N.J. at 411-12. Accordingly, contrary to Reed's contention, the trial judge made findings concerning Marilyn's continued need for alimony and those findings enjoyed support from the evidence. We find no cause to second guess those findings or the conclusions that those findings generated.

3. Reed's Financial Ability

to Meet Marilyn's Needs.

We are also satisfied that the trial judge made adequate factual findings concerning Reed's continued financial ability to maintain Marilyn at the marital standard of living.

As we have already observed, in April 2001, Reed began receiving reduced annual payments of about $177,000 pursuant to the SCI non-competition agreement. Reed's position on this point largely rests upon his contention that the non-competition payments cannot constitute income for the purpose of satisfying his alimony obligation to Marilyn. We reject this contention.

Reed claims that when he sold the funeral-services business to SCI in 1998 for a total of $12,800,000, that purchase price included $3,100,000, which was payable to him over a ten-year period. He argues that as a matter of law these payments constitute consideration for the goodwill of the business. Reed further asserts that because this goodwill was an intrinsic part of his business, it had been included in the value of the business that was previously divided pursuant to the equitable distribution provisions of the PSA. As a result, Reed contends that Marilyn received her share of the business in "one lump sum" when the business was sold in 1998, whereas he received part of his equitably distributed share as a lump sum in 1998 and the remainder of his share (the goodwill-based $3,100,000) as periodic payments over a ten-year period. In short, Reed claims that Marilyn has no right to a redistribution of his share of equitable distribution in this fashion.

We discern from his findings that the trial judge disagreed and determined that the $177,000 per year in monthly payments to Reed under the non-competition agreement was income for alimony purposes because the federal taxing authorities treat payments under non-competition agreements as taxable income, as even Reed's expert acknowledged, and because the payments represented more than just compensation for the good will of the business.

Reed's position is based on his contention that, as a matter of law, "payments under a covenant not to compete represent the payment on the good will portion of the business." He relies in this regard on Reese v. Reese, 671 N.E.2d 187, 192 (Ind. Ct. App. 1996) (citations omitted), where, in similar circumstances, the court held that "a restrictive covenant not to compete which is signed in conjunction with the sale of a business represents the goodwill of that business absent evidence to the contrary." Other Indiana cases reveal there is no hard-and-fast rule on the characterization of payments made pursuant to a non-competition agreement as either representing the good will of the business that was sold in conjunction or a payment toward future earnings. See, e.g., Yoon v. Yoon, 711 N.E.2d 1265, 1270 (Ind. 1999); Berger v. Berger, 648 N.E.2d 378, 383-84 (Ind. Ct. App. 1995).

Indiana's rejection of a bright line approach to the problem, like some other states, appears to be consistent with the current state of New Jersey law. For example, in Dugan v. Dugan, 92 N.J. 423, 429 (1983) (emphasis added; citations omitted), the Court noted that "we have enforced a restrictive covenant limiting a seller's right to compete that was designed essentially to protect the goodwill of the business for the buyer." That is, the Dugan Court did not limit its view of a non-competition agreement as being equivalent to or representative of a business's goodwill, but instead viewed such an agreement as a separate contractual arrangement meant to protect that goodwill. See Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 32 (1971); Solari Indus., Inc. v. Malady, 55 N.J. 571, 576 (1970); Schuhalter v. Salerno, 279 N.J. Super. 504, 508 (App. Div.), certif. denied, 142 N.J. 454 (1995); see also Restatement (Second) of Contracts 188 comment f (1981) (observing that "[a] promise to refrain from competition made in connection with a sale of a business may be reasonable in the light of the buyer's need to protect the value of the good will that he has acquired"); 15 Corbin on Contracts 80.9 (rev. ed. 2003) (acknowledging that "[t]he purpose of enforcing a restraining promise that is ancillary to a contract for the sale of a business is usually to protect the good will, which is a part of what the seller conveys to the buyer of the business").

We recognize there is an absence of clarity as to how payments made in exchange for a non-competition agreement should be characterized in this setting. Certainly, there is logic to viewing these payments as consideration for the good will of the business; by the same token, these payments are made to the seller in exchange for a forfeiture of his right to earn income in his chosen field and, thus -- if strictly viewed, as argued by Reed, as equitable distribution -- would have a catastrophic effect on a supported spouse. We conclude that in this circumstance -- as illuminated by Reed's spendthrift ways that also impacted on his financial picture -- the judge did not abuse his discretion in considering the non-competition payments as a source from which alimony could be paid. Moreover, the trial judge could have similarly viewed the fact that Reed had not pursued any employment in the funeral business that would not have violated the non-competition agreement, i.e., by seeking employment outside the geographic scope of the covenant. Accordingly, we are satisfied that there was nothing inequitable about the trial judge's determination regarding the appropriate level of alimony.

B

The trial judge was also required to determine when the reduction in alimony should have become effective. He concluded that the reduction should not be given retroactive application to the date of Reed's original motion on November 19, 2001, but, instead, to April 1, 2004, the date that Reed could have reasonably retired, a conclusion that logically dovetails with the PSA's limited bases for reduction of the alimony obligation.

Decisions concerning the retroactive reduction of alimony payments are "left to the sound discretion of the trial judge." Walles v. Walles, 295 N.J. Super. 498, 514 (App. Div. 1996). Under the circumstances of the present case, we are satisfied that the trial judge did not abuse his discretion in reducing Reed's alimony obligation as of the date that he attained what might be viewed as a normal retirement age and not as of the date that he filed his first modification motion.

C

Reed also argues that the trial judge erred in awarding counsel fees of $34,211 to Marilyn for the legal services rendered on her behalf at the plenary hearing. We reject his contentions.

In his written decision, the trial judge focused on several factors, including Marilyn's need, Reed's financial ability to pay, and whether the parties acted in good faith in proceeding with the litigation -- the principal concerns in determining whether a matrimonial litigant should bear any part of the counsel fees incurred by the other. Williams v. Williams, 59 N.J. 229, 233 (1971).

The trial judge correctly found that Reed had the ability to pay not only his alimony obligation but also Marilyn's fees and that she had a need for such an award. Of particular interest in this regard is the fact, as found by the judge, that Reed "had the ability to make his support payments pendente lite," but "[f]or the past two years he made none" because his "priority was to satisfy his financial needs at the expense" of Marilyn -- a fact that further informs the judge's finding regarding Reed's lack of good faith in certain aspects of this litigation.

Indeed, Reed's arguments regarding the counsel fee award largely center on the judge's finding regarding good faith, to which we also turn our focus. The trial judge summarized the basis for his award to Marilyn of $34,211 in counsel fees in the following way:

[w]hile the Court understands and accepts the need to conduct extensive discovery in this case, once discovery was completed and the financial information was not in dispute the case should have settled. [Marilyn] made a good faith attempt to settle (i.e. her final offer was more favorable to [Reed] than this decision).

The trial judge based this finding on his utilization of a technique by which the parties were asked to submit their best settlement offer in sealed envelopes. In considering the contents of these envelopes, the judge was able to ascertain which of the parties acted more reasonably in seeking to prevent further litigation on the merits of the dispute.

The judge's counsel fee award was also further amplified at the time he heard Reed's motion for reconsideration. Reviewing his prior decision, the judge noted that it was "shocking" that Reed lavishly expended funds to support his elevated lifestyle following the sale of the business and that he was now "seeking to pay [Marilyn] zero, or very close to zero." Tacitly referring to Reed's failure to pay alimony after September 2003, the judge indicated that this "showed no good faith with regard to his paying at least something during that period of time. He paid nothing." These observations are fully supported by the record and played an appropriately significant role in the counsel fee award.

As has been observed, an award of counsel fees in matrimonial litigation lies within the sound discretion of the trial court. Williams, supra, 59 N.J. at 233. We are satisfied that the trial judge applied the correct legal standards and concluded, in this contentious case, that Marilyn had a need, that Reed had an ability to pay, and that Marilyn acted in good faith in incurring the costs associated with the plenary hearing. Ibid.

VI

In her cross-appeal, Marilyn argues that the trial judge erred when he prospectively terminated Reed's alimony obligation as of April 1, 2008, when Reed is scheduled to receive the last of the payments under the non-competition agreement. Marilyn's argument has merit, and we will, therefore, vacate that part of the September 12, 2005 order that directs a future termination of alimony on April 1, 2008.

To reiterate, when Reed sold the funeral-services business in 1998, he began receiving a ten-year payout of $3,100,000 pursuant to the non-competition agreement. He received approximately $620,000 per year for the first three years ending in April 2001, and was scheduled to receive approximately $177,000 per year for the remaining seven years, ending prior to April 1, 2008. In his written decision, the trial judge stated that "[i]n April 2008, when the annual $177,000.00 received by [Reed] terminates, so should his obligation to [pay alimony]." Although we can appreciate the judge's desire to spare the parties the cost of future litigation on this subject, we cannot endorse his prognostication of the parties' future financial circumstances.

"[A]limony and support orders define only the present obligations of the former spouses," and remain subject to review and modification in the future based upon a showing of changed circumstances. Lepis v. Lepis, 83 N.J. 139, 146 (1980) (emphasis added; citations omitted). The problem with the trial judge's prospective termination of the alimony obligation is that it presumes the changed circumstance that Reed will not have sufficient income, beginning on April 1, 2008, to meet his alimony obligations. It also relieves Reed of his burden of proving that particular changed circumstance in the future.

In Boardman v. Boardman, 314 N.J. Super. 340, 345-46 (App. Div. 1998), we considered the prospective termination of a wife's obligation to pay permanent alimony to a husband upon her future retirement or his future cohabitation, and held that:

prospective termination provisions are contrary to the law that has developed under . . . [Lepis] and its progeny, based upon N.J.S.A. 2A:34-23. Ignoring the parties' actual circumstances upon the happening of such future events was error.

We added in Boardman that "[i]t is impermissible for the court to assume in advance, and in the absence of a factual context" that a future circumstance would eliminate a supported spouse's need for alimony. Id. at 347.

 
We continue to adhere to Boardman's rejection of prospective modifications of alimony. Because the trial judge's well-intended attempt to eliminate future litigation falls afoul of these principles, we vacate that part of the September 12, 2005 order that compelled a termination of Reed's alimony obligation as of April 1, 2008.

Affirmed as modified.

The monthly payments under the non-competition agreement were tailored so that Reed would receive $1,860,000 ($51,666.68 per month) over the first three years and $1,240,000 ($14,761.90 per month) over the remaining seven years.

We observe that Reed appears to view the judge's findings as being limited to the written decision of July 15, 2005. This represents a misunderstanding of the significance of the judge's oral decision on the motion for reconsideration. On that later occasion, the judge indicated he was "trying to supplement the record here with regard to where I made these findings of fact" in the written decision. Accordingly, the judge's findings and conclusions on these issues are to be found not only in the written decision but also in the later oral decision on the motion for reconsideration.

Marilyn did, however, achieve a level of financial success regarding that transaction because she sold the office building for $910,000 on May 18, 2005; the parties had stipulated at the time of trial in 2003 that the office building had a lesser value of $600,000.

On September 25, 2002, around the same time that they purchased the Galway property, Reed and his second wife listed the undeveloped land and her home for sale. The land was priced at $1,100,000, and the second wife's home was listed for $979,900. By the time of the plenary hearing in July 2003, there had been no bids on the properties, and their combined listed sales price had been reduced to $1,790,000. By the time the reconsideration motion was argued in November 2005, Reed had separately sold the undeveloped Bloomsbury property for $400,000, incurring what the trial judge characterized as a "$300,000 loss" on the 1998 purchase price.

In Yoon, the court held that the Berger court "quite properly remanded to determine what percentage of the future amounts to be received for honoring a restrictive covenant was attributable to the goodwill of the husband's dental practice as a commodity sold to the buyer and what percentage was in lieu of future earnings. Only the amounts associated with the goodwill of the practice were to be included in the marital estate." 711 N.E.2d at 1270 (citations omitted).

See Kricsfeld v. Kricsfeld, 588 N.W.2d 210, 221 (Neb. Ct. App. 1999) (gathering cases from other states showing the conflict between those states that include the proceeds from a non-competition agreement in the marital estate because they represent the sale of business goodwill and those states that refuse to so include the proceeds because they represent the business seller's future income); Lucas v. Lucas, 621 P.2d 500, 501-02 (N.M. 1981) (holding that, under the facts of that case, proceeds paid to a husband under a non-competition agreement were not community property for purposes of equitable division upon divorce, and refusing to "equate the covenant not to compete with [business] good will").

That is, the judge could have fairly reached the same result by considering that Reed possessed the means to obtain income from other sources, but chose instead to expend other funds and assets in an extravagant way and in a manner that generated no cash flow. This is a circumstance that the judge could properly consider in determining whether or to what extent the alimony obligation should have been modified. See Miller v. Miller, 160 N.J. 408, 422 (1999); Connell v. Connell, 313 N.J. Super. 426, 433 (App. Div. 1998); Stiffler v. Stiffler, 304 N.J. Super. 96, 101-02 (Ch. Div. 1997).

The PSA indicated that a reasonable retirement date would be that referred to in our decisional law. The trial judge applied this provision and concluded that "[a]ccording to case law a reasonable retirement age is 65 years." In this way, the judge concluded that the appropriate effective date for the modification was when Reed reached the age of 65. We agree that this represented a very appropriate time for setting the effective date of the alimony modification.

The parties do not dispute that the $34,211 award of legal fees represents only the fees incurred by Marilyn for the plenary hearing and not any of her legal costs for the pre-trial or post-trial periods.

(continued)

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A-1770-05T3

December 19, 2007