DEBRA AMIR v. YEHUDA A. AMIR

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4662-06T14662-06T1

A-0098-07T1

A-1802-07T1

DEBRA AMIR,

Plaintiff-Respondent,

v.

YEHUDA A. AMIR,

Defendant-Appellant.

______________________________________

 

Argued March 24, 2009 - Decided

Before Judges Fuentes, Gilroy and Chambers.

On appeal from Superior Court of New Jersey,

Chancery Division, Family Part, Atlantic County,

Docket No. FM-01-152-06P.

Lee M. Hymerling argued the cause for appellant

(Archer & Greiner, attorneys; Mr. Hymerling and

Michael A. Weinberg, on the brief).

Michael A. Gill argued the cause for respondent

(Goldenberg, Mackler, Sayegh, Mintz, Pfeffer,

Bronchi & Gill, attorneys; Mr. Gill, on the brief).

PER CURIAM

On January 9, 2007, the Family Part issued a dual judgment of divorce (JOD) dissolving the marriage between plaintiff Debra Amir and defendant Yehuda Amir. Defendant now appeals arguing that the trial court committed reversible error in: (1) determining the amount of equitable distribution due plaintiff; (2) failing to find that the parties reached an enforceable settlement agreement on January 17, 2006; and (3) denying his recusal motion. Defendant's arguments come before us as three separate appeals which we consolidate here for the purpose of resolution.

After reviewing the record before us, and mindful of prevailing legal standards, we reject defendant's arguments pertaining to the existence of a settlement agreement and on the question of judicial bias. We are satisfied, however, that the court erred in valuing and distributing the marital assets. We therefore reverse the award of equitable distribution, and remand for further proceedings consistent with this opinion.

We derive the following facts from the evidence presented before the trial court.

I

The parties were married on November 9, 1991. They lived in a townhouse located in Ventnor that defendant had purchased in 1988 for $75,000. Before the marriage, plaintiff was a real estate sales agent in her father's business; defendant owned and operated a retail store on the Atlantic City boardwalk. After the marriage plaintiff worked fifteen to twenty hours per week as a sales clerk in defendant's store. Defendant's responsibilities included managing the store's finances and inventory, and supervising the summer employees; he also worked as a sales clerk.

In the summer months, the store would be open from 9:00 a.m. to at least 10:00 p.m., occasionally staying open until midnight. In the early years of their marriage, the parties spent most of their time working. The business operated on a seasonal cycle. In the spring and fall, the store closed between five and seven in the evening; in the winter, it only opened when the weather permitted.

The parties' first child (a boy) was born in March 1993. Plaintiff returned to work full-time at the store soon thereafter, bringing the baby to work with her. She received a regular paycheck for about one year. At the end of this year, although she continued to work, defendant stopped paying her.

In the summer of 1993, the parties purchased a house in Longport for $109,000. Defendant testified at his deposition that he paid $30,000 as a down payment. At trial, he testified that he only paid $10,000 as a down payment with money he earned or acquired before the marriage. The parties secured a $135,000 mortgage to finance the balance of the purchase price, and to pay off a $55,000 to $65,000 mortgage that was encumbering the Ventnor townhouse. The monthly payment for the $135,000 mortgage was $1,200. They rented out the townhouse for residential use.

The parties' second child (a girl) was born in May 1995. Plaintiff continued to work at the store during the summer after her birth; the two children were initially cared for by a nanny; the parties eventually assumed all of the child-care responsibilities, with each parent alternating between child-care and store-work.

Plaintiff gave birth to twins (a boy and a girl) in April 1997. Because she was sick in the early part of the pregnancy, she did not work much in the store. She returned to the store full-time after she gave birth to the twins. Although she still worked at the store, she viewed her primary role as caring for the family and the house. Her responsibilities at the store included purchasing supplies and handling "the legal aspects" of the business. She had nothing to do with the finances, however. She testified at trial that because defendant kept separate bank accounts, she did not know how much income the store generated or how much defendant earned personally.

Sometime in either 1997 or 1998, plaintiff obtained a real estate broker's license. Defendant purchased another boardwalk store around the same time in 1998. Plaintiff worked in that store as well. In 2002, plaintiff stopped working regular hours at the stores. It was also during this time that the parties' relationship as husband and wife began to deteriorate.

Their marital difficulties also affected their relationship at work. The tension between plaintiff and defendant became intolerable. Specifically, plaintiff complained that the stores' employees were disrespectful and even berated her on occasions. According to plaintiff, the employees acted this way because they saw how defendant treated her.

Plaintiff spent a few months at home with the children after she stopped working at the stores. Thereafter, she began selling real estate again at her father's business. That did not last long, however, and she soon returned to being a full-time homemaker. In 2005 plaintiff obtained a real estate sales position with a company called Sellstate Real Estate. As of the summer of 2006, plaintiff was still employed by Sellstate.

In February 2006, the turmoil in the Amir family reached critical levels. Not only were the parties not getting along, but the children were also drawn into the discourse. Unable to find a resolution, plaintiff decided to leave her marital residence in Longport, and move into a winter-rental apartment in Margate. Because the lease on this property was due to expire on May 30, 2006, she decided, with defendant's consent, to move into the Ventnor townhouse on June 1, 2006. After some initial delay in relocating the occupants of the townhouse, plaintiff moved on July 1, 2006.

When plaintiff and the children moved in, the townhouse was in a deplorable state of disrepair. Defendant refused to pay for the needed repairs, however, telling plaintiff to get the money from her father. Unwilling to involve her father, and unable to hire a contractor, plaintiff decided to repair the townhouse herself. This proved to be short lived; after a short time, her father intervened and hired a contractor. As of August 2006, plaintiff's father had paid approximately $15,000 to offset the cost of repairs; more work is required to complete the project.

II

The court's equitable distribution award was predicated on defendant's businesses. In order to address this issue, we must first review the evidence presented with respect to defendant's premarital, business-related activities.

Defendant was born in Israel. He came to the United States in 1982, when he was twenty-two years old. He brought with him approximately $3,000, and spent about $1,000 traveling across the country. In May 1982, he began living in Atlantic City with a man named Ezra Kraim and his family. He worked as an employee in Kraim's retail store on the Atlantic City boardwalk from 1982 to 1986.

According to defendant, Kraim paid all of his living expenses, allowing him to save all of his income. Defendant's social security statement shows, however, that he had no income prior to 1986, and only $1,000 for the entire year of 1986.

Defendant and Kraim formed a corporation called Casino Gifts Corporation in 1986. That corporation operated a retail store in the 2600 block of the Atlantic City boardwalk, paying $175,000 annual rent. In May 1989, defendant formed his second business called Souvenir City, Inc.; he was the sole shareholder of that corporation.

Also in May 1989 defendant purchased a boardwalk commercial unit designated R-21 in the Ocean Club Condominium complex (Ocean Club). The purchase price was $350,000. He paid an initial payment of $50,000, and the seller financed the $300,000 balance by taking back a mortgage. The monthly mortgage payment was $1,200. When asked at his deposition to identify the source of the $50,000 payment, defendant stated that it came from a combination of his personal savings, and moneys lent to him by his sister and mother.

Defendant operated a retail store in the R-21 unit that he called Souvenir City. The business sold small gifts and beach items. The amount of sales generated by Souvenir City is uncertain because defendant did not keep sales records. Defendant testified that he destroyed the cash register tapes "[b]ecause they don't mean anything. . . . Every day there's a bunch of mistakes."

In addition to Souvenir City at R-21, defendant obtained the exclusive rights in the Boardwalk Commercial Units of the Ocean Club to operate a retail store selling souvenirs and similar items. Defendant's rights were subject to the rights of any preexisting retail stores engaged in similar business activities within the Ocean Club. The tenant in unit R-20 was one of those businesses with prior conflicting rights. In response, defendant's deed to R-21 provided that when the R-20 tenant's lease expired, defendant would have the exclusive right to operate a store in R-20. Specifically, the deed provided that:

Purchaser/Unit Owner acknowledges that other rights have been granted to commercial stores in the Ocean Club and understands and agrees to this use. Additionally, Purchaser/Unit Owner acknowledges that there is an existing tenant of Unit R-20 of the Ocean Club and that certain exclusive uses stated may conflict with certain nonexclusive rights of the tenant of R-20. Upon the expiration of this lease Agreement these rights will then become exclusive to Purchaser/Unit Owner.

In defendant's view, this provision created an option to buy R-20 when the tenant vacated it. As defendant explained, when he purchased R-21, he also wanted to purchase R-20; because the unit was occupied, however, the seller would not sell it to him. By way of compromise, he and the seller agreed that when the tenancy ended, defendant would acquire R-20. Thus, in defendant's opinion, the deed conveying title to R-21 also included an option to buy unit R-20.

In December 1989 defendant and Kraim dissolved Casino Gifts Corporation, and stopped renting and operating the store on the 2600 block of the boardwalk. After equally dividing the inventory, defendant moved his share to the Souvenir City store located at R-21. In June 1992, after plaintiff and defendant had married, the R-20 tenant vacated the premises, and defendant purchased the unit for $140,000.

Defendant structured the purchase as follows: (1) he paid the seller $15,000; (2) he obtained a purchase money mortgage from a bank in the amount of $110,000; and (3) he gave the seller a second mortgage for $10,000. His monthly mortgage payments were approximately $1,200. At trial, defendant testified that the $15,000 initial payment came from money he had "way before" he married plaintiff.

Instead of operating a store at R-20, defendant leased the unit to a shoe store. Souvenir City, Inc. received the rent, which in 2006 was between $53,000 and $54,000 per year. Pursuant to the lease, which was set to expire in 2010, the rent would increase three percent each year. Defendant testified, however, that he intended to forego the increase due in 2007 because the tenant was not doing well financially.

According to defendant, the tenant paid the utilities for R-20 and performed everyday maintenance; defendant paid taxes (between $65,000 and $67,000), condominium fees ($18,000), insurance ($1,700), and mortgage ($14,400). All of these figures are estimates based on defendant's testimony of the unit's expenses for 2005. Defendant did not provide documentary evidence to support his testimony.

In 1998, defendant purchased unit R-22 at Ocean Club. This was his third condominium unit at this complex. R-22 was in foreclosure, and defendant acquired title at a sheriff's sale. He assumed payments on a $44,000 mortgage, and paid $135,000 in back taxes. The source of these funds, amounting to $179,000, remains unclear from this record.

According to plaintiff, defendant borrowed $60,000 from her father. Defendant testified that he obtained $300,000 by mortgaging a piece of property that plaintiff's father had given him. From this $300,000 he gave plaintiff's father $165,000, paid off the $135,000 tax liability, and placed a $135,000 mortgage on R-22. The monthly mortgage payment due from R-22 was about $1,600. Defendant operated a retail store at R-22 selling merchandise slightly different from the inventory kept at R-21.

In December 2005, using only the money he had earned from the stores, defendant paid off the mortgages that encumbered all three commercial properties. For each property he made a lump-sum payment of $6,000, for a total pay-off amount of $18,000.

As of the time of trial in August 2006, the parties had not filed income tax returns for 2005. The only tax return that the court considered was the parties' joint 2004 return. Plaintiff testified, however, that her gross income for 2005 was approximately $74,840. Defendant did not testify to his income.

The parties' joint 2004 federal tax return reported the following income: $27,000 (defendant's wages from Souvenir City); $1,834 ($295 dividends from Souvenir City and $1,539 interest from bank accounts); $29,809 (plaintiff's real estate business income ($71,999 gross sales - $42,190 expenses)); $37,970 ($8,989 rental income from R-20 and the townhouse and $28,981 income from Souvenir City); $7,588 ($6,910 cancellation of debt and $678 gambling winnings). Based on these figures, total reported gross income for 2004 was $104,201.

In April 2007, after the court rendered its equitable-distribution decision, defendant filed an individual tax return for 2005. He reported $67,793 personal income in 2005, which is substantially similar to income reported for 2004. The record does not contain plaintiff's 2005 personal income tax return. She testified that her gross income for 2005 was approximately $74,840.

III

We will next address the expert testimony presented to the trial court on the value of defendant's businesses. The reliability of these appraisal reports was a central issue in the case. David Neyers, an appraiser with Appraisal Services, Inc., issued a report and testified as an expert for both parties on the value of the real estate. In the interest of clarity, we will state both the most recent appraised value, and the original purchase price.

Neyers opined that, as of May 1, 2006, the values of the properties were as follows: (1) the Ventnor townhouse, $220,000 (purchased for $75,000 in 1988); (2) the R-21, $883,000 (purchased for $350,000 in 1989); (3) the R-20, $672,000 (purchased for $140,000 in 1992); (4) the Longport house, $675,000 (purchased for $109,000 in 1993); and (5) the R-22, $935,000 (purchased for $179,000 in 1998). As of May 2006, the total appraised value of these properties was $2,490,000. The combined value based on the initial purchase price was $744,109. This constitutes approximate seventy-one percent increase in value from the original purchase price.

Neyers testified that the increase in the commercial properties' values was due to "appreciation, and the appreciation is due to economic factors within the city." The increase was not due to improvements to the property, as the properties had stayed essentially the same as when defendant purchased them.

Neyers also emphasized that, although the purchase price for R-20 appears low, defendant paid the fair market value at the time. Neyers valued the townhouse in an as-is condition, without making adjustments for the improvements that plaintiff was making at the time.

Plaintiff called R. Joseph Gunteski, of Cowan, Gunteski & Co., to appraise and testify to the value of the Souvenir City business. Gunteski was unable to issue a final appraisal report because the information provided to him by defendant "was substantially less than the information customarily received in a valuation." Gunteski thus had "to make certain accounting estimates and assumptions that, if changed, could have a material impact on the amounts and conclusions."

Gunteski opined that, as of August 11, 2005, the value of the Souvenir City business was $154,000. This amount did not include the value of the real estate, which Neyers had appraised at $2,490,000. When these two figures are added, the total value of the business and real property was $2,644,000.

Defendant had three bank accounts: (1) Wachovia bank, which held $111,000 in March 2005; (2) PNC Bank, which held $72,000 in March 2005; and (3) Sun Bank, which held $40,000 in April 2006. According to defendant, the Wachovia account was a personal savings account; the other two accounts were Souvenir City business accounts. He used the PNC account to pay mortgages, and the Sun account to purchase supplies for the stores.

IV

We recognize, as did the trial court, that defendant's unorthodox business practices made the task of determining the marital estate a needlessly arduous task. Toward that end, the trial court first focus was identifying the assets subject to equitable distribution. The first step in the court's analysis was plaintiff's contributions to defendant's businesses.

The trial court found that "the operation of the commercial units was a joint effort" between the parties. Plaintiff contributed "substantially" to defendant's businesses through her work in the stores and by caring for the children. She also contributed to paying off the debt on the real estate. Defendant's business practices, specifically his poor record-keeping, made it nearly impossible to assess, reliably, the extent and value of defendant's businesses, and to determine each party's actual income derived therefrom. After extensively reviewing defendant's various business activities, including paying off underlying mortgages and acquiring new properties, the court found that defendant deliberately "under reported his earnings."

As to the marital estate, the court found that the Ventnor townhouse and R-21 were the only properties that defendant had acquired before the marriage. However, because defendant had agreed to give plaintiff the townhouse, the court awarded this property to her, and gave defendant a net $160,000 credit based on its appraised value.

The court found that defendant purchased R-21 in May 1989, two years before the marriage. The purchase price was $350,000; defendant made a down payment of $50,000, and mortgaged the $300,000 balance. No evidence was presented as to the balance due on the mortgage at that time. Given that the parties married just two years after the purchase, the court estimated that most of the $300,000 principal remained unpaid, and thus subject to equitable distribution.

Concerning the Souvenir City business, the court found that plaintiff "made substantial contributions to the operation of the business and was equally responsible for the monies generated to pay off the purchase money mortgage for unit R-21."

Plaintiff was thus entitled to share equally in the increase in value that occurred from the date defendant purchased the property until the date of appraisal. After awarding defendant a $50,000 credit for the initial down payment, the court determined $833,000 as the amount of subject to equitable distribution.

Using this $833,000 figure as a starting point, the court noted that $300,000 (the amount of the mortgage) is 36% of $833,000. Giving plaintiff's equal contribution to paying off the mortgage, the court reasoned that she "should receive 18% [half of 36%] of the current fair market value of the property." That percentage award translated into a net equitable distribution award to plaintiff in the amount of $159,000.

With respect to R-20, the court rejected defendant's claim that he acquired title in 1989, when he purchased R-21. Referencing Neyers, the only expert who testified on the value of the real estate, the court found that defendant paid fair market value for R-20 in 1992. The option to purchase R-20 had no independent value; R-20 was thus acquired during the marriage and was subject to equitable distribution. The court awarded plaintiff $336,000, representing half of its appraised value, and permitted defendant to retain title.

The court reached a similar conclusion with respect to R-22. It awarded plaintiff $467,500, representing half the appraised value of $935,000, and allowed defendant to retain ownership. With respect to the Souvenir City business, the court underscored Gunteski's testimony that defendant did not cooperate in providing the information needed to accurately value the business. The valuation presented was limited to the inventory in the stores, resulting in an "extremely conservative," valuation. Given plaintiff's equal contribution in the operation of the business during the marriage, the court awarded her half of the inventory's value, or $72,000.

The court also awarded plaintiff half of the funds kept in various bank accounts, for a total of $111,819, and half of $675,000, the value of the equity in the Longport house, or $282,500. Defendant retained ownership of the house. In total, the court awarded plaintiff the Ventnor townhouse and $1,268,819.

V

We will now address defendant's arguments challenging the court's equitable distribution award. Defendant argues that the court: (1) erroneously included the value of R-20, R-21 and the townhouse; (2) did not subtract the mortgage that encumbered the townhouse; (3) did not account for capital gains tax; and (4) double counted $40,000 that defendant transferred from the PNC account to the Sun Bank account. In the interest of clarity, we will address each one of these claims separately.

We start our analysis by reaffirming the principles guiding our review. An equitable distribution award is left to the discretion of the trial court and thus will not be disturbed on appeal "as long as the trial court could reasonably have reached its result from the evidence presented, and the award is not distorted by legal or factual mistake." La Sala v. La Sala, 335 N.J. Super. 1, 6 (App. Div. 2000), certif. denied, 167 N.J. 630 (2001) (citing Perkins v. Perkins, 159 N.J. Super. 243, 247-48 (App. Div. 1978)).

In determining an equitable distribution award,

a trial judge enters upon a three-step proceeding. Assuming that some allocation is to be made, he must first decide what specific property of each spouse is eligible for distribution. Secondly, he must determine its value for purposes of such distribution. Thirdly, he must decide how such allocation can most equitably be made.

[Rothman v. Rothman, 65 N.J. 219, 232 (1974).]

In addressing the question of equity, the court "shall consider, but not be limited to" the following statutory factors:

a. The duration of the marriage or civil union;

 
b. The age and physical and emotional health of the parties;

 
c. The income or property brought to the marriage or civil union by each party;

 
d. The standard of living established during the marriage or civil union;

 
e. Any written agreement made by the parties before or during the marriage or civil union concerning an arrangement of property distribution;

 
f. The economic circumstances of each party at the time the division of property becomes effective;

 
g. The income and earning capacity of each party, including educational background, training, employment skills, work experience, length of absence from the job market, custodial responsibilities for children, and the time and expense necessary to acquire sufficient education or training to enable the party to become self-supporting at a standard of living reasonably comparable to that enjoyed during the marriage or civil union;

 
h. The contribution by each party to the education, training or earning power of the other;

 
i. The contribution of each party to the acquisition, dissipation, preservation, depreciation or appreciation in the amount or value of the marital property, or the property acquired during the civil union as well as the contribution of a party as a homemaker;

 
j. The tax consequences of the proposed distribution to each party;

 
k. The present value of the property;

 
l. The need of a parent who has physical custody of a child to own or occupy the marital residence or residence shared by the partners in a civil union couple and to use or own the household effects;

 
m. The debts and liabilities of the parties;

 
n. The need for creation, now or in the future, of a trust fund to secure reasonably foreseeable medical or educational costs for a spouse, partner in a civil union couple or children;

 
o. The extent to which a party deferred achieving their career goals; and

 
p. Any other factors which the court may deem relevant.

[N.J.S.A. 2A:34-23.1]

The statute further creates "a rebuttable presumption that each party made a substantial financial or nonfinancial contribution to the acquisition of income and property while the party was married." Ibid.

Against this legal backdrop, we now address each of item raised by defendant.

Souvenir City

In finding that Souvenir City was worth $144,000, the court accepted Gunteski's valuation. Defendant stipulated that Gunteski was an expert in forensic accounting, and on appeal he does not challenge Gunteski's qualifications to render expert testimony in this field. Defendant's challenge is limited to the manner in which Gunteski valued Souvenir City.

As noted supra, Gunteski testified that his report was incomplete because he lacked the information necessary to thoroughly review the store's business activities. Defendant provided some, but not all of the requested documents. According to Gunteski, he would ordinarily conduct an "income approach" in valuing a company. Because defendant did not provide the requisite information, he was forced to conduct an "asset approach."

As the name implies, an "asset approach" is limited to valuing the business' assets. Here, the inventory was valued at $100,000. In reaching this conclusion, Gunteski employed a more conservative methodology, accepting defendant's 1998 deposition testimony that inventory in each store in 1998 was worth "about $80,000." Conversely, defendant's forensic accountant Saccomanno estimated that the inventory value "would have been in excess of $200,000." Gunteski also admitted that he did not physically inspect the stores, and did not know when defendant paid for any of the inventory.

In reaching his conclusion, Gunteski began by accepting defendant's value of $80,000. He then increased this figure using a "CPI inflation calculator" to "give it some economic reasonableness" and to estimate its value in 2005. The final figure he computed was $96,000. Adding to that value $32,962 in cash, and $250 in prepaid expenses, Gunteski determined the total current asset value as $129,212.

Gunteski next valued Souvenir City's fixed assets (real estate, improvements, an automobile, and equipment) at $2,490,285, and added $50,000 for intangible assets, a figure he characterized as "extremely conservative." Finally, Gunteski computed Souvenir City's liabilities and subtracted that amount from Souvenir City's total assets to get a stockholder's equity amount. This analysis yielded a total rounded up value of $2,644,000. Subtracting from that figure the value of the real estate, Gunteski valued the Souvenir City business at $154,000.

The court found that defendant "was uncooperative in providing the information requested by Mr. Gunteski" and that that inhibited Gunteski from doing a thorough evaluation of Souvenir City. Nonetheless, the court adopted Gunteski's valuation without giving any rationale, other than that Gunteski was the only expert offered to testify.

The court awarded plaintiff half of the business's value without the real estate, reasoning that plaintiff had contributed equally to its success. In determining the final amount due plaintiff. the trial court mistakenly indicated that the figure was $72,000. However, because the court accepted the value as $154,000, the award should have been half of that figure, or $77,000.

On appeal, defendant argues that the court erred in accepting Gunteski's valuation, reasoning that there was no basis in the record to support it and that his valuation was not a final valuation. He complains that Gunteski did not "count the inventory" or consider how long Souvenir City owned it, and instead "based his conclusion on an extrapolation of past inventory brought current by applying the cost of living."

In valuing a corporation, there is no set formula that one must employ because each case presents its own unique set of facts. Bowen v. Bowen, 96 N.J. 36, 44 (1984). Thus, a court looks at the reasonableness of the valuation method in determining whether the valuation is adequate. Steneken v. Steneken, 183 N.J. 290, 297 (2005).

In the case of a closely-held corporation, valuation is particularly difficult because the corporation's stock is not available on the public market. Bowen, supra, 96 N.J. at 44. To compute the value,

most experts and courts have used the IRS's Revenue Ruling 59-60 as the guide . . . . The goal is to arrive at a fair market value for a stock for which there is no market. To do this, the IRS recommends that "all available financial data, as well as all relevant factors affecting the fair market value, should be considered." Id. at 4.01

Among the factors listed in the Ruling as "fundamental and requir[ing] careful analysis" are the history of the firm, the nature of the company, the outlook for the industry, the book value of the stock, the size of the block to be valued, the earning and dividend-paying capacities of the company, and the existence of goodwill or other intangible assets. Ibid. Generally, greater weight will be given to earnings factors for those companies that sell products or services, and to asset values for investment or holding companies. Ibid. In addition, earnings factors must be capitalized. Choosing the appropriate capitalization rate is "one of the most difficult problems in valuation." Id. at 6. Among the considerations that go into a capitalization rate are the nature of the business, the risk involved, and the stability of earnings. Id.

[Bowen, supra, 96 N.J. at 44. (quoting Rev. Rul. 59-60, 1959- 1 C.B. 237, 4.01).]

Here, Gunteski's valuation was based almost exclusively on an estimate of Souvenir City's inventory minus its liabilities. Gunteski never reviewed documents that showed the price at which the inventory was purchased, when it was purchased, and how long ago it was purchased.

Do to defendant's failure to provide the necessary documentation, Gunteski was unable to analyze thoroughly the income that Souvenir City generated. He examined only the income that the parties and Souvenir City reported on their income tax returns. The court found those numbers to be significantly lower than the income that Souvenir City actually generated.

Ironically, however, all of these accounting missteps and oversights inured to defendant's benefit. As the trial court correctly found, defendant's lack of cooperation inhibited the expert witness from performing his job in a thorough manner. This resulted in a conservative valuation of the business's worth. Defendant's arguments protesting the outcome of Gunteski's work product ring hollow and disingenuous. In short, defendant is the architect of his own problems. We see no reason, in law or equity, to disturb the trial court's ruling in this respect.

The Townhouse and House

Defendant argues that in computing defendant's credit for the townhouse, the court erred in subtracting from the $220,000 appraised value of the townhouse, $60,000, which the court estimated was the principal mortgage amount that remained on the townhouse mortgage. According to defendant, the court should have given him a credit for the full appraisal value of $220,000 because the $60,000 mortgage was a joint debt.

Alternatively, defendant contends that the court should have granted his motion for reconsideration and recalculated the credit in light of Saccomanno's certification that, in his opinion, the balance remaining on the mortgage was not $60,000, but rather $47,143. The trial court declined to consider Saccomanno's certification, explaining that defendant could have presented his opinion regarding the mortgage balance at the trial.

We are satisfied that the court erred in computing defendant's credit for the townhouse. When the court subtracted the $60,000 mortgage from the appraised value of the townhouse, it also deducted $60,000 from the appraised value of the house. It thus double-counted the mortgage. The court concluded that the net amount defendant owed plaintiff for her share of the house, minus defendant's credit for the townhouse, was $122,500 ($675,000 (value of the house) - $110,000 (mortgage on the house) = $565,000 divided by 2 = $282,500 (plaintiff's share of the house) - $160,000 (credit to defendant for the townhouse, which the court computed by subtracting the $60,000 mortgage from the $220,000 appraised value of the townhouse) = $122,500).

To avoid double counting the mortgage the court should have either (1) not subtracted the $60,000 mortgage from the $220,000 appraisal value of the townhouse and subtracted it only from the house value by way of the $110,000 mortgage, or (2) subtracted the $60,000 mortgage from the $220,000 appraisal value and from the $110,000 mortgage that remained on the house. The first option is the simplest and most direct method. Either option gives a net result of $62,500 that defendant owed plaintiff for her share of the house, minus his credit for the townhouse ($675,000 (house) - $110,000 (mortgage) = $565,000 divided by 2 = $282,500 (plaintiff's share for house) - $220,000 (defendant's credit for the townhouse) = $62,500). The court thus erroneously computed a net result of $122,500 that defendant owed plaintiff.

Because we are remanding this issue to the trial court, we are compelled to note that plaintiff was entitled to a credit for the townhouse, as she helped pay down the mortgage on it. "Property 'clearly qualifies for distribution' when it is 'attributable to the expenditure of effort by either spouse' during marriage." Pascale v. Pascale, 140 N.J. 583, 609 (1995) (quoting Painter v. Painter, 65 N.J. 196, 214 (1974)). That rule applies even if the property was purchased by one spouse prior to marriage but was paid off by both spouses during the marriage. Griffith v. Griffith, 185 N.J. Super. 382, 385 (Ch. Div. 1982) (explaining that the wife was entitled to a credit for a house purchased by the husband prior to marriage because during the marriage she contributed to paying off the mortgage).

Here, the court found that when plaintiff and defendant married, the townhouse was "substantially encumbered" by a mortgage, and the mortgage was "paid off during the marriage as a result of the work of both parties." That finding is supported by the evidence because the parties' income came from Souvenir City, an enterprise in which both parties worked on an equal basis. The court therefore erred in not giving plaintiff a credit in the amount that she contributed to paying down the mortgage on the townhouse.

Capital Gains Tax

Defendant contends that the court erred in failing to consider the tax consequences from the sale of the commercial properties. We reject this argument. The record before us does not support defendant's claim that he will be forced to sell assets in order to satisfy the award of equitable distribution.

Although the tax consequences of the proposed distribution are statutorily recognized as a legitimate issue for the court to consider, N.J.S.A. 2A:34-23.1(j), the defendant's claim here is hypothetical at best. The only evidence that defendant presented during the trial on the tax consequences of a possible sale was his own testimony. The trial court did not give that testimony any weight because it disagreed that defendant would have to sell R-22, or any other asset, to satisfy the award. As the court noted, defendant "owns substantial real estate free and clear of any debt," and he "had the ability to obtain the money to pay his wife" without selling anything.

The facts support the court's conclusion. Between 1998 and December 2005, defendant's total monthly mortgage payments for all of his properties were $5,200, or $62,400 per year. His reported income for federal tax purposes is insufficient to meet these obligations, strongly suggesting, as the trial court noted, that defendant underreports his earnings.

[P]otential tax consequences arising out of the future sale of marital assets is a factor that should be considered in the overall equitable distribution scheme . . . [but] there must be an evidentiary basis for the hypothetical tax consequence "presumably fixed by competent expert testimony" before it is considered as a factor in determining the distributive share of each party.

[Scavone v. Scavone, 243 N.J. Super. 134, 139 (App. Div. 1990) (quoting Orgler v. Orgler, 237 N.J. Super. 342, 356 (App. Div. 1989)).]

Here, there was no proof that defendant would have to sell R-22 to pay plaintiff. Thus the issue of capital gains taxes was purely speculative and did not have to be considered by the court. Additionally, defendant's trial testimony, that the sale of R-22 would generate a fifteen percent federal tax and a nine percent state tax, was insufficient to form a basis for considering the tax consequences of a sale because the record contained no foundation for defendant's lay opinion.

The Bank Accounts

Defendant contends that the court erred in double counting $40,000 in the Sun Bank account. Defense counsel argued before the trial court that the $40,000 that was in the Sun Bank account in April 2006, (when defendant was deposed) was money that he had transferred from the PNC Bank account. The trial court denied defendant's motion for reconsideration on this issue, summarily saying that the evidence did not establish that the court had double counted $40,000.

From this record, we are unable to ascertain the court's valuation of the Sun Bank, PNC accounts, and the Wachovia account. In his memorandum of opinion, the trial judge indicated that he was valuing the accounts as of the date of the complaint (August 2005). There was no evidence produced, however, on the value of the accounts in August 2005. The values that the court attributed to the accounts were from different dates. Specifically, the Wachovia account $111,337.97, as of March 2005 per a bank statement; PNC account $72,037.20 as of March 2005 per a bank statement; and $40,000 as of April 2006 per defendant's deposition testimony.

Based on these inconsistencies, we are satisfied that a remand is necessary for the trial court to more fully explore these issues and determine the precise amounts held in these accounts on the legally significant date.

Commercial Property R-20

Defendant argues that R-20 should not have been included as part of the marital estate because he acquired title to it before the marriage by virtue of the option in R-21. The court rejected defendant's contention, explaining that while the deed to R-21 contained an option to buy R-20, defendant did not pay additional consideration for that option, and he ultimately purchased R-21 at fair market value. We agree with the trial court substantially for reasons expressed in the memorandum of opinion.

Commercial property R-21

Defendant argues that the trial court incorrectly determined that the full value of R-21 was subject to equitable distribution. We are compelled to remand this issue to the trial court for further consideration.

The trial court awarded plaintiff $159,000 for her share of R-21. In computing the amount of the award, the court emphasized that no evidence had been presented on the balance of the R-21 mortgage when plaintiff and defendant married. This conclusion is not entirely supported by the record. Defendant testified that the balance at the time of marriage was between $250,000 and $260,000. He did not, however, produce any documents to corroborate this testimony. Although the court was free to reject defendant's testimony as not credible, there was evidence in support of this contention.

The court's conclusion that the reason the value of the property increased during the years of marriage was primarily due to the parties' joint and equal efforts, was also not supported by the record. Neyers, the only expert to testify on this issue, opined that the increase in value was due to market conditions. The court found his testimony credible, and accepted his opinion on the real estate values.

These inconsistencies require further analysis and reevaluation. Because defendant purchased R-21 before the marriage, plaintiff would not be entitled to share in an increase value that was brought about exclusively through market forces. See Mol v. Mol, 147 N.J. Super. 5, 9 (App. Div. 1977) (explaining that the "plaintiff is not entitled to share in that portion of enhancement in value of the house [that the defendant purchased prior to marriage] which was due solely to inflation or other economic factors and to which she did not contribute in any way").

VI

We reject the balance of defendant's arguments substantially for the reasons expressed by the trial court. We adopt the court's findings and conclusions with respect to its rejection of defendant's claim that the parties reached a binding agreement on January 17, 2006. Cesare v. Cesare, 154 N.J. 394, 411-12 (1998). There is also no basis to find that the trial judge was biased against defendant. The record shows that the judge acted professionally and with courtesy as to both sides of this hotly contested matrimonial case.

The court's award of equitable distribution is vacated and the matter is remanded for reconsideration consistent with this opinion. All other issues resolved by the court in the JOD, including but not limited to child support, custody and parenting time, remain unaffected by this decision.

Reversed and remanded on equitable distribution. We do not retain jurisdiction.

 

By order dated May 6, 2009, we granted defendant's motion to stay the award of equitable distribution pending appeal. In light of our decision remanding for further proceedings, the stay is now moot.

In a letter to plaintiff's counsel, Gunteski explained that his analysis was based only on corporate and individual tax returns, defendant's deposition transcript and a July 18, 2006, report prepared by Michael Saccomanno, a forensic accountant retained by defendant to appraise the Souvenir City business. Defendant did not call Saccomanno as a witness in the trial.

The court calculated the credit by deducting the $60,000 mortgage that the parties had rolled into the Longport house from the $220,000 appraised value.

18% of $883,000 = $158,940; rounded up to $159,000.

(continued)

(continued)

34

A-4662-06T1

August 19, 2009