Opinion
No. FST FA 03 0197091 S
March 29, 2011
MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION FOR ORDER RE ALIMONY PAYMENTS. POST-JUDGMENT DATED DECEMBER 21, 2009 (#154.00)
This is not a motion to modify periodic alimony. Instead it is addressed to Article 2.4 of the Separation Agreement, which states: "The Husband shall take no action which has as its purpose the defeating of the Wife's right to receive alimony." In this motion the Wife claims that the Husband's income reduction violated Article 2.4.
On November 30, 2005 the court dissolved the marriage of the parties and incorporated the terms and conditions of a November 30, 2005 Separation Agreement into the decree. (#129.10.) Both parties are currently represented by the same attorneys that represented them during the dissolution action and those attorneys negotiated and prepared the Separation Agreement. The parties agree that modification of periodic alimony is precluded by Article 2.6 of the Separation Agreement and that the plaintiff's Motion for Order dated December 21, 2009 is not seeking a modification of alimony. Gen. Stat. § 46b-86(a). The parties further agree that the terms of the Separation Agreement precluding modification of alimony are clear and unambiguous. Flaherty v. Flaherty, 120 Conn.App. 266, 271 (2010). Therefore the court need not determine whether there was a substantial change in circumstances nor does it have to apply the statutory factors of Gen. Stat. §§ 46b-82 and 46b-86. Borkowski v. Borkowski, 228 Conn. 729, 736 (1994). The Husband claims that in this Motion the Wife is actually seeking a modification of alimony and is attempting to change the language of the Separation Agreement.
Article 2.2. of the Separation Agreement states: "Commencing as of the first day of January, 2006, the Husband shall pay to the Wife, during his lifetime, until her death, remarriage, cohabitation as defined by Conn. Gen. Stat. § 46b-86(b), or September 30, 2015, whichever event shall first occur, the following percentages of the Husband's `gross annual compensation from employment' as hereinafter defined in any calendar year: . . ." A chart was attached to Article 2.2 establishing the periodic alimony to be 30% of the first million dollars of "Husband's Gross Annual Compensation from Employment in Any Calendar Year," 20% of the next million dollars and no alimony beyond two million dollars. Therefore the maximum periodic alimony in any calendar year would be $500,000. As defined in the Separation Agreement periodic alimony is based on gross income before any of the usual deductions to obtain net income. Although the court should base its periodic orders on net income, the parties have stipulated otherwise. Krane v. Krane, 99 Conn.App. 429, 430-31 (2007); Loughlin v. Loughlin, 280 Conn. 632, 659 (2006). "Indeed, it is quite common for parties entering into agreements settling dissolution cases to provide for payments of alimony based on gross income of the payor." Maturo v. Maturo, 296 Conn. 80, 141 (2010) (Dissent). The court is bound by the Separation Agreement to consider only gross compensation. Interest, dividends and capital gains are not included within the definition of "gross annual compensation from employment" as defined in Article 2.4 since that income is not employment based and is not compensation. Article 2.4 defined "gross annual compensation from employment" in considerable detail. Article 2.7 defined certain severance payments and sale of restricted stock, if any, as possibly being included within "gross annual compensation from employment." Those issues have not been raised in this motion before the court. Article 2.4 ended with the sentence that is the subject of this motion: "The Husband shall take no action which has as its purpose the defeating Wife's right to receive alimony."
The Husband's gross annual compensation from employment is currently $400,000, which is a substantial decline from that earned in 2005, 2006 and 2007. No doubt this fact fueled the Wife's claim that the Husband has taken action "which has as its purpose the defeating of the Wife's right to receive alimony."
Because a separation agreement incorporated into a dissolution decree is in the nature of a contract, we note the following general principles of contract interpretation. A contract must be construed to effectuate the intent of the parties, which is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction . . . Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms . . . A word is ambiguous when it is capable of being interpreted by reasonably well informed persons in either of two or more senses . . . Ambiguous can be defined as unclear or uncertain, or that which is susceptible of more then one interpretation, or understood in more ways than one . . . In interpreting contract items, we have repeatedly stated that the intent of the parties is to be ascertained by a fair and reasonable construction of the written words and that the language used most be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract . . . Any ambiguity in a contract must emanate from the language used in the contract rather than from one party's subjective perception of the terms . . . A court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity . . . When construing the contract, we are mindful that the contract must be viewed in its entirety, with each provision read in light of the other provisions . . . and every provision must be given effect if it is possible to do so . . . In giving effect to all of the language of a contract, the law of contract interpretation . . . militates against interpreting a contract in a way that renders a provision superfluous.
Flaherty v. Flaherty, supra, 120 Conn.App. 266, 269-70 (2010); Zahringer v. Zahringer, 124 Conn.App. 672, 685-86 (2010).
The court makes the following findings of fact and legal conclusions.
As of November 30, 2005, the Husband was employed as an executive with Benfield, Inc. an insurance consulting business located in Westport, Connecticut. Throughout his business career the Husband has specialized in reinsurance brokerage. His clients have been insurance companies involved in insuring catastrophic risks such as earthquakes and tornadoes. Typically these insurance companies seek reinsurance coverage for policies in the hundreds of millions of dollars. The Husband brokers these transactions. His financial affidavit submitted to the court on November 30, 2005 (#127.10) disclosed that he received annual compensation from employment from Benfield, Inc. from four sources; (1) W-2 income $600,000, (2) Bonus $384,240, (3) EIP Bonus $29,625, and (4) Employment Incentive Plan $30,000. For the purposes of Article 2.2 the Wife claimed that his "gross annual compensation from employment" was $984,240, his W-2 income and his bonus. The Husband does not disagree with that interpretation.
The parties owned a substantial amount of Benfield stock that was divided between them by the Separation Agreement. The Husband terminated his employment with Benfield in 2006 and sold his Benfield stock. He received W-2 income in 2006 from Benfield, Inc. In 2006 he became employed with Praetorian Insurance Corp., hired a group of investors to run the company and built it up. The Husband did just that and Praetorian was sold in 2007. He received a W-2 salary from Praetorian and/or its related entity, Clarendon National Insurance Corp., for 2006 and 2007 along with an incentive bonus of $40,382,876 in 2007. Ex. 7, Ex. 13. That incentive bonus was based on a formula that measured the Husband's efforts to increase the value of the company and achieve a sale price for the business. A portion of that incentive bonus, $4,074,0284, was also paid in 2008. Ex. 9, Ex. 13.
The Husband was offered an employment position with the company that purchased Praetorian, a global marketing position. No contract was signed. No formal offer was made to the Husband. Shortly after the 2007 sale of Practorian, the Husband partnered with James N. Stanard to form a new company entitled FS Ventures, LLC. It is an insurance holding company. The Husband initially invested $1,000,000 and later an additional $4,000,000. At the beginning of this new venture the partners were the only two employees. There are now over 150 employees. The Husband testified that the new business is "doing well and growing." The Husband and James N. Stanard agreed that they would each take a $200,000 annual salary. They were equal partners in the new business venture. At the end of 2009, their annual salary was increased to $400,000, where it now remains. In 2009, investors were obtained for the business and as a result a compensation committee was formed so that the two partners could not unilaterally increase their salary. The Husband testified that in the early years of this new business venture increasing his salary would only have used up his cash investment in the business and reduce the possibility of significant gains and income in the future. The compensation committee has not increased the Husband's salary or James N. Stanard's salary above the current $400,000 a year. No bonuses have been paid since the new business is not profitable enough to pay a bonus. The new business venture has a complicated corporate structure. Ex. 14. The Husband's 50% share in these various entities is through the Husband's 100% ownership of Fox Insurance Assets, LLC., which in turn owns 50% of FS Ventures, LLC. James N. Stanard owns the other 50% of FS Ventures, LLC. The Husband's current financial affidavit dated September 10, 2010, states that the current fair market value of Fox Insurance Assets, LLC. is $10,021,844, an increase from the Husband's $5,000,000 original investment (#177.00). Fox Insurance Assets, LLC. and FS Ventures, LLC. and their related entities were all created well after the November 2005 dissolution of marriage. In 2006 the Husband earned $736,165 in "gross annual compensation from employment" from Praetorian and Benfield and alimony was paid pursuant to that sum to the Wife for the year 2006. Ex. 5, Ex. 13. In 2007 Mr. Fox was able to effect the sale of the Praetorian insurance business and received an incentive bonus for that sale of $40,382,836. His 2007 income tax return indicated W-2 earnings from a Praetorian entity of $2,262,908. Ex. 6, Ex. 7, Ex. 13. He received additional interest and dividends of $1,887,038 and the above mentioned incentive bonus $40,382,836 in 2007. Ex. 7, Ex. 13. In 2007 the alimony was calculated based upon the formula, which capped at $2,000,000 gross annual compensation from employment and thus the Husband paid the Wife $500,000 alimony based on the Husband's above stated earnings as shown in his 2007 Income Tax Return.
In 2008 because the Praetorian business had been sold and he was engaged in a new business venture, the Husband's W-2 income decreased substantially to $182,961 as shown on his 2008 income tax return. Ex. 8, Ex. 9, Ex. 13. He received interest, tax-exempt interest and dividends of an additional $1,297,083, which was not considered by the parties as "gross annual compensation from employment." Ex. 9. He also received an additional $4,074,284 as a further incentive bonus for the sale of the Praetorian insurance business. Ex. 9, Ex. 13. Despite his W-2 earnings of $182,961, he paid the Wife the maximum alimony for 2008 of $500,000. Ex. 13.
In 2009 the Husband's W-2 income was $216,904 from his new business venture. Ex. 10, Ex. 13. He paid alimony on the basis of 30% of $216,904. He earned an additional $180,000 from his new business venture which was not considered by the parties as "gross annual compensation from employment." Ex. 11, Ex. 13. The Husband paid alimony from 2005 through 2009 based on these figures and the Wife accepted these alimony payments as conforming to the terms of Article 2.2.
The Husband's September 9, 2010 financial affidavit shows "gross monthly wage from principal employment" at $400,000 per year. The Husband discloses taxable interest and dividends of another $240,000 per year (#177.00). The Husband is currently paying alimony of $120,000 a year: 30% of the $400,000 annual salary.
Therefore the Wife received the following amounts of yearly alimony based upon the formula contained in Article 2.2: the later portion of 2005, at the annual rate of $295,272 (it is noted alimony payments were to commence on January 1, 2006); 2006, $220,850; 2007, $500,000, 2008, $500,000; 2009, $65,071 and 2010, $120,000.
Plaintiff's Amended Proposed Orders, Post-Judgment dated October 28, 2010 (#179.00) states in paragraph 1(a): "The defendant has manipulated his income and/or is not earning at full earning capacity, as a result of which plaintiff's right to receive alimony from the defendant has been defeated. The defendant's gross annual income for purposes of computing his alimony obligation to the plaintiff is the average of his W-2 income for the three years 2005, 2006 and 2007 in the amount of $1,327,771. Therefore, the defendant's alimony obligation to the plaintiff for 2009 and 2010 is $365,554.20 per annum." The court notes that plaintiff has correctly added up the three figures mentioned previously contained in the Husband's tax returns for "gross annual income for employment" $984,240 in 2005; $736,165 in 2006; and $2,262,908 in 2007 and has correctly divided that sum by three to reach the stated sum of $1,327,771 as the average of those three years. The $365,554.20 per annum alimony is the current mathematical result applying the Article 2.2 formula.
The Wife is not claiming that the Separation Agreement is ambiguous. She is claiming that the Husband, by decreasing substantially his ordinary income from his employment and concentrating on capital gains income, has taken action "which has its purpose the defeating the Wife's right to receive alimony"; conduct prohibited under Article 2.4. The Wife must prove the decreasing income as well as the Husband's intentions to defeat the Wife's right to receive alimony before the court can entertain any orders based on the Husband's earning capacity.
The Separation Agreement is silent as to the remedy in the event that the court makes a finding that Article 2.4 has been violated by the Husband. The Wife is requesting the court to enter relief based upon the Husband's earning capacity using the years 2005, 2006 and 2007. These are the last three years before the Praetorian business was sold. These are the last three years when the Husband's income from employment was not substantially reduced. Although the court has no right to rewrite a contract, Reizfeld v. Reizfeld, 125 Conn. 282, 800 (2011), the court does have the right to make determinations as to earning capacity and enter orders of alimony based on earning capacity. Boyne v. Boyne, 112 Conn.App. 279, 283 (2009); Schade v. Schade, 110 Conn.App. 57, 61, 68 (2008). Two recognized methods to prove earning capacity are willful restriction of earnings and excess expenditures. Lucy v. Lucy, 183 Conn. 230, 234 (1981). "It is appropriate to consider a party's earning capacity where there is evidence of that party's previous earnings." Paddock v. Paddock, 22 Conn.App. 367, 371 (1990).
The court finds that the Plaintiff's Amended Proposed Orders Post-Judgment as stated is not an attempt to rewrite the contract but is an attempt to place a reasonable estimate of current earning capacity to a violation of Article 2.4. Therefore, this court finds that if the Wife sustains her burden of proof that a violation of Article 2.4 occurred, the Husband's "gross annual compensation from employment" for the calendar years 2009 and 2010 and to the present day is $1,327,771 per annum; the average of his 2005, 2006 and 2007 "gross annual compensation from employment."
The court now turns to a determination as to whether or not the Wife has sustained her burden of proof in proving the Husband's reduction of "gross annual compensation from employment" in 2008, 2009, 2010 to $182,961, $216,904 and $400,000 is a violation of Article 2.4.
The Wife has proven the Husband's sources and amount of earnings during 2005 to date. The Wife has proven the Husband's employment history. She supports that proof by admissions the Husband made to her on the reasons why his "gross annual compensation from employment" has been lowered. In late 2009, the wife discussed the reduced alimony she was receiving and the Husband stated: "I am starting a new venture and the family will benefit in the future." On another occasion during that same time frame he said: "I have enough money and I do not have to work" and "You are lucky I did not quit." In May 2009 he told her why he took the new job for so little money: "I am working day and night and I hope to make more money than $2,000,000 a year" and "You will just have to be patient. I am putting everything into the future." In October 2009 in a discussion about the reduced alimony he told her: "You do not understand that this is for the good of the family and if you ever needed money you can come to me."
The parties negotiated the restrictive language of the Separation Agreement as to what sources of income can be used to determine alimony. The Wife could have agreed to a specific dollar amount of alimony. Instead she agreed on a formula that provided no alimony if the Husband was not employed. This was a fifteen-year marriage. From the evidence the court concludes that the parties' substantial assets of over $47,000,000 were largely acquired by the Husband from his employment efforts for these fifteen years. The Wife received a distribution of over $22,000,000 of those assets in the Separation Agreement. The formula for the alimony determination is narrowly drawn and substantial forms of income from investments were excluded from the formula. The sentence in question in Article 2.4 upon which this Motion for Order is based is narrowly drawn. The Husband was not forbidden to change employment. In fact the year after the dissolution he changed employment and his "gross annual compensation from employment" was reduced from $984,240 to $736,165, a reduction of 25% in his earnings and a corresponding reduction in her alimony from $295,272 to $220,850, a reduction of 25% in her alimony. The Wife did not invoke Article 2.4 in 2006 when the Husband changed employment from Benfield to Praetorian.
From a plain reading, Article 2.4 contains three conditions: (1) the Husband's "gross annual compensation from employment" shall have been reduced; (2) the Husband shall have taken the action to reduce the compensation and the reduction in compensation was not due to the action of any other entity, person, force or circumstance, and (3) the Husband in taking that action must have at its purpose "the defeating of the Wife's right to receive alimony" and not any other purpose. Greenburg v. Greenburg, 26 Conn.App. 591, 598 (1992); Danehy v. Danehy, 118 Conn.App. 29, 33-34 (2009). The Wife's proof has established that she had no objection to the Husband leaving Benfield, Inc. and taking a lesser paying job at Praetorian. She had no objection to the Husband taking the job at Praetorian with a view that he would greatly profit upon the substantial sale of the Praetorian business. She had no objection to the Husband creating a new venture using the Husband's Praetorian profit with that new business being shared equally with his new partner, James N. Stanard. Only when the salary of that new venture was lower than the previous "gross annual compensation from employment" for the years 2005, 2006 and 2007 did the Wife protest. The Husband's explanation for the purpose of the new business venture, while not soothing or couched in the most sympathetic terms, accurately stated the goals of most businessmen starting a new business, the payoff is in the future. The Wife's evidence has established that the Husband's purpose in entering into the new business venture was to create money in the future, and was not "as its purpose the defeating of the Wife's right to receive alimony." There is no evidence that the Husband's partner and new investors engaged in a conspiracy with the Husband to lower income so that the Husband would be able to reduce his alimony payments to the Wife.
Assuming the Husband purposefully reduced his gross earnings from $1,327,771, the average for 2005, 2006 and 2007 to the current $400,000, the Husband would also be reducing the net income after taxes he would receive by an amount of almost double of the alimony he would have had to pay to the Wife. Such an inference is not reasonable and is not proof that the reduction of the Wife's alimony was the Husband's intent. For example, at $400,000 gross income the Husband would pay the wife $120,000 alimony, obtain a tax deduction for that $120,000 alimony and then pay income taxes on the $280,000 balance. Without considering any other deductions or provisions of the tax code or state taxes and using the current federal income tax rates simply applied, the income taxes on that $280,000 income would be in the range of $77,000 filing as single. Thus the Husband would retain $203,000 net income after taxes and alimony based on $400,000 gross annual compensation from employment. At $1,327,771 annual compensation, the Husband would pay the Wife $365,554 alimony, obtain a tax deduction for that $365,554 alimony and then pay income taxes on the $962,217 balance. Again under the same tax considerations mentioned above, the Husband's income taxes would be in the range of $314,000. Thus the Husband would retain $648,217 net income after taxes and alimony based on $1,327,711 gross annual compensation from employment. If the Husband's gross annual compensation from employment was increased to $1,327,711 from $400,000, the Wife's alimony would increase from $120,000 to $365,544, an increase of $245,554 before taxes. If the Husband's gross annual compensation from employment was increased to $1,327,711 from $400,000, the Husband's share after the payment of income tax and alimony would increase from $203,000 to $648,217, an increase of $445,217. Put it another way, the greater his income, the more the Husband gets to keep after his increased taxes and increased alimony payments. The Husband keeps an ever larger amount compared to the increase in the Wife's alimony. Therefore, the mere reduction in the Husband's gross annual compensation from employment is not evidence of an intent on behalf of the Husband to defeat the Wife's right to receive alimony.
The Husband's choice in entering into the new business venture was to receive capital gains and deferred income to sometime in the future when he could receive a large renumeration for his organization of a business in lieu of higher current income. From all the evidence, the new business is a success but is still unable to pay the two partners more than $400,000 per year each. The language of the Separation Agreement does not prevent that scenario. The Wife is bound by the limiting language of the Separation Agreement. Danehy v. Danehy, supra, 118 Conn.App. 34 The court therefore finds that the Wife has failed to sustain her burden that the Husband has violated Article 2.4 of the Separation Agreement.
Plaintiff's Motion for Order Re Alimony Payments, Post-Judgment dated December 21, 2009 (#154.00) is denied and all relief requested therein is denied.