Opinion
No. FST FA 04 4001474
September 11, 2006
MEMORANDUM OF DECISION
The plaintiff and the defendant intermarried at Dallas, Texas on May 5, 1990. The plaintiff filed a complaint for dissolution of marriage dated September 20, 2004 with a return date of October 12, 2004. The defendant appeared on July 9, 2005. Trial commenced and continued over a period of six non-consecutive days. The Court finds that it has jurisdiction as both parties have resided continuously in the State of Connecticut for at least twelve months next preceding the date of the filing of the Complaint and all statutory stays have expired. There are no children issue of the marriage. Neither the State of Connecticut nor any subdivision thereof has contributed to the support or maintenance of the parties. The evidence establishes that the marriage has broken down irretrievably. Judgment may enter dissolving the marriage on that ground.
Pursuant to Conn. Gen. Stat. § 46b-81, Assignment of Property and transfer of title, the Court in "fixing the nature and value of the property, if any, to be assigned, the Court . . . shall consider the length of the marriage, the causes . . . for the dissolution of the marriage, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties and the opportunity of each for future acquisition of capital assets and income. The Court shall also consider the contribution of each of the parties towards the acquisition, preservation or appreciation in value of their respective estates." Applying these criterion to the parties, the court finds the following:
1. At the time of trial, the marriage was approximately sixteen years;
2. The Court finds no fault in either party for the dissolution of the marriage. Testimony indicated that both parties engaged in extramarital affairs, but well after the parties had become disenchanted with their marriage;
3. Both parties at the time of trial were forty-nine (49) years of age;
4. In reference to health, the defendant husband experienced little or no disabilities; the plaintiff wife suffered from bipolar disorder, currently under medication as well as back and neck disorders, allergies and gastro-intestinal disorders. None of the medical problems listed above have interfered with her ability to work and earn income.
5. The husband is employed by Carlson Research CT. In that capacity he earns a base salary of one hundred fifty thousand ($150,000) dollars. In addition to his base he has received substantial bonuses based on his performance. In 2004, his salary and bonus totaled three million six hundred forty one thousand three hundred sixty-three dollars. (Ex. 3) In 2005, Mr. Schroeder earned two million one hundred eighty four thousand five hundred seventy-one dollars. (Ex. 22) In 2006, Mr. Schroeder received a bonus of two million three hundred thirty three thousand two hundred thirty-six dollars. (Ex. 23) with additional gross pay in the amount of nine hundred thirty nine thousand one hundred forty-five dollars. (Ex. 24) Mr. Schroeder's earning capacity, employability and prospect for fixture acquisition of capital assets and income is considerable given his history of performance.
6. Mrs. Schoeder has had financial success parallel to that of her husband. (Ex. 3) In addition she has carved an extremely successful career on Wall Street working her way up the ladder, becoming a senior manager within one year of transfer to Ernst Young's New York City office, leaving there to the Financial Accounting Standard's Board, specializing in insurance analysis and becoming well known on Wall Street in that capacity. She then was recruited by Paine Webber where she remained for two years, leaving in 2000 to work at Morgan Stanley where she remained until 2003. In May 2003 Mrs. Schroeder started research on a book about Mr. Warren Buffet whom she had met in 1998. Mr. Buffet had conversations with Mrs. Schroeder concerning the book and did in fact authorize her to proceed. Mrs. Schroeder has a schedule of payments totaling seven million two hundred fifty thousand dollars with payments contingent upon the scheduling of various events; i.e., signing the contract, 1st 150 pages, receipt of final manuscript, etc. Mrs. Schroeder's literary agent will receive fifteen (15) percent of the total contract price, one million eighty thousand (1,080,000) dollars. In addition, Mrs. Schroeder has and will incur expenses related to her writing. Mrs. Schroeder has testified that there are no guarantees and indeed the book might not be accepted. Given Mrs. Schroeder's determination and proven ability, the Court finds that scenario unlikely.
7. Both parties have contributed throughout their marriage to the acquisition and preservation of assets. They both brought monies into the marriage, purchased the first marital residence in Darien and the Millbrook and Round Hill Road properties in Greenwich with equal contributions. Both parties contributed to the renovation and interior design plans for Round Hill Road.
Property Distribution: The parties have agreed on the valuation of the majority of the assets and their relative distribution. As indicated previously, the parties are extremely sophisticated, highly intelligent and immensely capable of managing their own lives. The parties agree that the assets should be distributed on an equal or 50% split. The areas of contention are: (1) the method of valuation of the assets, specifically the plaintiff's stock options and (2) whether the Court should consider the tax implications upon liquidation of those assets prior to determining the percent of distribution to the parties. There are three methods or stages of analysis regarding the equitable distribution. The first is to identify whether the resource is property within 46b-81 to be equitably distributed (classification); (2) what is the appropriate method for determining the value of the property (valuation) and (3) what is the most equitable distribution of the property between the parties (distribution). Krafick v. Krafick, 234 Conn. 792, 793 (1995).
Applying the first criterion, Krafick v. Krafick, 234 Conn. 783, 798 (1995), unequivocally holds that pension benefits are property subject to valuation and equitable distribution. "Thus we conclude that `property' as used in § 46b-81 includes the right contractual in nature, to receive vested pension benefits in the future." See also Bender v. Bender, 258 Conn. 733 (2001). The same logic applies to stock options.
The next step is to determine the appropriate method for establishing the value of the property. The plaintiff wife espouses the intrinsic value approach as evidenced in her expert Joseph A. Decusati's testimony and report. Ex. 18, 19, 21. The defendant advances the Black-Scholes-Merton formula for valuating the plaintiff's Morgan Stanley stock options as evidenced in his expert, Mr. Kosowsky's testimony and report. Ex. J K. The Court has reviewed both reports and its notes of the testimony of each expert. The Court recognizes that "[n]o single method of valuation will control in all cases." (Cit. Omitted.) Ellsworth v. Ellsworth, 6 Conn.App. 617, 620 (1986). The Court based on the evidence and testimony in this case finds the intrinsic value method to be the most appropriate method for establishing the value of the plaintiff's stock options. The intrinsic or present value approach also appears to be consistent with the philosophy underlying the dissolution proceeding.
The trial court in the matter of Wendt v. Wendt, 1998 WL 161165 (Conn.Super.), Tierney, J., J.D. Stamford/Norwalk rejected the Black-Scholes method of evaluating employer issued nonvested stock options. (Memorandum of Decision March 31, 1998 p. 407-08.)
First, the present value or immediate offset approach "requires the court to determine the present value of the pension benefits, decide the portion to which the nonemployee spouse is entitled, and award other property to the nonemployee spouse as an offset to the pension benefits to which he or she is otherwise entitled."
The present value approach has the advantage of effecting a severance of the parties' economic ties. See Robert C.S. v. Barbara J.S., supra, 434 A.2d at 388; Kikkert v. Kikkert, supra, 177 N.J.Super. at 477-78, 427 A.2d 76 ("although fixing present value under such circumstances may be difficult and inexact, nevertheless immediate final resolution of the method of distribution is to be encouraged, preferably by voluntary agreement whenever possible. Long term and deferred sharing of financial interests are obviously too susceptible to continued strife and hostility, circumstances which our courts traditionally strive to avoid to the greatest extent possible."); 3 Family Law and Practice, supra, § 36.13[3][a], p. 36-73. "The present value approach also avoids extended supervision and enforcement by the courts, thereby saving the parties and the courts the time and expense of future litigation." See B. Turner, supra, § 6.11, p. 347; Hunsinger v. Hunsinger, 381 Pa. Super. 453, 460-61, 554 A.2d 89 (1989). Bender v. Bender, 258 Conn. 733, 754-55 (2001).
The Bender court states further;
We conclude that it is within the trial court's discretion, as it is in the context of vested pension benefits; see Krafick v. Krafick, supra, 234 Conn. at 804, 663 A.2d 365; to choose, on a case-by-case basis, among the present value method, the present division method of deferred distribution, and any other valuation method that it deems appropriate in accordance with Connecticut law "that might better address the needs and interests of the parties . . . The touchstone of valuation, as well as the ultimate distribution of pension benefits, is the court's power to act equitably. *761 Pasquariello v. Pasquariello, 168 Conn. 579, 585, 362 A.2d 835 (1975)." FN11 (Citation omitted; internal quotation marks omitted.) Krafick v. Krafick, supra, at 804, 663 A.2d 365. We emphasize that the valuation and distribution methods that we have discussed of which the trial court may avail itself are not exclusive. Beyond the present case, however, with the exception noted in the following discussion, we do not pass on the validity of any method applied in a given case.
Bender, supra, 760-61.
As stated previously, the Court finds the intrinsic value method to be the most appropriate and equitable in this case.
The Court will address the defendant's classification of two assets attributed to the plaintiff. The first, a carry forward loss of $62,000 is not properly considered an asset under Esse v. Esse, 2004 WL 1926035 (Conn.Super.). The defendant next lists costs incurred for book research in the amount of $791,376.00 as an asset offset by a tax deduction for book expenses in the amount of $241,370 for a net asset of $550,006. The Court finds that this amount does not constitute an asset under Krafick v. Krafick, 234 Conn. 783, 793-95 (1995). The book contract and payments thereunder are the assets. The items listed are business expenses generated pursuant to that asset.
The Court has addressed the first two prongs, classification and evaluation. It must now determine whether the tax implications should be considered prior to distribution. The Court concludes that equity demands consideration of the tax consequences in this particular case, given the enormity of the sums involved. Case law supports this conclusion. Powers v. Powers, 186 Conn. 8, 10 (1982) held that the trial court properly considered the tax consequences of its award. In Damon v. Damon, 23 Conn.App. 111, 114 (1990) the court held that it was proper to consider the tax consequences of its orders in a dissolution proceeding.
Property Distribution: For the purposes of distribution, the Court accepts the tax implications of the plaintiff's expert in Exhibit 19. Using that as a basis, the Court finds in reference to current net asset division that the husband has approximately $9,092,183 dollars and the wife has $6,783,650 dollars. The combined income of both parties is $15,875,833 which if divided by two establishes a fifty percent split of $7,937,916.50. At that split, the plaintiff wife experiences a shortfall of $1,154,266.50. The Court however also must consider the tax consequences of Mr. Shroeder's two IRAs, approximately $215,000. In addition, while not compelled to do so, the Court will recognize and credit to Mr. Schroeder the difference between the pre-marital assets he contributed and that which Mrs. Schroeder contributed. Such recognition is predicted on the work, advice, and support he rendered to Mrs. Schroeder during the course of her career and in her Edison phase. The total amount credited to Mr. Schroeder is $467,110.00. It is therefore ordered;
1. Monetary Transfer and Real Property: The wife's interest in the jointly owned Round Hill Road, Greenwich, Connecticut property shall be quitclaimed to the husband within 30 days subject to the existing first mortgage and home equity line of credit. In exchange for the quitclaim, the husband shall pay to the wife the sum of six hundred eighty seven thousand one hundred fifty-six dollars and fifty cents ($687,156.50) within 25 days of the memorandum of decision. The defendant shall indemnify the plaintiff and hold her harmless for any and all obligations in connection with said premises.
2. Alimony: Neither party shall pay alimony to the other party.
3. Personal Property: The defendant shall transfer ownership of the 2001 Jaguar VDP to the plaintiff within 25 days of the dissolution. Each party shall retain the furnishings and personal property, including the dogs, currently in their possession.
4. Personal Property: Each party shall retain the personal property in his or her possession. The wife shall be entitled to make duplicates of the family photograph albums. The husband shall make the albums available to the wife within twenty-five (25) days of the entry of a decree of dissolution of marriage.
5. The Book: The husband shall not be entitled to any income from a book titled "The Snowball" which the wife is in the process of writing.
6. Husband's Future Bonuses: The wife shall not be entitled to any of salary or bonuses earned by the husband in the future, including his $777,000 "retention bonus."
7. Miscellaneous Assets: All assets which the defendant owns at this time or which the defendant acquires subsequent, whether through employment, gift, bequest investment, any stock options or any incentive plans from any current or form of future employment, or otherwise, shall remain the sole property of the Defendant free of any claims by the plaintiff. All assets which the plaintiff owns at this time or which the plaintiff acquires subsequent, whether through employment gilt, bequest investment, any stock options or any incentive plans from any current or form of future employment or otherwise, shall remain the sole property of the plaintiff free of any claims by the defendant.
8. Liabilities: The defendant shall be responsible for all the debts shown on his financial affidavit dated November 30, 2005, and the plaintiff shall be responsible for all the debts as shown on her financial affidavit dated December 6, 2005.
9. Retirement Accounts: Each party shall retain as his or her separate property with rights that they may have in their respective pension plans, IRA plans, 401K plans, savings and investment plan or any other retirement plan they may have free from claims of the other party.
10. Attorneys Fees: The defendant and plaintiff shall each pay their own legal fees and disbursements of their respective attorneys incurred in the prosecution of this action.
The Court wishes to expressly commend both counsel and their parties for their effective and professional presentation of their respective cases.