Opinion
10-P-1244
09-06-2011
NAOMI M. ELLIOTT v. WARREN P. ELLIOTT.
NOTICE: Decisions issued by the Appeals Court pursuant to its rule 1:28 are primarily addressed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, rule 1:28 decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28, issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
In December of 2009, after a fourteen-year marriage, the parties were divorced, leaving both in straitened financial circumstances. On appeal, the husband contests only the Probate and Family Court judge's property division, which awarded the wife a portion of his minority interest in a limited liability family corporation, the Elliott Family LLC (the 'LLC'). While we see no error in awarding the wife a portion of the husband's interest in the LLC, we vacate the amended judgment insofar as it values and presently distributes that interest, at least on the evidence before the court. We remand the matter to the Probate and Family Court for further proceedings.
The wife, who was not represented by appellate counsel, did not file a brief in this matter.
Background. The judge made extensive findings of fact pursuant to G. L. c. 208, § 34. The parties were married in 1995 and have two minor children. They enjoyed a middle class lifestyle during their marriage, but because they overspent and accumulated significant debt, their 'lifestyle has been diminished since their separation.'
The couple moved to Massachusetts in the spring of 2002, after the husband was laid off from his corporate job. Their plan was that the wife would find properties to buy; the husband would renovate the properties; and, eventually, the couple would manage the properties as rental units. They soon became overwhelmed: the husband with the physical demands of the renovations, and both parties with the financial demands of managing the properties. Renovation costs were well beyond their expectations as, unbeknownst to them at the time they bought it, one property had been in a fire. By borrowing money from the husband's parents (the Elliotts) and selling some of the properties, the couple were able to reduce one mortgage substantially and to repay some of the money owed to the Elliotts. In 2006, the marriage became strained as the financial struggle to support three real estate parcels became too much. In January of 2008, the husband moved out of the family home into an apartment in Amherst.
The couple were able to work together to sell one property in the summer of 2008.
The Elliotts purchased a vacation property on Martha's Vineyard in 1974. The property was originally held in a trust, but the Elliotts converted the trust to the LLC in 2002; the primary LLC asset is the Martha's Vineyard property. The husband, who is one of the Elliotts' four children, owns a twenty-five percent interest in the LLC and, at least after the divorce, cannot transfer any part of his share to the wife. The judge valued this interest at $1.6 million.
The LLC also has a money market account containing $100,000 to be used for maintaining the Martha's Vineyard property. In addition, the Elliotts offer the property for rent six weeks a year, producing $60,000 in rental income, which is used to pay the taxes, insurance, and rent to the LLC. The property is to remain the Elliotts' home until their deaths.
In the amended divorce judgment, the judge awarded the couple joint legal and physical custody of the children; they were to reside primarily with the wife. The husband was ordered to pay weekly child support. The parties were ordered immediately to list for sale their remaining investment property. Each party was to remain responsible for the debts listed in his or her individual financial statements; however, there remained a mortgage of approximately $230,000 on the marital home and a debt of $215,000 owed to the Elliotts, plus six percent interest on that debt from September, 2008. Finally, the husband was ordered to pay the wife $360,000, as her share of his twenty-five percent interest in the LLC.
The husband informs the court, in his appellate brief and at oral argument, that the property sold in April, 2010, for $425,000.
The probate judge found that it is unlikely the Martha's Vineyard property will ever be sold, given the structure of the LLC and the Elliotts' desire for it remain in the family. She also found that it is unlikely that the husband will ever receive any money from his interest in the LLC. Although theoretically the LLC could mortgage the property, this would require a majority vote of the husband's siblings, and the judge found this was also unlikely.
Specifically, the judge found that the Martha's Vineyard property is not 'likely to generate much money in the future except through possible rentals after the deaths of the senior Elliotts. But with four siblings competing for its use, rental income is only speculative and, even if obtained, not likely to generate significant sums.'
The judge concluded, 'The suggestion, then, that [the wife] wait for future disbursements of monies to her is a suggestion that she obtain little or nothing since no such monies are likely to be realized by the LLC.' Instead, she ordered a present distribution, with the husband to pay the wife $360,000 as her share of his twenty-five percent interest. She noted that '[t]his method puts both parties in a financial position neither of them would have contemplated when they constructed their real estate dream, but which both will have to endure because of their shared inability to realize that dream.'
The husband was given the choice of paying the amount in full before December, 2012, or paying $10,000 each year until the final balance was due, with interest accruing at two percent above prime after December, 2012. The final balance would become due upon the first of either the sale of the real property held by LLC, or any part of it, the dissolution of the LLC, or the death of the survivor of the Elliotts.
Property division. Under G. L. c. 208, § 34, a judge has broad discretion to divide the marital property equitably. Brower v. Brower, 61 Mass. App. Ct. 216, 221 (2004). 'According [this] broad discretion to the judge's division of property pursuant to the § 34 factors 'is necessary in order that the courts can handle the myriad of different fact situations which surround divorces and arrive at a fair financial settlement in each case." Adams v. Adams, 459 Mass. 361, 371 (2011), quoting from Rice v. Rice, 372 Mass. 398, 401 (1977). If the court's conclusions are 'apparent and flow rationally' from the record, we must uphold the division.' Williams v. Massa, 431 Mass. 619, 631 (2000). 'A judgment may be vacated only where the award is plainly wrong and excessive.' Ibid.
The husband concedes that his interest in the LLC is a marital asset subject to distribution under § 34; however, he challenges the judge's valuation of his interest. He also argues that, because of the parties' significant financial debts, he has no remaining assets and thus no ability to pay the wife for her share of his interest in the LLC. Because he also 'had no way of securing present capital from his LLC interest,' the only lawful method of distributing that interest, he contends, is on an 'if and when received' basis. In addition, because the wife made no contribution to the LLC, the husband contends that the wife's share of his interest was excessive.
The husband also argues that the specific components of the order to pay the wife $360,000 were arbitrary and capricious. In light of our resolution of the order for immediate payment, we do not reach that issue.
The husband's brief refers throughout to a thirty percent share, despite the fact that the judgment was amended on the wife's motion and the thirty percent figure removed. In fact, $360,000 is 22.5% of the $1.6 million said to be the husband's share.
a. Value of the husband's interest. 'As valuation is a question of fact, the judge's determination of value will stand, unless clearly erroneous.' Haskell v. Versyss Liquidating Trust, 75 Mass. App. Ct. 120, 125 (2009). 'The trial judge is free to accept one opinion of a valuation expert and reject another. The judge may also decide not to adopt the opinion of any expert and determine valuation based on other evidence. The judge may not, however, reach a valuation that is materially at odds with the totality of the circumstances.' (Internal quotations and citations omitted.) Id. at 127. Cf. Feathler v. Feathler, 33 Mass. App. Ct. 924, 924-925 (1992) (where husband failed to offer testimony for judge to calculate present value of pension, judge 'cannot be faulted for fashioning an equitable division' based on information submitted by another witness).
The record before this court contains very little evidence about the value of the husband's interest in the LLC at the time of the divorce. What information appears in the reord seems to relate to the Martha's Vineyard real estate itself, and not to the value of the husband's minority interest in a limited liability corporation, owning and managing real estate, with very significant restrictions. In addition, even the evidence of the value of the real estate itself is contradictory. For example, the judge's findings state that the assessed value of the property was $899,000 and the fair market value was approximately $6.4 million. However, the parties appear to agree that the assessed value of the real estate was $6,431,400.
The record does not contain a transcript of the trial. The judge's findings suggest that there was no expert testimony offered as to the value of the husband's interest. We note that the findings also relate that, on the day that the case was scheduled for trial, the wife's 'counsel had filed only a recent appearance and requested a continuance on that basis and on the basis that she would have undertaken additional discovery and would have had an expert witness as to the value of [the husband's] family business. The request for a continuance was denied.'
We do note that the LLC's 2006 Federal tax return indicates that the husband's share of the LLC's capital account is $156,816.
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The paucity of evidence left the judge at a significant disadvantage. In the end, she appears to have valued the husband's interest as one-fourth of what she described as the market value of the real estate held by the LLC. This is troubling, particularly in light of the judge's other findings, supported by the evidence, which state specifically that the property would likely never be sold, mortgaged, or generate rental income for the husband. Cf. Feathler v. Feathler, 33 Mass. App. Ct. at 925 ('The valuation of pensions ordinarily requires expert testimony concerning present value'). See DeSantis v. Commonwealth Energy Sys., 68 Mass. App. Ct. 759, 770 (2007) ('[A]ll that was required was an actuarial opinion to convert lost monthly benefits into a present value lump sum').
In light of all of the circumstances, including all of the considerations required under § 34, we cannot say that the judge abused her discretion in assigning to the wife a portion of the husband's interest in the LLC. However, we agree that the judge erred when she valued that share in the amount of $360,000. In the first place, that order appears to be tied to the unsupported valuation of the husband's interest in the LLC at $1.6 million. Furthermore, we are constrained to conclude that ordering the husband, who, for all that appears, has substantial debt and no assets, to pay $360,000 for an interest that is unlikely ever to generate any income 'is plainly wrong [and] excessive.' Brower v. Brower, 61 Mass. App. Ct. at 221, quoting from Redding v. Redding, 398 Mass. 102, 107 (1986).
In so concluding, we have in mind that the judge's order had to be delicately crafted, given the parties' difficult financial situation at the time of trial. Nevertheless, the order for present payment in the amount of $360,000 cannot stand, and we vacate it. We therefore remand for rehearing on the value of the husband's interest in the LLC and the entry of further orders.
b. Distribution to the wife. On remand, once the judge assigns a fair value to the husband's interest in the LLC, she will be in a position to decide whether a present distribution is reasonable under all of the circumstances of this case. We are aware that ''a present division of all assets ordinarily is preferable' because it provides an immediate settlement of the distribution without entangling the parties in future litigation, and the continued strife and uncertainty it entails.' Adams v. Adams, 459 Mass. at 379 n.14, quoting from Hanify v. Hanify, 403 Mass. 184, 188 (1988). However, in Adams, the Supreme Judicial Court also recognized that, 'where a present valuation of an inchoate interest would provide hardship on either spouse, that may operate as a 'controlling factor,' and the 'if and when' received distribution method becomes a viable option.' Ibid.
In addition, cases that express a preference for a present distribution make clear that other circumstances may rightly produce a different result. See, e.g., Dewan v. Dewan, 399 Mass. 754, 757 (1987), quoting from Holbrook v. Holbrook, 103 Wis. 2d 327, 340 (Ct. App. 1981) ('[P]resent assignment of a percentage [of the interest in question] is the preferred approach . . . only where there are 'sufficient assets available at the time of divorce to divide the present value of the [interest] without causing an undue hardship on either spouse" [emphasis supplied]). See S.L. v. R.L., 55 Mass. App. Ct. 880, 885 (2002) ('[T]he 'if and when received' method is appropriate where warranted by the circumstances, such as where there are insufficient assets available at the time of divorce to divide the present value of the future interest without causing undue hardship to either spouse, see Dewan v. Dewan, supra, or where present valuation is uncertain or impractical'). Cf. Lauricella v. Lauricella, 409 Mass. 211, 217 (1991) ('As to valuation, the trust res is improved real estate subject to an income-producing use and of a readily quantifiable value. It obviously will not be difficult to attach a value to the husband's interest '). Moreover, under the particular circumstances of this case, the judge should consider whether a present distribution is likely to produce more, rather than less, future litigation if the wife seeks to enforce a judgment that the husband has no means of satisfying.
We vacate so much of the amended judgment as values and orders a present distribution of the wife's share of the husband's interest in the Elliott Family LLC, and remand for further proceedings consistent with this memorandum and order. On remand, the judge may hold such further hearings, including evidentiary hearings, as she deems necessary. In all other respects, the judgment is affirmed.
So ordered.
By the Court (Wolohojian, Milkey, & Hanlon, JJ.).