Opinion
09-P-908
03-19-2012
RICHARD E. MASTROCOLA v. ELLEN MASTROCOLA.
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
Richard Mastrocola, the former husband of Ellen Mastrocola, appeals from a judgment of divorce nisi entered by a judge of the Probate and Family Court which, for purposes relevant here, assigns to the former wife an interest in the husband's deferred compensation from employment, and provides the wife with security in the event the husband dies while under an alimony obligation to her. The husband has also appealed from the order denying his motion for reconsideration and/or to amend judgment.
The judgment was subsequently amended (on the husband's 'motion to clarify and amend judgment') in respects not material to the present appeals.
In addition, the husband filed a notice of appeal from the order denying his motion for a new trial and/or to reopen proceedings. He represents in his brief that he is not pursuing that appeal.
We vacate so much of the judgment, as amended, as pertains to the security provision and remand the matter for further proceedings. In all other respects, we affirm the judgment.
1. Background. The parties were married in 1978 and separated in 2006. Three children were born of the union. At the time of the 2008 divorce judgment, the husband was fifty-five years of age and in good health. He is a C.P.A. and the president of a company (hereinafter 'the company') in which he owns 62.5% of the company's outstanding shares. The husband is very well compensated.
The wife was fifty-four years of age and in good health. She has a limited education and has not worked outside the home or received any further education or training since 1983. During the marriage, the wife was 'almost solely' responsible for home care and child rearing. Her lack of education and training limit her employment prospects. By the time of their separation, the parties owned numerous assets and enjoyed a high income station. On these findings, and others, the judge assigned to each party assets of substantial value and ordered the husband to pay alimony to the wife in the amount of $3,000 a week ($156,000 a year). Alimony was to cease upon the first to occur of the wife's death, the husband's death, or the wife's marriage to another person. The judgment, as we have indicated, also contains a security provision should the husband die while under an alimony obligation to the wife.
Apart from the husband's business interests, the parties owned, for example, a primary residence and two vacation homes. They drove late model luxury automobiles, traveled to 'interesting destinations' and sent their eldest child to a private high school.
2. Deferred compensation. The husband has deferred compensation interests worth $1,068,128. By stipulation, the parties agreed 'that to the extent the husband receives any such payments they will be paid to the husband as compensation and will be considered ordinary income . . . [e]ach party shall submit to the Court a proposal for a division of said compensation payments.' In his proposed judgment of divorce nisi, the husband recited the amounts of deferred compensation to which he is 'entitled' and requested that the judge enter the following order:
The judge found that the husband is entitled to $568,128, which represents accrued but unpaid compensation by the company, and $500,000 of compensation ($50,000 per year for ten years when he leaves the company) under a so-called 'deferred compensation arrangement.' Said sums are unfunded by the company and are contingent upon the company being able to pay them.
'To the extent that [the husband] receives any such payments, they will be paid to [the husband] as compensation and will be considered ordinary income. Accordingly, in the event that [the husband] receives any payments there under he shall pay to [the wife] thirty (30%) percent of any gross amount of payments so received within ten (10) business days of his receipt of same, as, if and when he receives any such payments. These payments are not to be con-sidered as tax deductible alimony, but rather as a property settlement, and said payments shall not be taxable to [the wife] nor deductible by [the husband].'
The judge adopted virtually verbatim the husband's proposal with the exception that the judge substituted a thirty-two percent figure for the thirty percent figure proposed by the husband.
The husband argues that as matter of law the judge 'wrongly treated [his] deferred compensation as an asset, instead of as income.' In the husband's view, '[t]he wife's 32% of this income should be deemed alimony, so that for tax purposes it will be deductible by the husband and treated as taxable income to the wife.' The husband claims that under this approach he and the wife 'would equitably share the tax burden.' The husband suggests that such a result is compelled by our recent decision in Wooters v. Wooters, 74 Mass. App. Ct. 839, 843 & n.4 (2009) (decided after judgment was entered in the present case).
At the outset, the husband is hardly in a position to claim error in the judge's order concerning the treatment of deferred compensation, having requested the court to enter a virtually identical order. That aside, the husband's approach is flawed and does not achieve the equitable result he claims. It is apparent, as the wife points out, that the judge recognized both the nature of the deferred compensation interest as an asset of the marriage that was subject to equitable division and the tax consequences that would result to the husband from the payment of deferred compensation. That recognition is reflected in the judge's award of a thirty-two percent payment to the wife. To impose an additional tax burden on the wife would not result in an equitable treatment.
The judge found that on the facts of this case 'the equitable percentage sharing' between the parties of all components of the husband's economic interest in the company is fifty percent - fifty percent, and that the court had so provided in its judgment. As the wife observes, it is apparent that the wife's one-half interest in the deferred compensation has been reduced to thirty-two percent 'as a proxy for estimated tax adjustment.'
We perceive nothing in Wooters v. Wooters, supra, that would cause us to reach a different result.
3. Security for alimony. The judge found that while the husband has significant life insurance coverage, he has intentionally made it all (except for a small employer policy) payable to an irrevocable life insurance trust, of which two members of his family (his brothers) are cotrustees. Continuing, the judge stated that '[b]y doing so, [the husband] has limited [the court's] ability to provide for death protection in relation to alimony for the wife.' For that reason, the judge stated, 'it is equitable to provide for an estate claim for the wife as [the court has] done in [its] judgment.'
The precise terms of the life insurance trust are not apparent in the record before us. The husband testified that the wife and the parties' three children are the named beneficiaries of the trust. He further indicated, and the wife acknowledges in her brief, that the trustees have discretion to determine how the proceeds are distributed among the wife and the children.
The judge issued the following order with respect to security (which tracks closely a proposed order suggested by the wife):
'If the husband dies while under an alimony obligation to the wife, she shall have a creditor's claim against the husband's probate and non-probate estate, including his share of property assigned to him under this judgment, to the extent that the trustees of the husband's Irrevocable Insurance Trust do not agree to pay and pay her the net-after-tax equivalent of alimony per year from life insurance payable to the trust during her remaining lifetime and before her[] marriage to another person, to a maximum claim of $2,500,000.00.'
The husband challenges the security provision on several grounds. He argues initially that the judge 'abused his discretion in awarding $2,500,000 of life insurance to secure post-death alimony.' He calls our attention to general principles governing the termination (and continuation) of alimony. More particularly, the husband notes, correctly, that '[t]he general rule in Massachusetts is that an order for the payment of alimony ceases with the death of the party obligated to pay it unless the decree or judgment provides otherwise.' Braun v. Braun, 68 Mass. App. Ct. 846, 856 (2007), citing to Barron v. Puzo, 415 Mass. 54, 56 (1993) and Cohan v. Feuer, 442 Mass. 151, 154 (2004). The reasoning behind the presumption is explained in Cohan.
'It is because 'the marital living standard assumes the obligor's continued survival. To continue the award after the obligor's death would give the obligee a claim on the obligor's accumulated assets rather than on his post-marital earnings. Any claims on these assets will already have been satisfied by the property division made at divorce.' American Law Institute's (ALI) Principles of the Law of Family Dissolution: Analysis and Recommendations § 5.07 comment b (2002). Second, the Commonwealth and the decedent's creditors and survivors have a strong interest in the finality of estates.'Id. at 154-155.
The Cohan court also adopted § 5.07 of the ALI Principles of the Law of Family Dissolution, 'as modified for consistency with current Massachusetts law, and declare[d] that an obligation to make periodic alimony payments ends automatically at the remarriage of the obligee or at the death of either party, without regard to the award's term as fixed in the decree or agreement, unless either (1) the original decree or agreement provides otherwise . . ., or (2) in the case of the obligor's death, the court makes written findings establishing that termination of the award would work a substantial injustice because of facts not present in most cases.' 442 Mass. at 157-158. See Braun v. Braun, 68 Mass. App. Ct. at 856 n.19. We note that by virtue of St. 2011, c. 124, effective March 1, 2012, which amends G. L. c. 208, alimony within the Commonwealth has been substantially reformed.
The husband seems to assert that notwithstanding the judge's order that alimony terminate upon his death, the judgment requires him to secure 'post-death alimony' and effectively requires him to do so by maintaining life insurance. More specifically, he states that because he does not control the life insurance trust or any insurance proceeds 'he must either maintain $2,500,000 in separate life insurance for the wife's benefit or else she will have a claim against the assets of his estate in the amount of $2,500,000, in the event the trustees
Where alimony does not terminate upon the death of the obligor, we have stated that '[w]hether the judge chooses to order the husband to provide security for the alimony, such as an annuity, or to bind the husband's estate in the event he predeceases her [citations omitted], is a matter left to his discretion.' Barron v. Barron, 28 Mass. App. Ct. 755, 760 (1990). See 2 Kindregan & Inker, Family Law and Practice § 38:22 (2002).
. . . do not pay her alimony from the insurance proceeds in the trust.' The husband then suggests, somewhat confusingly, that the judgment '[t]hus... takes the discretion away from the trustees of the irrevocable life insurance trust, designating the entire $2,500,000 in life insurance proceeds to the wife, and none to the parties' three children.'
The husband also argues that even if life insurance is deemed appropriate in the instant matter, the 'amount of life insurance awarded is excessive.' In addition, he states that the security order will require the irrevocable life insurance trust or the husband's estate to remain 'active' until the wife's death or remarriage, which would be an unwarranted effort and expense. While we agree with the wife that the judgment does not actually order the husband to maintain any life insurance (nor does it order a payout to the wife of $2,500,000 upon the husband's death), and that the judge acknowledged the discretion vested in the trustees of the irrevocable life insurance trust, our agreement on these points does not address underlying concerns touched upon by the husband's argument, including his claim that the security order implicates postmortem alimony, the propriety of a security order which provides the wife with a possible creditor's claim against the husband's estate (including assets assigned to him through the divorce), and the general policy interest supporting the finality of estates. While we recognize the unusual facts of this case and that the husband's own conduct in making the life insurance proceeds payable to the irrevocable life insurance trust has informed the judge's security order, the order, by providing the wife with the creditor's claim and by requiring implicitly that the husband's estate remain 'active,' runs contrary to the very reasons that ordinarily warrant a termination of alimony (as was the judge's stated intention here). See Cohan v. Feuer, supra.
We do not find persuasive the husband's additional claim that no security was necessary in this case as the wife received substantial assets. Clearly, the premature death of the husband would force the wife, who has little opportunity to earn substantial income, to spend down rapidly the assets awarded to her.
Although neither party raises on appeal any issue concerning the mechanics of implementing the security order, there appear to be at least some uncertainties inherent in the order. Furthermore, although the wife has not pursued an appeal from the judgment, the effectiveness of the security order, inasmuch as it may provide for a claim against the husband's estate, is dependent on various factors, including the value of the assets that are part of the estate. As a vehicle for security for the wife, the order may prove illusory.
Even were we to assume that there may be circumstances where, although alimony is to terminate upon the support obligor's death, a judge may order as security for alimony that the obligee is to have a creditor's claim against the estate of the obligor, we do not favor such an approach. Rather, we think that the judge should have explored and considered other forms of security for alimony, including, particularly, whether the husband should obtain, if feasible, a separate insurance policy, naming the wife as beneficiary. See Braun v. Braun, 68 Mass. App. Ct. at 856-858. The amount of any such insurance, if appropriate, and whether such amount should de-escalate over time, see Wooters v. Wooters, 42 Mass. App. Ct. 929, 929, 931 (1997); Ross v. Ross, 50 Mass. App. Ct. 77, 79, 83 (2000), may be addressed by the court on remand.
A separate life insurance policy would address in large part certain concerns touched upon by the husband's appeal. As we stated in Braun, a judge may order that a party maintain life insurance as security for alimony even where the order for alimony does not continue after the support obligor's death. Id. at 856-858. Such an order, and the payments of premiums thereon, 'may be seen as a component of alimony and other payment requirements.' Id. at 857, quoting from Freedman v. Freedman, 49 Mass. App. Ct. 519, 524 (2000). 'Premiums are paid by the support obligor during his lifetime, and upon his death, payments under the policy flow from the insurer, not the obligor's estate, to the beneficiary. There is no claim of continued payment of periodic alimony from the estate of the deceased ex-spouse.' Braun, supra.
4. Conclusion. So much of the judgment of divorce nisi, as amended, as provides for security for alimony (paragraph 31) is vacated and the matter is remanded to the Probate and Family Court for further proceedings consistent with this memorandum and order. Pending further proceedings and the entry of a new order, however, paragraph 31 shall remain in place as a temporary order. In all other respects, the judgment is affirmed.
Any proceedings concerning the temporary order are to be brought in the Probate and Family Court. Cf. Casey v. Casey, 79 Mass. App. Ct. 623, 636 & n.19 (2011).
The wife's request for attorney's fees on appeal is denied.
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So ordered.
By the Court (Berry, Brown & Grainger, JJ.),