In its April 10th decision in Angello v. Angello, the Third Department upheld the trial determination that a wife’s refusal to approve a mid-action sale of the husband’s insolvent business constituted a wasteful dissipation of the largest marital asset. Such warranted saddling the wife with half of the business’s debts. It also, in part, justified a downward deviation from the maintenance guidelines but did not warrant an award of counsel fees to the financially-superior husband.

The parties were married in 1989 and had one adult child. The husband commenced this divorce action in 2016, and the trial began in 2019. The marital property at issue included a local, organic grocery distribution business primarily operated by the husband, which had incurred significant debt and had ceased operations by the time of trial. Marital property also included a warehouse associated with the business, as well as the marital residence. At the conclusion of the trial, the parties each moved for an award of counsel fees.

Columbia County Supreme Court Justice Margaret Walsh found that the wife had wastefully dissipated marital assets by refusing to agree to the 2018 sale of the business to one of the marital business’ competitors in exchange for the buyer assuming responsibility for $900,000 in business debt. The trial court valued the business as of the date of trial and directed that the wife be responsible for half of its $995,000 in debt. Justice Walsh also directed that the warehouse be sold and that the sales proceeds net of liens be applied against the remaining business debt. Justice Walsh also directed that the marital residence be sold with the net proceeds equally divided between the parties.

The presumptive amount of maintenance to which the wife was entitled was $914 a month, but Justice Walsh determined that a downward deviation was warranted, directing the husband to pay $305 a month for five years.

The court further directed the wife to pay the husband $20,000 in counsel fees, finding that, while the husband was the more monied spouse, he had already incurred significant legal fees on the wife’s behalf. She, in turn, had “refused to settle the matter on any terms” and behaved in a manner that severely impacted the parties’ assets. The wife appealed.

Turning first to the issue of equitable distribution, Justice Walsh credited the husband’s account that the business began experiencing financial problems in the early 2010s due to increased competition and that it eventually became apparent that the business could no longer profit. The wife refused to agree to the 2018 offer to buy the business by taking over the debt despite the fact that her own legal advisor was unaware of any other potential purchasers and was satisfied that the only viable options for the business were “a sale or . . . bankruptcy.”

The Third Department noted that while active marital assets like a going business are ordinarily valued as of the date the divorce action is commenced, the trial court has broad discretion to select a valuation date between commencement and the date of trial. The appellate court held that as the credible proof here reflected that the business had ceased operations during the pendency of this action due to legitimate financial problems that were not attributable to the husband and were not going to improve, Justice Walsh did not abuse her discretion when valuing the business as of the date of trial.

Moreover, the Third Department specifically upheld the determination that the wife’s refusal to agree to the 2018 offer to buy the business was unreasonable. Such was a wasteful dissipation of marital assets warranting distributing an equal share of the business debt to the wife.

The appellate court also upheld that the sale of the warehouse and residence would be the only way to generate funds to significantly reduce that debt and provide the parties with some much-needed cash.

Turning to the award of durational maintenance, the husband had been earning approximately $74,000 a year from the marital business when it became insolvent, but only $50,000 working for the competitor that had offered to buy the business (the Court noted that there was no proof in the record that the husband could have earned more elsewhere). Justice Marsh had imputed income of $12,500 a year to the unemployed wife, finding that the wife was a licensed massage therapist and had demonstrated various employable skills during her work for the marital business.

Application of the statutory guidelines to those figures resulted in the wife receiving $914.17 a month in maintenance for between 9½ and 13 years. However, Justice Walsh held that a downward deviation to $305 a month for a period of five years was warranted as the wife’s wasteful dissipation had financially harmed both parties, and her actions had harmed the husband’s earning capacity. Moreover, there was no indication that she required additional education or training to find work and that she was or would be eligible for Social Security benefits and Medicare. Nevertheless, the appellate court found find that a lesser downward deviation was “warranted based upon our review of the record” and directed that the husband pay maintenance to the wife in the amount of $500 a month for a period of five years.

Finally, the Third Department held the lower court properly rejected the wife’s effort to obtain counsel fees from the husband, but agreed with the wife it was an abuse of discretion to order her to pay counsel fees to the husband. The appellate court noted that Domestic Relations Law §237(a)’s authorization to direct either spouse to pay counsel and expert fees and expenses was a dramatic departure from the American rule that usually requires litigants to pay their own legal expenses. The Court noted that it had long been held that the statute was designed to redress the economic disparity between the monied spouse and the non-monied spouse and ensure that the matrimonial scales of justice are not unbalanced by the weight of the wealthier litigant’s wallet. That intent was made even clearer when the Legislature amended §237 in 2010 to provide “a rebuttable presumption that counsel fees shall be awarded to the less monied spouse.”

Thus, the Court held that an award of counsel fees pursuant was unjustified “where financial need is not the primary driver, such as where the party seeking counsel fees is better off financially than the nonmoving party or where the parties are similarly situated financially and [the moving party] has failed to establish any financial inability to pay [his or] her own counsel fees.” Here, the husband was in a better financial position than the wife, and his motion for counsel fees was based upon the wife’s allegedly obstructive conduct during litigation as opposed to any difficulty on his part in covering his counsel fees. Supreme Court abused its discretion in granting the husband’s motion for counsel fees under these circumstances.

[Query: Was the mid-action sale of the business not a decision for the husband to make in the active management of the business? Should the husband not have moved at the time for the approval of the sale? Did the lower court not have the authority to approve the sale to preserve the asset’s value, leaving the wife to challenge the husband’s decision at trial? Was it fair to punish the wife on the distributive and maintenance awards, even if her “advisor” opined that a sale or bankruptcy was needed two years after the action began?

Finally, rather than viewing the husband’s application for counsel fees in a vacuum, would it not have been more appropriate for the husband to also expressly seek a reallocation of prior award(s), particularly the fees he paid to the wife’s advisor?]

Barrett D. Mack, of Mack & Associates, PLLC, of Albany, represented the Wife. Dana L. Salazar, of Salazar and Erikson, LLP, of East Greenbush, represented the husband.