For the second time in six weeks the Appellate Division, Third Department, reduced an award of spousal maintenance for the failure to adjust for the distributive award based on the husband’s business. In its October 22, 2015 decision in Gifford v. Gifford, the Appellate Division, Third Department, modified a maintenance award because of the trial court’s failure to adjust the husband’s income for computation purposes to account for the distributive award to the wife based on the husband’s business. In September, in Mula v. Mula, the Third Department held that once valued, the income attributable to ownership of a professional practice may not also be the basis on which to award spousal maintenance (see, the September 14, 2015 blog post).
In Gifford, the parties in this divorce had stipulated a resolution of Equitable Distribution issues, including a $210,000 award to the wife based on the value of the husband’s geotechnical engineer business. After a trial on maintenance on counsel fees, Supreme Court Justice Vincent J. Reilly awarded the wife nondurational maintenance of $6,000 per month from January 1, 2014 through January 31, 2020, $3,000 per month from February 1, 2020 through June 1, 2022, and $800 per month thereafter, terminating upon either party’s death or the wife’s remarriage.
The Third Department held that Justice Reilley erred in utilizing the husband’s total average annual income of $332,431 for purposes of calculating a maintenance award, without making an adjustment for the distributive award of the company.
The wife’s $210,000 award was based on a joint appraisal of the business at $448,000. In a footnote, the Third Department noted that the wife effectively received an equal share of the business value. The valuation was based on the husband’s capitalized projected earnings, utilizing annual base earnings of $148,000.
This valuation method triggers the rule against double counting income, which provides that, “[o]nce a court converts a specific stream of income into an asset, that income may no longer be calculated into the maintenance formula and payout.”
Further, “[d]ouble counting may occur when marital property includes intangible assets such as professional licenses or goodwill or the value of a services business.” The Third Department agreed with the husband that his solely-owned engineering company was a service business for purposes of the double-counting rule. Since the wife already received her equitable share of the company by stipulation, an appropriate income adjustment needed to be made when calculating the maintenance award.
The Third Department found that the record on appeal was sufficient for it to make the adjustment itself, concluding that the husband’s baseline earnings of $148,000 should be utilized as the income available for maintenance purposes.
The appellate court found that Justice Reilly had not abused his discretion when awarding the wife nondurational maintenance. Justice Reilly had addressed the pertinent statutory factors as well as the marital standard of living, with due recognition that the wife received a sizeable equitable distribution award, overstated her expenses and opted not to work outside of the home during most of the marriage.
While these factors militated against an extensive award, Justice Reilly had also pointed out that, due to her age — 58 at the time of trial — certain health limitations and absence from the work force, the wife’s employment prospects were limited. The court also recognized that the husband was 61 at the time of trial, had health limitations that impacted his ability to perform demanding field work and had professed an intent to retire at the age of 65. That being said, the husband’s future earning prospects far exceed the wife’s, such that the limited nondurational award in this long-term marriage was within Justice Reilly’s court’s discretion.
Moreover, the Third Department approved Justice Reilly’s tiered approach, reducing the amount of the award based on the husband’s projected retirement and eligibility for Social Security. Even though the record indicated that the wife could be self-sufficient, the additional maintenance award facilitated her ability to maintain the comfortable predivorce standard of living that the parties enjoyed. Factoring in the double-counting adjustment, however, the Third Department reduced the award to $2,700 per month from January 1, 2014 through January 31, 2020, $1,350 per month from February 1, 2020 through June 1, 2022, and $360 per month thereafter.