Adams v. Adams

• Decision Date: 14 April 2011
• Docket Number: SJC–10671.
• Citation: Adams v. Adams, 459 Mass. 361, 945 N.E.2d 844 (Mass. 2011)
• Parties: Nancy W. ADAMSv.Nicholas C. ADAMS.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

459 Mass. 361

945 N.E.2d 844

Nancy W. ADAMS

v.Nicholas C. ADAMS.

SJC–10671.

Supreme Judicial Court of Massachusetts, Middlesex.

Submitted Nov. 1, 2010.Decided April 14, 2011.

Alan M. Dershowitz(Gary Green, of Pennsylvania, with him) for Nicholas C. Adams.Joel A. Kozol(Matthew S. Kozol & Meredith A. Rosenthal with him), Boston, for Nancy W. Adams.Theodore Tedeschi for Accretive Capital Advisors LLC & another, amici curiae, submitted a brief.Present: IRELAND, SPINA, CORDY, BOTSFORD, & GANTS, JJ.CORDY, J.

Nicholas C. Adams appeals from a judgment of divorce from his wife, Nancy W. Adams, issued by a Probate and Family Court judge.¹The case has been vigorously litigated, and few, if any, issues stand unchallenged on appeal.The nucleus of the husband's appeal, however, is that the judge erred in assigning the present value of the husband's interest in a partnership as defined by G.L. c. 108A, § 6, to the divisible marital estate.We conclude that a judge, acting pursuant to his authority under G.L. c. 208, § 34, properly may include in the marital estate (and make subject to equitable distribution) the present value of an interest in a partnership that, as here, produces a consistent profit stream with annual cash distributions.We also conclude, however, that specific errors in methodology invalidate the valuation of the partnership interest in this case.For that reason, we remand the case for a recalculation of that value consistent with this opinion.In all other respects, the judgment of divorce is affirmed.

1.Background.We recite the facts from the trial judge's findings, the report of a special master appointed to value the marital estate, and the evidence adduced from eighteen days of evidentiary hearings before the special master, nine days of trial, 492 exhibits, fourteen chalks and supplements, and a series of stipulations between the parties.²We reserve recitation of certain facts as they become relevant to the issues raised.

a. Home life.The husband and the wife were married in 1997.The husband was born in 1960; the wife in 1965.Due to the husband's career as a partner in the asset management and investment advisory firm, Wellington Management Company, LLP(Wellington), both the husband and the wife enjoyed an extremely upper-class lifestyle.

After their wedding, the husband and the wife moved into the husband's condominium unit in the Charlestown section of Boston.They eventually purchased a primary residence in Chestnut Hill.Between the fall of 1999 and spring of 2002, the wife hired and oversaw architects that designed extensive renovations to the Chestnut Hill property.The wife met with contractors almost daily during this project, and the husband provided input.The husband and the wife also owned a home in Florida and real estate in Franklin County, New York.In 2002, the wife frequently traveled between Massachusetts and New York to supervise architectural and decorative remodeling of the Franklin County property.The husband was not involved in that project.After their separation, but prior to the judgment of divorce, the husband purchased both a condominium unit in downtown Boston and a home in Pennsylvania.The wife bought a vacation home in Vermont.

The husband and the wife have four children together.At the time of trial, in 2008, they were all under eleven years of age.The wife was the primary caregiver.She scheduled various appointments and supervised the children's medical needs.The children all required strict oversight of their diets and other special attention for an assortment of allergies and other recurring medical issues.The wife made all meaningful contributions to the children's private school education and after-school tutoring, including walking the children to school daily, assisting with homework, and sitting on the school board.She arranged all extracurricular activities, such as swim, tennis, ballet, violin, and equestrian lessons.The husband was minimally involved in the medical, educational, and extracurricular life of the children.

The wife received an abundance of help with child and home care.When the children were infants, the husband and the wife hired nurses.At the time of trial, the wife employed two full-time nannies, although neither resided at the Chestnut Hill home.The nannies assisted the wife during the day, but not at night.Among the many other domestic staffers, the wife also hired an assistant to prepare hot meals for the family.The wife, either herself or in supervising the domestic staff, was responsible for purchasing the husband's clothing and toiletries, scheduling his medical appointments, obtaining his prescription medications, and various other domestic tasks.The wife paid the household staff through a private company.

The wife was also the financial manager of the marriage.See note 4, infra.She arranged and attended all meetings with the attorneys that would set up the family's estate plan.She settled and served as cotrustee of trusts for the benefit of the children, and purchased stock for them.She maintained records of the family's financial holdings, and provided that information to accountants for annual tax filing.She paid all household bills from a joint account.

In sum, the judge found that the wife was the primary caretaker for the four children, and was responsible for managing the couple's properties, and that the husband contributed little to homemaking and property management.These findings were fully supported in the record.

b. Career.After graduating from Princeton University in 1983, the husband began working for Wellington as a research analyst.He ascended through the ranks at Wellington quickly, receiving a promotion to manage a substantial portfolio in 1986, and then to oversee hedge funds.In 1993, the husband was made a partner in Wellington, at which time he contributed capital into the firm and entered into a partnership agreement that governs the rights and obligations of Wellington partners.³At the time of trial, the husband managed more than $2 billion in various Wellington investment funds, mostly hedge funds.

After their marriage, the wife supported the husband's career in a ministerial and administrative capacity for several years.Early on, before Wellington provided the husband with an administrative assistant, the wife scheduled his meetings, typed letters and reports, submitted travel receipts and business expense reports, organized his office, and compiled the husband's annual and quarterly reports in accord with Wellington's code of ethics.⁴The judge found that the husband provided “the financial security that the parties have enjoyed.”

c. Income and compensation.Wellington is a partnership defined by G.L. c. 108A, § 6.Wellington's articles of partnership, amended and restated as of October 25, 2001(partnership agreement), control the rights and obligations of all Wellington partners, including the apparatus under which the husband receives annual compensation and distributions from the profits of the partnership.The annual cash distributions to Wellington partners, including the husband, is paid in four principal components: (1) salary; (2) incentive compensation; (3) return on capital; and (4) merit distribution.

Under art. XII(b) of the partnership agreement, a three-member managing partners committee sets the first two components of the annual distribution (salary and incentive compensation) and disburses the same to partners specifically “for services rendered to the Partnership.”The husband has earned an annual base salary ranging from a low of $105,000 in 1993 to $300,000 in 2008.Incentive compensation is determined by contract.For instance, for the hedge funds he manages, the husband receives a percentage of the base fees and a percentage of the performance fees paid to Wellington by fund investors.Performance fees are received only when the value of a given investment in a fund surpasses its “high water mark,” the highest value the investment has previously attained.As such, incentive compensation is anchored not only to the husband's performance but also to the condition of the financial markets, and hence, is quite variable.During the sixteen years preceding the trial, the judge found that the husband's annual incentive compensation varied dramatically from year to year, ranging from a low of $45,262 in 2000 to a high of more than $20 million in 2008.

Article XII(f) of the partnership agreement governs payments of the last two components of the annual distribution, return on capital and merit distribution.Before distributing either, the managing partners committee first determines the annual net available income (NAI) of Wellington.This is the amount of income that exists after the managing partners committee credits the accounts of partners with their salary, incentive compensation earnings, and benefits (art. XII[b] payments); deducts the salaries of all other employees and all various operating expenses; distributes the amounts owed to withdrawn partners; and allocates other reserves required for partnership needs.⁵Though denominated as the NAI, this figure represents what would commonly be called the net profits of the partnership.Once the NAI is calculated, the managing partners committee divides these profits into two pools: return on capital and merit distribution payments.The larger of the pools, merit distribution, is apportioned by the managing partners committee in its sole and conclusive discretion.Precatory criteria for apportioning merit distribution are enumerated in art. XII(f) of the partnership agreement, but essentially the managing partners committee attempts to trace the money made for the partnership to each particular partner in the prior year and weight distributions accordingly.The partners committee also considers intangible factors, such as advice the partner provided to the partnership,...