Burns v. Burns

• Decision Date: 01 November 1994
• Citation: 643 N.E.2d 80,84 N.Y.2d 369,618 N.Y.S.2d 761
• Parties: , 643 N.E.2d 80 Francine L. BURNS, Appellant-Respondent, v. Edward J. BURNS, Respondent-Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 761

618 N.Y.S.2d 761

84 N.Y.2d 369, 643 N.E.2d 80

Francine L. BURNS, Appellant-Respondent, v. Edward J. BURNS, Respondent-Appellant.

Court of Appeals of New York.

Nov. 1, 1994.

[84 N.Y.2d 371] [643 N.E.2d 81] Francine L. Burns, pro se.

[84 N.Y.2d 372] Alfred P. Kremer, Rochester, for respondent-appellant.

OPINION OF THE COURT

SMITH, Judge.

In this matrimonial action, the primary issue is whether the trial court erred by limiting the wife's proof of the value of her husband's interest in his law firm partnership to the value of his capital account. We conclude that there was error and we modify the Appellate Division order accordingly.

Plaintiff, Francine L. Burns, and defendant, Edward J. Burns, were married on December 30, 1972, subsequent to defendant's achieving partnership status, in January 1972, at Nixon, Hargrave, Devans & Doyle, a Rochester law firm. At the time Mrs. Burns was 21 years of age and Mr. Burns was 35. In 1975, the only child of the marriage was born. During the marriage Mrs. Burns was primarily a homemaker. In addition, she graduated from college, and obtained a master's degree in business administration and a pilot's license.

In January 1987, plaintiff commenced this divorce action. Defendant, then a managing partner at the firm, counterclaimed for the same relief. At the commencement of trial, plaintiff sought disclosure relating to defendant's interest in the firm and a ruling permitting her to introduce evidence of the value of that interest. Plaintiff's motions were denied in all respects except that defendant was compelled to provide plaintiff with copies of the K-1 forms (indicating defendant's share of partnership income) and defendant's personal income tax forms. Supreme Court limited plaintiff's proof of value to the partnership agreement provision regarding defendant's capital account, citing the Fourth Department's "numerous pronouncements on the [valuation] of a partner's interest in this particular law firm."

Defendant appealed from so much of the final divorce judgment concerning the issues of child support, spousal maintenance, equitable distribution and attorney's fees. Plaintiff cross-appealed from the judgment, contesting (1) the determination that defendant's ownership interest in the firm was equal only to the amount of his capital account ($35,000) and (2) the $40,000 counsel fee award.

The Appellate Division modified Supreme Court's judgment, allowing defendant to claim the parties' child as a dependent on his tax returns and adjusting defendant's maintenance payments and life insurance requirements, 193 A.D.2d 1104, 598 N.Y.S.2d 888. The court further held that Supreme Court correctly determined the value of defendant's interest in the firm and that plaintiff's counsel fees were proper. We granted plaintiff's motion and defendant's cross motion for leave to appeal.

Although Supreme Court limited plaintiff's proof of defendant's interest in the firm to the value of his capital account, it did so on constraint of Appellate Division decisions which construed the same partnership agreement in the context of other cases. In Rosenberg v. Rosenberg, 145 A.D.2d 916, 919, 536 N.Y.S.2d 605, lv. denied 74 N.Y.2d 603, 543 N.Y.S.2d 396, 541 N.E.2d 425, the Appellate Division held that Supreme Court in that case properly limited the plaintiff's interest in the firm to the partnership agreement provision indicating that a withdrawing partner is entitled to the amount in her capital account as of the date of the parties' separation (id.). The same Court, in a later case, Dignan v. Dignan, 156 A.D.2d 995, 549 N.Y.S.2d 539, appeal dismissed, 75 N.Y.2d 915, 554 N.Y.S.2d 832, 553 N.E.2d 1342, again involving a partner at the same firm, reached the same conclusion (contrast, Harmon v. Harmon, 173 A.D.2d 98, 578 N.Y.S.2d 897 [Appellate Division sanctioned expert's use of provisions of partnership agreement including death benefit and withdrawal provisions notwithstanding that the defendant had not died or withdrawn from firm]. We conclude that this was error.

The Equitable Distribution Law broadly defines the term marital property, very narrowly defines "separate" property (see, Domestic Relations Law § 236[B][1][d]; Majauskas v. Majauskas, 61 N.Y.2d 481, 489, 474 N.Y.S.2d 699, 463 N.E.2d 15) and seeks to achieve the fairest result for both parties upon dissolution of the marriage (see, O'Brien v. O'Brien, 66 N.Y.2d 576, 584-585, 498 N.Y.S.2d 743, 489 N.E.2d 712). In the seminal case of O'Brien v. O'Brien (id.), this Court held that a medical license acquired during the marriage was marital property under Domestic Relations Law § 236(B)(1)(c) subject to equitable distribution under section 236(B)(5). In Price v. Price, 69 N.Y.2d 8, 511 N.Y.S.2d 219, 503 N.E.2d 684, we held that where separate property appreciated during the marriage, in part due to the efforts and contributions of the nontitled spouse, the amount of the appreciation was marital property subject to equitable distribution. It follows that where the nontitled spouse has contributed to the appreciation of the titled spouse's interest in a partnership, even though the spouse was already a partner at the time of the marriage, the appreciation constitutes marital property subject to equitable distribution.

The problem here lies not in the fact that the nontitled spouse is entitled to share in the interest of the titled spouse but in how that interest should be valued (see, Batts, Remedy Refocus: In Search of Equity in "Enhanced Spouse/Other Spouse" Divorces, 63 N.Y.U.L.Rev. 751; Note, Professional Licenses as Marital Property: Responses to Some of O'Brien's Unanswered Questions, 73 Cornell L.Rev. 133).

Other cases give some guidance as to the resolution here. This Court, in Amodio v. Amodio, 70 N.Y.2d 5, 516 N.Y.S.2d 923, 509 N.E.2d 936, addressed a similar situation in the context of valuing stock for the purposes of equitable distribution in a divorce proceeding. We held that "[t]here is no uniform rule for valuing stock in closely held corporations"(id., at 7, 516 N.Y.S.2d 923, 509 N.E.2d 936) and noted that methods must be tailored to each case with due consideration given to " 'enlightened prediction of the future' " (id., at 7, 516 N.Y.S.2d 923, 509 N.E.2d 936, quotingEstate of Snyder v. United States, 285 F.2d 857, 861). In Amodio, this Court listed several factors identified by the Internal Revenue Service that aid in valuing stock, such as the nature and history of the business, book value of the stock, the company's goodwill and other intangible assets, and the company's earning capacity (id.). We further stated that even where the transfer of stock in a given corporation was governed by an agreement predating the marital discord, the price fixed by the agreement would be only one factor to be considered and not conclusive of the value of the stock(id.).

Defendant concedes that he could have more of an interest in the firm's assets if it were to dissolve. He claims, however, that because the courts cannot predict whether that event will occur or how to properly evaluate that interest presently, plaintiff cannot have a present interest in the firm's assets. As Amodio demonstrates, however, uncertainty concerning future events should not bar attempts to assign value to an asset. To limit defendant's interest to the capital account, which measured a partner's interest on withdrawal from the firm, is to ignore defendant's status as a continuing and productive partner in an ongoing enterprise.

We conclude that the appreciation, during marriage, in the value of defendant's partnership interest is marital property to be valued for equitable distribution, and that defendant's capital account (an agreed value on withdrawal) does not necessarily determine the value of his ownership interest in the ongoing law firm.

As previously stated, we have recognized that there is no uniform rule for fixing the value of a going business for equitable distribution purposes (see, Amodio v. Amodio, 70 N.Y.2d 5, 7, 516 N.Y.S.2d 923, 509 N.E.2d 936, supra). Indeed, valuation is an exercise properly within the fact-finding power of the trial courts, guided by expert testimony (see, Litman v. Litman, 61 N.Y.2d 918, 920, 474 N.Y.S.2d 718, 463 N.E.2d 34). The parties are entitled to offer expert testimony and other evidence as to that increase in value. In addition, plaintiff is entitled to discovery from the law firm on this issue, subject to the usual safeguards of relevance, materiality and undue burden.

Plaintiff was entitled to have the benefit of disclosure to prove that the value of defendant's interest in his firm exceeded his capital account. It would...