Finocchio v. Finocchio

• Decision Date: 22 June 1990
• Parties: Roberta K. FINOCCHIO, Appellant, v. Vincent J. FINOCCHIO, Jr., Respondent.
• Court: New York Supreme Court — Appellate Division

Page 1007

556 N.Y.S.2d 1007

162 A.D.2d 1044

Roberta K. FINOCCHIO, Appellant, v. Vincent J. FINOCCHIO, Jr., Respondent.

Supreme Court, Appellate Division Fourth Department.

June 22, 1990.

Alderman and Alderman by Richard Alderman, Syracuse, for appellant.

Ronile Lawrence, Syracuse, for respondent.

Before DILLON, P.J., and DOERR, GREEN, LAWTON and LOWERY, JJ.

MEMORANDUM:

The trial court erred in denying to plaintiff the opportunity to offer evidence of defendant's enhanced earning capacity for the full economic life of his license to practice law. As a consequence of the error and the method employed by the court in evaluating the marital asset, plaintiff was denied an award of any interest in the marital asset beyond the commencement of this action.

The parties were married on March 26, 1970 and separated in September, 1986, and this action for divorce was commenced on March 5, 1987. At trial the parties presented expert proof as to the value of defendant's law practice. Both experts utilized an "excess earnings" method which was adopted by the court. By that method of valuation, the value of the tangible assets of the practice was added to the intangible value, or good will. The intangible value was ascertained by comparing defendant's earnings in the private practice of law with that which he could have earned as a public sector attorney with similar experience. The "excess earnings" were reduced by the value of defendant's return on tangible assets and the resultant figure was multiplied by a capitalization figure of 2.7 to establish the fair market value of the practice as of the date of the commencement of the action. The court premised its distribution to plaintiff of an equitable share of the practice upon its fair market value at that time. Plaintiff was thus improperly denied any award for the enhancement of defendant's earning power beyond the date that the action was brought.

Although plaintiff sought at trial to offer evidence of separate evaluations of defendant's degrees, license and practice, and the court properly refused to receive such evidence in the form requested, it was nevertheless error to deny plaintiff any opportunity to present evidence of defendant's future earning capacity. There can be no doubt that defendant's degrees and license to practice law are marital assets subject to equitable distribution (see, O'Brien v. O'Brien, 66 N.Y.2d 576, 498 N.Y.S.2d 743, 489 N.E.2d 712; McGowan v. McGowan, 142 A.D.2d 355, 535 N.Y.S.2d 990; see also, DiCaprio v. DiCaprio, 162 A.D.2d 944, 556 N.Y.S.2d 1011 [decided herewith]. The value of such assets is reflected in the enhanced earning capacity that they afford the holder (see, McGowan v. McGowan, supra, 142 A.D.2d at 358, 535 N.Y.S.2d 990; see also, O'Brien v. O'Brien, supra, 66 N.Y.2d at 586, 498 N.Y.S.2d 743, 489 N.E.2d 712).

The concept of merger had its origin at the appellate level in the Second Department in Marcus v. Marcus, 137 A.D.2d 131, 525 N.Y.S.2d 238. The Court pronounced that where a professional practice has been ongoing for a number of years "the medical license should be deemed to have merged with and been subsumed by the practice itself" (Marcus v. Marcus, supra, at 139, 525 N.Y.S.2d 238). The clear purpose of that pronouncement was to prevent "double recovery" (Marcus v. Marcus, supra, at 139, 525 N.Y.S.2d 238). Thus the Court deemed it inappropriate in such circumstances to make a separate award for the license itself. It would follow, of course, that duplicative awards should not be made for educational degrees underlying the license and the established professional practice.

It was not the intention in Marcus, nor could it have been, to apply merger in a way which would deprive the non-licensee spouse of an award of any interest of the marital asset beyond commencement of the matrimonial action. Yet that is precisely the interpretation adopted by the dissenter, despite its obvious conflict with the requirement that the marital asset be valued in accordance with "the enhanced earning capacity it affords the holder" (O'Brien v. O'Brien, 66 N.Y.2d 576, 588, 498 N.Y.S.2d 743, 489 N.E.2d 712). The Court made it clear in O'Brien that "[a]n established practice merely represents the exercise of the privileges conferred upon the professional spouse by the license and the income flowing from that practice represents the receipt of the enhanced earning capacity that licensure allows" ( O'Brien v. O'Brien, supra, at 586, 498 N.Y.S.2d 743, 489 N.E.2d 712). Indeed, in O'Brien, the Court approved the method employed by the trial court in premising the present full value of the professional license upon a formula that took into account the anticipated earnings of the licensee through age 65.

That the Second Department intended to apply the merger concept as we have indicated is manifested by its later decision in McGowan, 142 A.D.2d 355, 535 N.Y.S.2d 990, supra. There, the Court wrote:

[W]here, as in O'Brien, the husband's highest educational attainment before marriage was a college degree and he acquired a medical license during the marriage and shortly before the divorce, the value of the license as an asset is measured by, (1) calculating the difference between the average total lifetime income that a college graduate could expect and the average total lifetime income that a physician could expect, and (2) reducing that amount to a present value (see, e.g., O'Brien v O'Brien, 66 NY2d 576, 582 [498 N.Y.S.2d 743, 489 N.E.2d 712]; 2 McCahey, Valuation & Distribution of Marital Property § 30.03[3], at 30-19--30-21). It should be noted that once the "student-spouse" embarks on his career and develops a history of actual earnings, the methodology outlined above should be discarded and the projections of future earnings should be based on actual past earnings produced by actual practice. In other words, the value of the degree or license merges into the value of the subject's professional or business practice (see, e.g., Marcus v Marcus, 137 AD2d 131 ; Korman v Korman, NYLJ Sept. 16, 1986, at 13, col 4 [Sup Ct, Kings County, Rigler, J.]; Vanasco v...