Grunfeld v. Grunfeld

• Court: New York Court of Appeals
• Writing for the Court: LEVINE, J.
• Citation: 731 N.E.2d 142,94 N.Y.2d 696,709 N.Y.S.2d 486
• Decision Date: 11 May 2000
• Parties: ROCHELLE GRUNFELD, Respondent, v. HAROLD M. GRUNFELD, Appellant.

94 N.Y.2d 696
731 N.E.2d 142
709 N.Y.S.2d 486

ROCHELLE GRUNFELD, Respondent,
v.
HAROLD M. GRUNFELD, Appellant

Court of Appeals of the State of New York.

Argued April 5, 2000.

Decided May 11, 2000.

94 N.Y.2d 697

94 N.Y.2d 698

Squadron, Ellenoff, Plesent & Sheinfeld, L. L. P., New York City (Stanley Plesent of counsel), and Mintz & Gold, L. L. P. (Steven G. Mintz of counsel), for appellant

94 N.Y.2d 699

Proskauer Rose, L. L. P., New York City (Franklin S. Bonem and Jeremy R. Feinberg of counsel), for respondent

94 N.Y.2d 700

Bruce J. Wagner, Albany, Kenneth David Burrows and Terri L. Weiss for American Academy of Matrimonial Lawyers, New York Chapter, amicus curiae.

Judges BELLACOSA, SMITH, CIPARICK, WESLEY and ROSENBLATT concur; Chief Judge KAYE taking no part.

OPINION OF THE COURT

LEVINE, J.

The primary issue on appeal in this divorce action is whether the Appellate Division erroneously based both its equitable distribution award of one half of the value of defendant's law license and his obligation to pay maintenance on the same projected professional earnings. McSparron v McSparron (87 NY2d 275, 286) prescribed a rule against such double counting of income. For the reasons that follow, we conclude that the Appellate Division erred and we remit to Supreme Court for further proceedings.

Plaintiff Rochelle Grunfeld and defendant Harold Grunfeld were married in December 1971, while defendant was in the middle of his second year of law school. After graduating, defendant began working as a customs lawyer and later became a partner in the firm of Mandel & Grunfeld. Plaintiff worked as a school teacher but gave up her professional career when the couple's first child was born. The Grunfelds purchased a home in Scarsdale and had a second child. In the 1980's, defendant's former law firm was dissolved, and defendant started his current firm, of which he is the managing partner.

As defendant's practice grew, the couple's lifestyle included imported luxury cars, live-in help, numerous Caribbean and European vacations and membership at a Westchester country club. By the early 1990's, defendant was earning approximately $1.2 million per year. The Grunfelds, however, began experiencing serious marital difficulties, with defendant spending increasing amounts of time away from home. The parties separated in 1991.

94 N.Y.2d 701

In July 1992, plaintiff commenced this action for divorce. Supreme Court, in a comprehensive opinion by the late Justice Lewis R. Friedman (170 Misc 2d 808), dissolved the couple's marriage by reason of defendant's abandonment of plaintiff, awarded plaintiff custody of the child still living at home and ordered defendant to pay child support. The court also ordered defendant to pay maintenance of $15,000 per month until the sale of the marital home one year after the younger child was to enter college, in 2000. Thereafter, maintenance was to be reduced to $8,500 per month

Before determining the equitable distribution of the marital assets, Supreme Court addressed a number of issues in connection with the valuation of defendant's legal practice and law license. The court valued defendant's practice as of the date of commencement of the matrimonial action, not the date of trial. Using the "excess earnings method" (see, Scheinkman, Practice Commentaries, McKinney's Cons Laws of NY, Book 14, Domestic Relations Law C236B:5, at 276; Kelly, Sharing a Piece of the Future Post-Divorce: Toward a More Equitable Distribution of Professional Goodwill, 51 Rutgers L Rev 569, 610-612), the court first determined the amount that defendant actually earned in excess of "reasonable compensation," the amount paid to an attorney of similar age and background in the same geographic area without any ownership interest in a law practice. After subtracting taxes and the income theoretically derived from defendant's share of the firm's tangible assets ("return on equity"), by agreement of the parties, the resulting amount was capitalized using a multiple of three. Then, defendant's interest in the firm's tangible assets was added to the capitalized earnings to arrive at defendant's interest in his practice, which Supreme Court found to be $2,581,760.

In response to our then recent decision in McSparron (supra), Supreme Court also made a determination of the value of defendant's license to practice law for equitable distribution purposes. The court first computed the value of the "bare license," the present value of the difference between the average earnings of a first-year associate at a law firm and a person holding an undergraduate degree, for the remainder of defendant's work-lifetime, with an adjustment to take into consideration the possibility of defendant's death before reaching 65, his anticipated age at retirement. Because the parties did not marry until defendant was halfway through law school, only one half of the bare license was a marital asset. Thus, its value was multiplied by a 50% "coverture fraction."

94 N.Y.2d 702

Next, the court added the "enhanced earnings potential" created by the license (see, McSparron v McSparron, supra, at 286-287). To avoid double counting, since defendant's income in excess of "reasonable compensation" had already been considered in determining the value of defendant's interest in the practice, the court excluded that portion of defendant's future earnings from consideration (see, Scheinkman, op. cit., at 299-304). Thus, the enhanced earnings attributable to the license alone were the difference between reasonable compensation and the earnings of a first-year associate. Again, the court calculated the present value of these earnings from the commencement date until the date of defendant's expected retirement, taking actuarial factors into account. The result was then reduced by 7% "to reflect the premarital, separate property component of that figure" (170 Misc 2d, at 819). The sum of the license's bare value and enhanced earnings potential was found to be $1,547,000.

Thus, Supreme Court determined the value of both defendant's law practice and license by calculating the current worth of different components of defendant's projected future income of $1.2 million per year. To the extent that these "assets" were acquired during the marriage, they were correctly considered to be available for equitable distribution.

Supreme Court next set out to avoid double counting the same anticipated future income stream in making the determination of the amount of maintenance and in fixing the distributive award of the law license (see, McSparron v McSparron, supra, at 286). The court specifically recited that it had considered all of defendant's future income in setting the...