Hoffman, In re

• Decision Date: 21 May 1973
• Parties: In the Matter of the Estate of Robert E. HOFFMAN, Deceased.
• Court: New Jersey Supreme Court

Page 69

63 N.J. 69

304 A.2d 721

In the Matter of the Estate of Robert E. HOFFMAN, Deceased.

Supreme Court of New Jersey.

Argued April 2, 1973.

Decided May 21, 1973.

Phillip F. Guidone, Montclair, for appellant Audrey Hoffman (Beck, Reichstein & Guidone, Montclair, attorneys; Ronald Reichstein, Montclair, of counsel; Phillip F. Guidone, Montclair, on the brief).

Stuart L. Pachman, Newark, for cross-appellant Philip B. Brooks (Clapp & Eisenberg, Newark, attorneys; Stuart L. Pachman, Newark, on the brief).

Adrian M. Unger, Newark, for respondent Gene R. Hoffman, Executor of the Estate of Robert E. Hoffman, deceased (Milton M. and Adrian M. Unger, Newark, attorneys; Adrian M. Unger and Lawrence Kantor, Jr., Newark, on the brief).

The opinion of the Court was delivered by

PROCTOR, J.

This case concerns the distribution of the proceeds of two federal income tax refund checks totaling $31,284.89. The checks are payable to 'Robert and Audrey Hoffman.' Robert is now deceased and his estate is insolvent. The sole assets available for distribution are the proceeds of the checks, and the question before us is the priority of the respective claims to the money made by Robert's former wife Audry Hoffman; his accountant Philip B. Brooks; and Robert's estate.

Robert and Audrey Hoffman were married on February 4, 1954. Audrey was granted a judgment nisi in an action for divorce on October 13, 1965. The judgment granted Audrey custody of the three children of the marriage and, in lieu of alimony and child support, incorporated a separation agreement entered into between Audrey and Robert on June 21, 1965.

The agreement provided that Robert would pay $85 per week for Audrey's support, and $125 per week for the support of the children. The payments to Audrey would cease upon the death of either Robert or Audrey or upon her remarriage; the payments for each child would cease upon attaining the age of twenty-one or upon emancipation. The agreement further provided that Robert would maintain at least $25,000 in life insurance coverage on his life for each of the three children.

Audrey agreed to rear the children and provide for all other of their expenses not expressly required to be paid by Robert. She also promised to convey all rights to the family home upon Robert's payment to her of $5,000.

[304 A.2d 723] Paragraph 17 of the agreement concerned the filing of joint income tax returns for the years of their marriage:

'Within 5 days after so requested by the husband, the wife shall furnish the husband with all necessary and pertinent information as to her income, expenses and taxable gains and losses for income tax purposes and will sign any joint Federal or state income tax returns and other necessary documents, provided they are not false or fraudulent, for any year or years, including those for the year 1964, during which they shall have been husband and wife. If the wife fails or refuses to do so, all provisions herein for her support and maintenance shall forthwith be of no force and effect. All liabilities on joint income tax returns heretofore and hereafter filed jointly by the parties shall be borne by the husband, who will indemnify and hold the wife harmless from any claim or expense arising out of any such returns, except that the wife shall be liable for taxes on dividends and interest received by her in excess of $500. per year and for taxes on all income earned by her, which taxes shall be computed as if such dividends, interest and income were her only income and she were single. All audits, examinations, suits or other proceedings in connection with those returns shall be handled, at his own cost and expense, by the husband and by the counsel or the accountant selected by him, but, at the request of the husband, the wife shall participate therein and execute papers to the extent reasonably required by such counsel or such accountant. All refunds recovered with respect to those returns shall belong entirely to the husband, except as to the wife's separate income, and the wife will promptly sign or endorse any receipts, vouchers or refund checks required to effect the collection of such refunds by the husband.'

Paragraph 20 of the agreement provided:

'The waiver of any individual clause in the within agreement or the failure on the part of either party to insist upon the strict performance of any particular clause or obligation shall not be considered a waiver of the remainder of the said agreement, but the balance of the agreement shall continue in full force and effect.'

On February 9, 1967, Audrey filed a motion in the Chancery Division of the Superior Court to hold Robert in contempt of the 1965 divorce decree. She claimed arrearages for her support and the support of her children of $1,050 as of January 28, 1967; she also demanded proof of the existence of the life insurance policies for the benefit of the children and a full account of Robert's financial affairs. On March 30, 1967, Audrey filed another motion for a contempt order, alleging that the arrearages had then reached $2,940. The Chancery Division adjourned both motions without date, noting that defendant apparently was without funds and confined to a hospital for psychiatric care. However, the court directed the attorneys for the parties to confer about Robert's financial situation. Apparently nothing resulted from this conference, since a subsequent application was filed by Audrey on April 26, 1968, in which she sought to fix her arrearages at $6,007, and asked for permission to serve interrogatories directed to Robert's financial affairs. In an order filed August 30, 1968, the court denied Audrey's motion to fix the arrearages and hold Robert in contempt, but granted her leave to serve interrogatories.

Robert Hoffman died on September 30, 1968. After his death, the successor trustee of the Robert Hoffman Chevrolet Employees Profit Sharing and Retirement Plan, a judgment creditor of the decedent, brought an action in the Chancery Division in which the trustee sought a determination of the rights to the proceeds of two federal income tax refund checks. The checks--one for $2,442.85 received June 13, 1967, and one for $28,842.04 received September 30, 1968--are both payable to 'Robert and Audrey Hoffman,' and were issued as a result of the filing of amended joint tax returns for the years 1964 and 1965. The returns were prepared and filed by Philip Brooks, the accountant for Robert Hoffman. The trustee asked that the checks, which were in the possession of Brooks, be turned over to the court pending further proceedings. The checks had been mailed directly to Brooks, but Audrey refused to endorse the first check and Robert died at about the time of the delivery of the second.

Subsequently, on September 9, 1969, the Chancery Division ordered that Robert's last will and testament be admitted to probate and that letters testamentary be issued to Gene Hoffman, the decedent's brother, as executor of the estate. The court also directed that the tax refund checks be surrendered to the executor; that the checks be endorsed by the executor and Audrey; and that the proceeds of the checks be deposited in a trust account pending determination by the court of the claims to the money. No further proceedings were taken in the Chancery Division.

On November 11, 1970, the executor filed a complaint in the Probate Division of the Essex County Court asking that the estate of Robert Hoffman be declared insolvent. According to the account of the estate filed by the executor, the only assets available were $31,284.89, the amount of the two federal income tax refund checks. Total claims against the estate were well in excess of the proceeds of the checks. Among the claims were a balance due of $16,177.43 on a judgment entered July 14, 1967, in favor of the Bank of Passaic and Clifton, and the judgment in the amount of $68,185.81, entered July 22, 1968, in favor of the trustee of the Robert Hoffman Chevrolet Employees Profit Sharing and Retirement Plan.

The court ordered that the proceeds of the checks be distributed according to N.J.S.A. 3A:24--2. ¹ The court thus directed that the proceeds be used for payment of the funeral expenses, the administration expenses, and the claim of the Passaic and Clifton Bank, with any remaining funds to go in partial payment of the judgment of the trustee of the Robert Hoffman Chevrolet Employees Profit Sharing and Retirement Plan. The court determined that since neither Audrey Hoffman nor Philip Brooks had reduced their claims to money judgments, they were general creditors subordinate to the claims of the judgment creditors.

Audrey Hoffman appealed to the Appellate Division, and Philip Brooks cross-appealed. In an unreported opinion the Appellate Division affirmed substantially for the reasons expressed by the County Court, and we granted certification on the petition of Audrey Hoffman and the cross-petition of Philip Brooks. 62 N.J. 202, 299 A.2d 736 (1973).

We deal first with the claim of Philip Brooks. He seeks to collect from the proceeds a fee of $2,275 for his preparation of the revised income tax returns. No one disputes the reasonableness of the amount of the fee. According to the affidavit filed by Brooks, sometime in 1966 Robert Hoffman told Brooks that he had been borrowing funds at high interest rates and had been speculating in the stock and commodities markets in the years 1964 and 1965. Brooks then informed Hoffman that income tax refunds might be obtained for 1964 and 1965 if amended returns were filed in which the interest payments were taken as deductions and the investment losses in the stock and commodity markets were claimed. At the time of this discussion Hoffman was without funds. He asked Brooks to prepare and file amended tax returns and promised to pay Brooks for his services out of the money that would be recovered, if any, in tax refunds. Brooks states that he agreed to do the work ...