In re Romano

• Decision Date: 26 April 2012
• Docket Number: 2–10–0100.,Nos. 2–09–1339,s. 2–09–1339
• Citation: 968 N.E.2d 115,360 Ill.Dec. 36,2012 IL App (2d) 091339
• Parties: In re MARRIAGE OF Daniel ROMANO, Petitioner–Appellee and Cross–Appellant, and Cynthia Romano, Respondent–Appellant and Cross–Appellee.
• Court: United States Appellate Court of Illinois

2012 IL App (2d) 091339

968 N.E.2d 115

360 Ill.Dec. 36

In re MARRIAGE OF Daniel ROMANO, Petitioner–Appellee and Cross–Appellant, and Cynthia Romano, Respondent–Appellant and Cross–Appellee.

Nos. 2–09–1339, 2–10–0100.

Appellate Court of Illinois, Second District.

March 21, 2012.

Rehearing Denied April 26, 2012.

Paul J. Bargiel, Paul J. Bargiel, P.C., Chicago, for appellant.

Barry A. Schatz, of Berger Schatz, Chicago, for appellee.

OPINION

Justice HUDSON delivered the judgment of the court, with opinion.

[360 Ill.Dec. 40]¶ 1 Respondent, Cynthia Romano, appeals from the judgment of the circuit court of Du Page County dissolving her marriage to petitioner, Daniel Romano. Daniel has cross-appealed from the same judgment. Cynthia argues: (1) the trial court misclassified assets used to fund three trusts established by Daniel; (2) the trial court erred in classifying as nonmarital Daniel's interests in two limited liability companies; (3) the trial court failed to consider $6,429,000 in “missing funds” in its judgment; (4) the trial court's ruling with respect to dissipation is against the manifest weight of the evidence; and (5) the trial court erred in rejecting her claim that the transfer of certain assets into the trusts established by Daniel, as well as the subsequent transfer of the assets out of the trusts, constituted a fraud on Cynthia's marital rights. Daniel contends: (1) the trial court's division of marital assets was inequitable; (2) the trial court improperly substituted a maintenance award for a child-support award; (3) the trial court's maintenance award was improper; and (4) the trial court erred by failing to account for the predistribution of marital assets to Cynthia for attorney fees. We affirm in part, vacate in part, and remand.

¶ 2 I. BACKGROUND

¶ 3 A substantial amount of evidence was presented to the trial court in this contentious dissolution action. Accordingly, we initially set forth only information sufficient to frame the issues raised by the parties in their appeals. Additional relevant facts will be presented in the analysis of the issues to which they pertain.

¶ 4 Daniel and Cynthia were married on June 12, 1987. Daniel filed a petition for dissolution of marriage on May 23, 2006.¹ Cynthia filed a counterpetition for dissolution of marriage on June 26, 2006. On October 16, 2007, Cynthia filed a “Notice of Claim of Dissipations.” A trial in the matter commenced on September 18, 2008, at which the following was adduced.

¶ 5 Daniel is the oldest of seven children born to Donald J. Romano, Sr. (Buddy), and Florence Marie Romano. During the trial, one of the principal areas of contention involved Daniel's interests in the following companies: (1) Romano Brothers Beverage Company (RBBC); (2) Paramount Distributing Company (Paramount); (3) Central Wholesale Company (Central); (4) Mueller Distributing Company (Mueller); (5) M & D Investments, LLC (M & D); and (6) Power Distributing, LLC (Power). Other members of the Romano family also held interests in these companies. Complicating the ownership structure of the companies was the fact that, beginning in 2001, the Romano family began to implement an estate plan that ultimately involved transferring the family's interests in these entities into and out of various trusts. To this end, Daniel established three irrevocable grantor trusts on October 29, 2001. Daniel's trusts were denominated as follows: (1) the Daniel M. Romano Gift Trust (DMR Gift Trust); (2) the Daniel M. Romano MP Annuity Trust (MP Trust); and (3) the Daniel M. Romano SP Annuity Trust (SP Trust) (collectively, the DMR trusts). Buddy was the trustee of all three DMR trusts.

¶ 6 During the majority of the marriage, Daniel worked at RBBC, a family-owned liquor-distribution company. The predecessor to RBBC, Morand Brothers Beverage Company, was originally owned in part by Daniel's grandfather and later was fully acquired by Daniel's uncle, Michael J. Romano II (Michael II), and Buddy. Between 1989 and 2000, Daniel acquired 59 shares of RBBC stock from Buddy and 12 shares of RBBC stock from his siblings.

¶ 7 Between September 1987 and May 1994, Paramount, Mueller, and Central (collectively, the Affiliates) were acquired. Immediately following the acquisitions, Daniel held a 50% interest in each Affiliate. The remaining 50% interest in each Affiliate was held by Michael II's oldest son, Michael J. Romano III (Michael III).

¶ 8 Just prior to Michael II's death in 1998, he and Buddy formed M & D, a holding company for a 50% share of the profits of Olinger, a liquor-distribution company located in Indiana.² Michael III eventually came to own 50% of the shares of M & D, while Buddy owned the other half. Subsequently, Buddy transferred his entire interest in M & D to his four sons (Daniel, Michael D. Romano (Michael D.), Donald J. Romano, Jr. (DJ), and Victor Romano (Victor)) in equal shares. Thus, following the transfer, Daniel, Michael D., DJ, and Victor each owned a 12.5% interest in M & D, while Michael III owned the remaining 50%.

¶ 9 In 2000, Buddy and Michael III formed Power, a distributor of Red Bull energy drink. Michael III owned 50% of the shares of Power, and Buddy owned the other 50%. In 2000, Buddy transferred his entire interest in Power to his four sons in equal shares. Thus, following the transfer, Daniel, Michael D., DJ, and Victor each held a 12.5% interest in Power, while Michael III retained 50%.

¶ 10 Buddy testified that in or about 2001, Michael III expressed a desire to leave the family businesses and sell his interests therein. Although Buddy originally opposed any divestiture, he eventually agreed to sell RBBC and the Affiliates contingent upon three conditions. First, Buddy wanted to more fairly distribute among his seven children any cash proceeds generated from the sale of the businesses. Second, Buddy wanted to equalize among the children ownership of any business interests that remained in the family's possession. Third, Buddy wanted to fund the college expenses of his 31 grandchildren. Buddy hired attorney Michael Hartz to create an estate plan that would be consistent with these goals and would protect from taxation the proceeds of any sale of the family businesses. Buddy also hired Thomas Fee, a financial advisor, to assist in implementing and administering the estate plan devised by Hartz. Members of the Romano family met with Hartz and Fee in the fall of 2001. At that time, Hartz advised that Daniel be the “catalyst” of the plan to redistribute wealth among the other family members, because Daniel owned a disproportionate share of the family businesses. As noted above, implementation of the estate plan involved Daniel establishing the DMR trusts.

¶ 11 In October 2001, after the DMR trusts were established, Daniel sold his 71 shares of RBBC stock to the DMR Gift Trust and in exchange received a promissory note from the trust, with interest, for approximately $4.2 million. In addition, Daniel sold his 50% interest in Paramount to the SP Trust and his 50% interests in Central and Mueller to the MP Trust. According to Hartz, the MP Trust and the SP Trust were established as grantor-retained annuity trusts (GRATs). As a result, in exchange for the transfer of his interests in the Affiliates to them, Daniel received a commitment from both the MP Trust and the SP Trust to make annuity payments on the first and second anniversaries of the trusts. Hartz explained that the value of each annuity “is equal to the value of the assets [that are] conveyed into the trust at the time that the trust is initially funded” plus interest. Hartz also created various trusts, including “gift trusts” and GRATs, for Buddy, Michael D., and DJ. Further, Buddy, Michael D., and DJ transferred their business interests to their trusts at the same time as Daniel, and they received similar commitments from their trusts in exchange.

¶ 12 In July 2002, Southern Wine and Spirits, Inc. (SWSI), a liquor-distribution company located in Miami, Florida, purchased the assets of RBBC and the Affiliates for a cash price of $151,012,000. As a result of holdbacks, the Romanos did not receive the entire purchase price. Daniel testified that the breakdown of the purchase price was: $84,075,356 for RBBC; $16,811,298 for Central; $17,636,090 for Mueller; and $26,681,360 for Paramount. Relevant here, the DMR Gift Trust's share of the proceeds of the sale of its interest in RBBC was $6,867,683. Following SWSI's purchase of RBBC and the Affiliates, Daniel began working for SWSI pursuant to a 10–year employment contract. Daniel's base salary at SWSI was $550,000. In addition, Daniel was entitled to an incentive bonus of up to $350,000 per year, which was dependent upon the company's budget, and a discretionary bonus not to exceed $100,000.

¶ 13 Also in July 2002, Michael III's interests in M & D and Power were redeemed. The redemption price was $10 million, of which $ 8.5 million was attributable to M & D and $1.5 million was attributable to Power. Hartz testified that the funding source for the redemption was RBBC. He explained that the owners of RBBC at the time of the redemption were the DMR Gift Trust and gift trusts established by Buddy, Michael D., and DJ. Thus, when RBBC was sold to SWSI, the Romanos decided to use funds from the sale to redeem Michael III's interests in M & D and Power. Therefore, in July 2002, Michael III received cash in exchange for the value of his shares in the companies, and redemption agreements dated July 2002 were executed.

¶ 14 Meanwhile, in October 2002, Daniel, Michael D., and DJ sold their 12.5% interests in M & D and Power to their respective gift trusts. Victor retained his interest individually. The gift trusts executed contribution agreements dated October 1, 2002, to allocate financial responsibility for the $10 million redemption of Michael III's shares in July 2002, which had been accomplished using their collective funds from the RBBC sale...