J.M.B. v. K.R.B.

• Decision Date: 13 September 2012
• Citation: 38 Misc.3d 677,2012 N.Y. Slip Op. 22332,954 N.Y.S.2d 741
• Parties: J.M.B., Plaintiff, v. K.R.B. a/k/a K.E.B., Defendant.
• Court: New York Supreme Court

38 Misc.3d 677
954 N.Y.S.2d 741
2012 N.Y. Slip Op. 22332

J.M.B., Plaintiff,
v.
K.R.B. a/k/a K.E.B., Defendant.

Supreme Court, Monroe County, New York.

Sept. 13, 2012.

[954 N.Y.S.2d 742]

Charles Inclima, Esq., Rochester, for Plaintiff.

Sanford R. Shapiro, Esq., Rochester, for Defendant.

RICHARD A. DOLLINGER, J.
INTRODUCTION

Valuing a complicated small business, and a husband's stock holdings in that business, is a difficult task for an accountant.¹ Deciding when it should be valued for purposes of equitable distribution under the Domestic Relations Law is no less daunting a task for a Court. Mindful of the complexities inherent in the task, the Court now considers the choices—a date four months before the commencement of the divorce action, the actual date of commencement, the date of trial or some date in between.

In this case, the business which is the subject of the valuation claim is based in Monroe County and employs more than 350 people. The husband/plaintiff is the chair of the board of directors, the chief executive officer and a significant shareholder. The business valuation will be conducted by an expert valuation firm and is anticipated to cost more than $20,000. There has been extensive debate over the terms of a confidentiality agreement to be executed to permit an independent evaluator to conduct the valuation on behalf of the wife. The action for a divorce was filed by the husband on April 12, 2011. Neither the complaint nor the answer makes any mention of the dates for the valuation of the husband's stock. It is also undisputed that throughout the course of this action to date, the parties have generally agreed that the remaining assets, other than the stock held by the husband, would be valued on the date of commencement.

When the parties could not agree on a “valuation date” for the husband's interest in the corporation, the wife moved to set the date for valuation as June 30, 2012—14 months after the date of commencement. The wife argues that the substantial delays, already extant in this complicated case involving major assets, argue in favor of the later valuation date. The wife argues

[954 N.Y.S.2d 743]

that the business files tax returns in five states, an indication of its complex geographic reach and some shares in the corporation are held by a South Dakota trust. The wife also argues that, after the date of commencement, the business acquired new product lines from a West Virginia company in early 2011 and in 2012 acquired substantially all the assets of a local manufacturing concern. She argues that to set a “valuation date that omits acquisitions of this sort will create a gerrymandered valuation that will surely belie the company's true financial vitality and direction.” The wife also argues that her husband, as the chief operating officer and a 28.2 per cent shareholder, “has had significant control over decisions affecting the valuation of the company.” Finally, the wife suggests that the Court should refrain from an “active-passive” analysis of the valuation date because to do so “would reward the post-commencement efforts of the plaintiff” when, in fact, his ample salary has already compensated him for those efforts.²

It is noteworthy that the wife does not seek a true “date of trial” valuation: she seeks a June 30, 2012 date, a date which has already passed. Furthermore, given the fact that the valuation, which could take months, has not even begun, it is easily foreseeable that the actual trial date will not occur until June 30, 2013, a year after the wife's selected date.

In contrast, the husband does not ask for a date of commencement valuation. Instead, he seeks a date four months earlier. He argues that the date for valuation should be December 31, 2010, a date that his counsel describes as the “date closest to the date of commencement and date when there would be the most recent tax returns for entities involved.” In the attorney's affidavit before the Court, he argues that the December 30, 2010 date is “sufficiently close to [the commencement date] to provide an accurate financial overview of the business entities.”

Domestic Relations Law § 236(B)(4)(b) provides:

As soon as practicable after a matrimonial action has been commenced, the court shall set the date or dates the parties shall use for valuation of each asset. The valuation date or dates may be anytime from the date of the commencement of the action to the date of trial.

NY DOM. REL. LAW § 236(B)(4)(b). In this case, each party seeking an interest in the business, has the burden of establishing its value and the appropriate valuation date. LaBarre v. LaBarre, 251 A.D.2d 1008, 674 N.Y.S.2d 235 (4th Dept.1998); Antoian v. Antoian, 215 A.D.2d 421, 422, 626 N.Y.S.2d 535 (2nd Dept.1995).

In applying the language of the statute, this Court is required to take one of the proffered options off the table: the husband's offered date of the end of the fiscal year prior to the date of commencement. The statute does not permit the use of this earlier date. The Court can find no support for use of this date in any case law and, while the Court has ample discretion, it can not be stretched outside the boundaries of the statute. The use of the husband's offered date would obviate the wife's claim to any increase in value during the first fourth months of the fiscal year when she was still married and violate the principles of equitable distribution.

With one option excluded by law, the Court notes that while marital property

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is generally valued at the time an action is commenced, Supreme Court is vested with broad discretion to set a valuation date anytime between the date of commencement and the date of trial. Mesholam v. Mesholam, 11 N.Y.3d 24, 862 N.Y.S.2d 453, 892 N.E.2d 846 (2008); Fehring v. Fehring, 58 A.D.3d 1061, 1063, 874 N.Y.S.2d 266 (3rd Dept.2009). In exercising that discretion, this Court is struck by the Court of Appeals repeated guidance that the date of commencement for valuation purposes provides clarity for trial judges and litigants. In Anglin v. Anglin, 80 N.Y.2d 553, 592 N.Y.S.2d 630, 607 N.E.2d 777 (1992), the Court noted that the economic partnership should be considered dissolved when a matrimonial action is commenced because this firm date provides internal consistency and compatibility and objective verification, as opposed to uneven, ephemeral, personal interpretations as to when economic marital partnerships end. The Court, cited Anglin v. Anglin, and repeated its advice later in Mesholam v. Mesholam, 11 N.Y.3d 24, 862 N.Y.S.2d 453, 892 N.E.2d 846 (2008), adding that the commencement date of a matrimonial action demarcates “the termination point for the further accrual of marital property.” 11 N.Y.3d at 28, 862 N.Y.S.2d 453, 892 N.E.2d 846. A close reading of cases in the wake of Anglin and Mesholam reflects a continued judicial preference for a “date of commencement” valuation. See e.g., Rich–Wolfe v. Wolfe, 83 A.D.3d 1359, 922 N.Y.S.2d 593 (3rd Dept.2011) (it was error for Supreme Court to have valued several construction and demolition businesses, formed over the course of the parties' long marriage, as of the date of trial rather than the date of the commencement of the action); Fox v. Fox, 309 A.D.2d 1056, 1058, 765 N.Y.S.2d 906 (3rd Dept.2003) (date of commencement for valuation for law practice).

Despite the apparent preference of the Court of Appeals, the courts, as both counsel acknowledge, have pawed over the definitions of “active” and “passive” assets for some further guidance in charting valuation dates. Under this judicial construction, the fact that a business—or at least certain types of businesses—constitute “active” assets weigh in favor of valuing them as of the date of commencement. Grunfeld v. Grunfeld, 94 N.Y.2d 696, 707–708, 709 N.Y.S.2d 486, 731 N.E.2d 142 (2000); Fox v. Fox, 309 A.D.2d 1056, 1058, 765 N.Y.S.2d 906 (3rd Dept.2003). While the courts since Grunfeld have repeatedly characterized these assets as “active” or “passive”—the former being presumed to be valued as of the date of the commencement and the latter as of the date of trial—such characterizations should be used as helpful guideposts and not “immutable rules of law”. See also McSparron v. McSparron, 87 N.Y.2d 275, 287–288, 639 N.Y.S.2d 265, 662 N.E.2d 745Ferraioli v. Ferraioli, 295 A.D.2d 268, 270, 744 N.Y.S.2d 34 (1st Dept.2002); Wechsler v. Wechsler, 58 A.D.3d 62, 866 N.Y.S.2d 120 (1st Dept.2008); Smith v. Smith, 14 Misc.3d 1238(A), 2007 WL 677795 (Sup. Ct. Westchester Cty 2007) (it is well established “that there can be no strict rule mandating the use of a particular valuation date [for the date of valuation of a marital asset] and ... a trial court must have the discretion to select a date appropriate to the case before it in light of the particular circumstances presented.” Wegman v. Wegman, 123 A.D.2d 220, 234, 509 N.Y.S.2d 342 [2nd Dept.1986] ).

In considering this preference for a “date of commencement” valuation date, this Court notes that other courts, in selecting date of trial valuation dates, have suggested that if an asset increases—or decreases—in valuation between the date of commencement and the date of trial, the choice among competing dates for valuation

[954 N.Y.S.2d 745]

should be resolved by analyzing whether either party had a “sole” role in increasing or reducing the value. Anonymous v. Anonymous, 2006 N.Y. Misc. LEXIS 3727 (Sup. Ct. Nassau Cty.2006) (examination of law practice valuation if loss of value was beyond the owner spouse's control). However, in most of the cited cases, the “sole control” exerted by one spouse involved majority shareholders in small corporation or general partners in law practices. Fox v. Fox, 309 A.D.2d 1056, 765 N.Y.S.2d 906 (3rd Dept.2003) (valuation of general partnership interest in law practice); Basile v. Basile, 199 A.D.2d 649, 605 N.Y.S.2d 133 (3rd Dept.1993) (proper for court to value husband's professional corporation 11...