Sobol v. Sobol

• Decision Date: 25 January 2022
• Docket Number: Record No. 0459-21-4
• Citation: 867 S.E.2d 774,74 Va.App. 252
• Parties: Horacio Eugenio SOBOL v. Christine Marie SOBOL
• Court: Virginia Court of Appeals

74 Va.App. 252

867 S.E.2d 774

Horacio Eugenio SOBOL

v.Christine Marie SOBOL

Record No. 0459-21-4

Court of Appeals of Virginia.

JANUARY 25, 2022

Christopher Malinowski, Fairfax, (Melanie Hubbard, Fairfax; Jenni S. Tynes, Reston; Malinowski Hubbard, PLLC, on briefs), for appellant.

David L. Ginsberg, Fairfax, (Sarah L.W. Peritz; Cooper Ginsberg Gray, PLLC, on brief), for appellee.

Present: Judges Beales, O'Brien and Russell

OPINION BY JUDGE WESLEY G. RUSSELL, JR.

Horacio Eugenio Sobol (husband) and Christine Marie Sobol (wife) were divorced by a final decree that, in addition to granting the parties a divorce, provided for the equitable distribution of their property. On appeal, husband challenges the trial court's valuation and distribution of certain assets, its order requiring him to designate wife as a beneficiary of a life insurance policy, and its award of attorney fees to wife. For the reasons that follow, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

BACKGROUND¹

The parties were married in August 1998 and separated approximately twenty years later, on July 1, 2018. Three children were born of the marriage.

Wife had earned a bachelor's degree in business administration and was completing her master's degree in international business when she married husband. Wife worked full-time for most of the first half of the marriage; she took breaks after giving birth to her first two children and ultimately ceased full-time employment in 2009, when she was pregnant with the third child. She worked as a part-time consultant until 2014. During the marriage, wife inherited a substantial sum from her brother's estate.

Husband was employed throughout the marriage as a CPA with PriceWaterhouseCoopers (PWC), where he had started working in 1992. In the years leading up to and after the parties’ separation, husband was reporting annual income averaging around $1 million. The parties maintained an affluent lifestyle; they were able to fund several investment accounts and to afford private schooling for their children and were able to enjoy vacations, concerts, and other entertainment events. Husband's earnings subjected him to a high rate of taxation: at trial, he testified that he paid a combined state and federal rate of approximately fifty percent.

Husband became a partner at PWC in 2006. His ownership interest encompassed a deposit capital account and an accrual capital account. He financed the purchase of his ownership interest with the assistance of a loan from the firm, and thus, his ownership interest was subject to the outstanding balance that remained on that loan. As of the separation, there was $231,100 in the deposit capital account, $133,181 in the accrual capital account, and a loan balance of $72,214; but as of the evidentiary hearing, the accrual capital account had increased to $275,699 and the loan balance had been reduced to around $55,000. Husband does not presently have access to the accrual capital account; he will gain access when he retires. He will have to pay taxes on the amount he receives at that time.

As a partner, husband had his earnings deposited in a "partner deposit program account" established by the firm (PDP account). The account consisted of partnership distributions and interest of five percent on the funds held therein. At the date of separation, $630,336 was in the account. After separation, money continued to be deposited into the account, most notably a deposit of $346,556 made on October 1, 2018. At one point, the account contained over $1 million. As of the date of the evidentiary hearing, however, only $116,372 remained in the account. Post-separation, husband transferred funds from the account and used those funds for various purposes. He testified that, among other things, he used the transferred funds to pay the mortgage on the marital home, various taxes, the parties’ life insurance premiums and legal fees, and tuition and other expenses related to the children.

Husband's employment also entitled him to participate in the PWC Partner Retirement Plan (pension), which is designed to provide him continued income after retirement. The firm requires husband to retire at age sixty, but he and wife had discussions with their financial advisor about the possibility of him retiring at fifty-five. Provided the firm has sufficient assets at the time, the pension will afford husband an annuity upon his retirement. It is otherwise an "unfunded" and "unqualified" plan that is not guaranteed and is not subject to division pursuant to a qualified domestic relations order.

Among the assets the parties acquired during the marriage were life insurance policies. Wife had a policy with Northwestern Mutual, with a cash value of $197,540, while husband maintained a policy with MassMutual, which had a $327,494 cash value and $1 million death benefit. Husband also obtained a MetLife policy through PWC that had a $4 million death benefit. The Sobol Living Trust was the named beneficiary of each of the policies.

After separation, the parties entered into a collaboration participation agreement. The parties retained counsel to assist them in an effort "to settl[e] the issues arising from the dissolution of their marriage ... without adversarial court intervention." The agreement called for "[p]reservation of the [s]tatus [q]uo" whereby the parties agreed not to

sell, transfer, borrow against, ... remove, or in any way dispose of any property ... whether or not marital, ... without the written consent of the other, except in the usual course of business consistent with past practice or for payment of ... household expenses [or other] reasonable expenses consistent with the past practice of the family or for reasonable professional fees in connection with the Collaborative Process.

After commencing the divorce proceedings, wife filed a motion for an alternate valuation date for the PDP account. Based on the withdrawals husband had made post-separation, wife requested that the account "be valued prior to [h]usband's expenditure, withdrawal, or other transfer." She argued that "[t]he only way to achieve an equitable valuation and division of assets is to reconstitute the value of [PDP account] assets to include the amount of any and all funds withdrawn and/or expended by [husband]." Husband did not request an alternate valuation date for any of the PWC affiliated accounts to include those associated with his ownership interest.

A four-day trial was held in August 2020. The parties had resolved many matters prior to trial, but as pertinent to this appeal, issues related to husband's PWC ownership interest, his PDP account and pension, life insurance, and attorney fees remained in dispute. The trial court heard from the parties, their financial advisors, vocational rehabilitation experts, and a forensic accountant, and it received numerous documents related to the parties’ financial circumstances.

Wife called Salvatore Ambrosino, an expert in forensic accounting and business asset valuation, to testify to the value of husband's ownership interest in PWC. He explained that the value was "equal to his capital account at June 30, 2020 based on the most recent information ... provided[, which were the] capital balances and the capital outstanding loan balance as of 10/31/2019." Ambrosino determined that, in the "deposit capital account there was a balance of $231,100[,² i]n his accrual capital account, there was [a] balance of $275,699 and offsetting that amount was an outstanding loan of $54,814, leaving a net amount of $451,985."

Ambrosino more specifically described the accrual capital account as "the untaxed balances of ... essentially [husband's] income earned with the firm, less amounts attributed to him, the difference between his accrual basis income and his cash basis income based on the firm's accounting as of June 30, 2020." He further explained that "accrual income is income on an accrual basis[,]" essentially meaning "income that has been earned but has not yet collected[, while c]ash income would be actual cash receipts and disbursements[, which] ... in this instance is the income that has been reported to him and for which he is charged – is taxable income."

During his testimony, husband confirmed the value of the deposit capital account. He recounted a loan balance of $72,214 at separation and reported that an automatic withdrawal of approximately $1,100 per month was continuing to be paid towards the loan from his post-separation earnings. In contrast to Ambrosino, husband valued the accrual capital account at $133,181, the amount it held as of the date of separation, even though he had not requested an alternate valuation date. He also testified that he would be taxed on funds in the accrual capital account when he received them upon leaving the firm. Assuming a base individual tax rate of 39.6% then adjusted to 40.1, a self-employment tax, and a "high income Medicare tax," husband estimated a total tax rate of 50.1%. By then multiplying 49.9% and $133,181, husband calculated the accrual capital account to be worth $66,457. He then calculated the total value of the "marital portion" of his PWC ownership interest to be $225,343.

Ambrosino also was questioned about husband's PDP account. He stated that the post-separation deposit of $346,555.78 was a PWC payroll deposit that constituted a "prior year final distribution." He opined that, although husband received the amount on October 1, 2018, "he earned it all as of June 30, 2018." Ambrosino also attempted to trace withdrawals from the account; he noted that the majority were transfers to the parties’ joint or husband's Bank of America account. Explaining that "this is a cash account so the funds once in there, ... they're commingled," he also reported that "there were [a] limited number of withdrawals that we were not able to trace to either of those accounts[;]" he relayed that "$39,055 went out...