Steneken v. Steneken

• Decision Date: 18 May 2005
• Citation: 183 N.J. 290,873 A.2d 501
• Parties: Marilyn A. STENEKEN, Plaintiff-Respondent, v. Gary L. STENEKEN, Defendant-Appellant.
• Court: New Jersey Supreme Court

873 A.2d 501

183 N.J. 290

Marilyn A. STENEKEN, Plaintiff-Respondent, v. Gary L. STENEKEN, Defendant-Appellant.

Supreme Court of New Jersey.

Argued November 9, 2004.

Decided May 18, 2005.

Todd M. Sahner, Roseland, argued the cause for appellant (Marcus, Brody, Kessler, Sahner & Weinstein, attorneys).

Bonnie C. Frost, Denville, argued the cause for respondent (Einhorn, Harris, Ascher, Barbarito, Frost & Ironson, attorneys).

Justice RIVERA-SOTO, delivered the opinion of the Court.

This appeal requires that we address whether, in setting an award of alimony and in establishing equitable distribution in respect of a closely-held corporation, the trial court must use the same income determination. As differently posed by defendant, the question is whether it is impermissible "double counting" to use actual income for alimony purposes but a lower "normalized" income amount when valuing a closely-held business for equitable distribution purposes.

We hold that a trial court's determination of the interplay between an alimony award and equitable distribution is subject to an overarching concept of fairness, bearing in mind the interrelated yet separate purposes of alimony versus equitable distribution. In specific, we hold that, for purposes of computing the proper alimony award, actual income of the paying spouse is the lodestar for determining the extent of that party's alimony obligation. We further hold that, for the purpose of valuing a closely-held corporation in determining the proper equitable distribution thereof, proper valuation techniques, which may include the normalization of excess salary expenses, are to be applied.

I.

Plaintiff Marilyn Steneken and defendant Gary Steneken were married on August 22, 1971. They had three children and, after more than twenty-four years of marriage, the Stenekens separated. Eighteen months later, on April 14, 1997, both parties filed separate formal complaints for divorce. The parties were able to resolve most of their differences except that they disagreed in respect of the interplay between the amount of alimony and the equitable distribution of Esco Corporation (Esco), the largest marital asset subject to equitable distribution. The parties' dispute over that interplay has now generated more than seven years of litigation.

Defendant was the sole shareholder and operator of Esco, a company he acquired and built over the course of the marriage, and which allowed plaintiff and defendant to enjoy their marital lifestyle. For the five years leading up to the filing of the complaint for divorce, defendant's gross salary from Esco was as follows:

Year Salary 1996 $207,797 1995 $188,975 1994 $131,760 1993 $122,506 1992 $125,961

In addition, defendant received "perks" from Esco varying in amount from $16,000 to $27,000 a year.

When valuing Esco, the trial court accepted the valuation of defendant's expert, who opined that, in determining his own salary, defendant had paid himself more than the market value of his services to Esco and that the reasonable value of his services to the company was, as of 1996, $150,000 a year. As a result, defendant's expert valued Esco as if the salary paid to defendant had been the lower $150,000 a year figure, thereby increasing the overall value of Esco. However, when determining the proper amount of alimony, the trial court similarly imputed to defendant the "normalized" salary used by the valuation expert in valuing Esco and not defendant's actual salary. On that basis, the trial court awarded plaintiff alimony in the amount of $4,000 per month.

Plaintiff appealed both the amount of alimony and the equitable distribution awarded to her. The Appellate Division corrected a mathematical error and affirmed the trial court's valuation of Esco for equitable distribution purposes, but reversed and remanded the trial court's alimony award. According to the Appellate Division, the trial court improperly used defendant's "normalized" $150,000 a year income instead of defendant's actual income when computing the amount of alimony due plaintiff; however, the matter was remanded to the trial court because, in an unpublished decision, the Appellate Division concluded:

We cannot conduct a meaningful appellate review of the alimony conclusion in the absence of sufficient findings of fact and conclusions of law, since we are unable to reconcile or determine an adequate basis for the conclusion as to defendant's income, nor determine the basis for the ultimate conclusion of plaintiff's entitlement to alimony in the amount of $48,000.

[Steneken v. Steneken, A-3882-99T5 (App.Div. Apr. 10, 2002) (slip op. at 26-27).]

On remand, the trial court determined that it "was apparently in error in utilizing [the $150,000 a year normalized income figure for defendant] when it came time to make a determination as to how much alimony if any plaintiff was entitled to receive." After applying the criteria set forth in N.J.S.A. 2A:34-23b,¹ and considering the income plaintiff was then receiving in her recently renewed career as a school teacher, the trial court awarded plaintiff alimony in the amount of $5,500 per month, an increase of $1,500 per month from the trial court's earlier alimony award.

It was then defendant's turn to appeal. Before the Appellate Division, and again before this Court, defendant claimed that the trial court's use of different income figures for alimony and equitable distribution purposes constituted impermissible "double counting." According to defendant, the Appellate Division accurately framed the issue as

whether it is impermissible "double counting" to value defendant's business based on his reasonable, rather than actual, compensation and then to calculate alimony based on the same excess salary that was added back to business income, thus increasing the value of the corporate asset for which plaintiff already received her share in equitable distribution.

[Steneken v. Steneken, 367 N.J.Super. 427, 430, 843 A.2d 344 (App.Div.2004).]

In the Appellate Division's view, the last paragraph of N.J.S.A. 2A:34-23b sets forth the full extent of New Jersey's prohibition on "double counting" assets for alimony versus equitable distribution purposes:

When a share of a retirement benefit is treated as an asset for purposes of equitable distribution, the court shall not consider income generated thereafter by that share for purposes of determining alimony.

Thus, the Appellate Division reasoned:

In New Jersey, the bar against double counting of pensions is restricted to income from pension benefits that have been treated as an asset for equitable distribution purposes. Conversely, the rule does not bar counting as income for determining alimony that portion of the former spouse's pension attributable to post-divorce employment, and therefore not subject to division as marital property at time of divorce. In other words, a supporting spouse's pension may be considered for purposes of alimony to the extent that post-divorce earnings enhance its value. By the same token, although assets purchased with the proceeds of a divisible pension award are not "income" for alimony purposes to the extent they reflect return of the principal, income generated by the principal is eligible for inclusion in the calculus used in revising an alimony award. [Steneken v. Steneken, supra, 367 N.J.Super. at 437-38, 843 A.2d 344 (citations omitted).]

The Appellate Division concluded that "New Jersey is not alone in restricting the prohibition against double counting to pension benefits." Id. at 438, 843 A.2d 344.

We granted certification, 180 N.J. 357, 851 A.2d 651 (2004), and subject to the modifications that follow, affirm the judgment of the Appellate Division.

II.

"`There are [ ] few assets whose valuation impose as difficult, intricate and sophisticated a task as interests in close corporations.'" Torres v. Schripps, Inc., 342 N.J.Super. 419, 435, 776 A.2d 915 (App.Div.2001) (quoting Lavene v. Lavene, 148 N.J.Super. 267, 275, 372 A.2d 629 (App.Div.), certif. denied, 75 N.J. 28, 379 A.2d 259 (1977)). As we recognized in Bowen v. Bowen, 96 N.J. 36, 44, 473 A.2d 73 (1984), in the valuation of a business, "[t]here is no single formula that will apply to each enterprise." Although there is no general formula that will apply to the "many different valuation situations," the ultimate "goal is to arrive at a fair market value for a stock for which there is no market." Ibid. Therefore, in order to provide context to this controversy, we focus first on the methods of valuation recognized in our jurisprudence.

Valuation techniques, regardless of the approach selected, are to be measured against a reasonableness standard. See Bowen v. Bowen, supra, 96 N.J. at 44, 473 A.2d 73

("The reasonableness of any valuation depends upon the judgment and experience of the appraiser and the completeness of the information upon which his conclusions are based."). See, e.g., Dugan v. Dugan, 92 N.J. 423, 457 A.2d 1 (1983) (providing guidance on valuing an attorney's professional corporation law practice for equitable distribution purposes). Of these techniques, there are "[t]hree principal methods which can be used for developing a value for ownership in a closely held corporation...." Lavene v. Lavene, 162 N.J.Super. 187, 197, 392 A.2d 621 (Ch.Div.1978) (on remand). Those are the income or capitalized earnings method, the market approach method, and the cost approach method. See generally id. at 197-98, 392 A.2d 621 (defined respectively as (a) "Capitalization of indicated earnings at a reasonable return on investment based on relative risk and current interest rates;" (b) "Comparison with price earnings ratios of publicly traded companies in the same or comparable industry;" and (c) "Appraisal of all underlying assets, tangible and intangible, with adjustment for existing liabilities"). Flexibility must be the byword in determining which approach is best suited in a particular...