Stern v. Stern

• Decision Date: 23 January 1975
• Citation: 74 A.L.R.3d 613,331 A.2d 257,66 N.J. 340
• Parties: , 74 A.L.R.3d 613 Susanne H. STERN, Plaintiff-Respondent, v. Milton H. STERN, Defendant-Appellant.
• Court: New Jersey Supreme Court

Page 340

66 N.J. 340

331 A.2d 257, 74 A.L.R.3d 613

Susanne H. STERN, Plaintiff-Respondent, v. Milton H. STERN, Defendant-Appellant.

Supreme Court of New Jersey.

Argued Oct. 21, 1974.

Decided Jan. 23, 1975.

Monroe Ackerman, Short Hills, for defendant-appellant (Rudd & Ackerman, Short Hills, attorneys; Neil Braun, Short Hills, on the brief).

Everett M. Scherer, Newark, for plaintiff-respondent (Riker, Danzig, Scherer & Brown, Newark, attorneys; Everett M. Scherer, Newark, of counsel; Thomas C. C. Humick, Newark, on the brief).

The opinion of the Court was delivered by

MOUNTAIN, J.

In this matrimonial action plaintiff, Susanne H. Stern, was granted a divorce on the ground of adultery from her husband, the defendant, Milton H. Stern. The court likewise awarded the plaintiff alimony and child support and effected an equitable distribution of property pursuant to N.J.S.A. 2A:34--23. 123 N.J.Super. 566, 304 A.2d 202 (Ch.Div.1973). ¹ The Appellate Division affirmed. 128 N.J.Super. 198, 319 A.2d 733 (1974). We granted certification at the instance of the defendant. 65 N.J. 568, 325 A.2d 702 (1974).

There is no challenge to the grant of a divorce. Defendant does, however, contend that the amounts of alimony and child support are excessive and that the trial judge acted improperly in the manner in which he identified and thereafter allocated marital assets between the spouses.

We perceive no error either in the amount of alimony or of child support. In respect to each of these awards the determination of the court below finds ample support in the record. The nature of the property that the trial court was called upon to examine in effecting distribution, and the manner in which the allocation of these assets was made, do present issues which this Court has not heretofore considered.

Defendant was ordered to pay to the plaintiff $36,000 annually as alimony and $4,000 a year as support of a minor child. Additionally, by way of distribution of marital property, he was directed to pay the plaintiff $100,000 in forty equal consecutive quarterly installments. ²

Defendant is a partner in a very successful, well-known and highly respected law firm. As an attorney his personal earning capacity is thoroughly proven. He concedes that his partnership interest is an asset eligible for distribution pursuant to N.J.S.A. 2A:34--23. He objects, however--chiefly upon two particular grounds--to the property distribution made by the trial judge. First, he disputes the inclusion and method of valuation of certain assets in determining partnership worth; secondly, he contests the propriety of considering his earning capacity as being a separately identified and distinct item of property, and as such eligible for apportionment under the statute.

We first consider the latter objection. In undertaking the statutory allocation of marital assets, the trial judge included, apparently as a separate item of property, defendant's earning capacity. The opinion states His ability (earning capacity) is an amorphous asset of this marriage in the absence of other assets. It consists of natural ability, undergraduate and post-graduate education, marriage to the daughter of a man of high standing and lucrative income in the area of his professional activity, entree to his office and ultimate partnership, subsequent management of the firm, with advancement in the esteem of his professional peers. (123 N.J.Super. at 568, 304 A.2d at 204)

We agree with defendant's contention that a person's earning capacity, even where its development has been aided and enhanced by the other spouse, as is here the case, should not be recognized as a separate, particular item of property within the meaning of N.J.S.A. 2A:34--23. ³ Potential earning capacity is doubtless a factor to be considered by a trial judge in determining what distribution will be 'equitable' and it is even more obviously relevant upon the issue of alimony. But it should not be deemed property as such within the meaning of the statute.

As we have indicated, defendant readily concedes that his partnership interest is an asset that has been acquired during marriage and that it qualifies and is eligible for equitable distribution. He disputes, however, the manner in which this property interest has been valued and objects to the size of the share allocated to the plaintiff.

Placing a precise or even an approximately accurate value upon an interest in a professional partnership, when the partner whose interest is in question intends to continue as a member of the firm is no easy matter. Circumstances preclude our customary resort to market value. Some other method of determining worth must be employed. Here the terms of the partnership agreement are of help. There appear in this document four quite distinct payment plans applicable with respect to a partner who withdraws from the firm, becomes disabled, dies or retires. Of these, probably the most accurate and certainly the most useful for present purposes is the formula for the calculation and payment of a partner's interest to his personal representative upon death. In such an event, according to the articles of partnership, his estate is to receive the then value of his capital account, readily determinable from the partnership books, together with a fixed sum appearing after the partner's name on a schedule appended to the partnership agreement. This schedule is revised quarterly. It is obviously intended to reflect those elements of partnership worth other than the member's capital account. The testimony reveals that these payments occasioned by death, are to be funded with the proceeds of life insurance on the lives of the several partners, the policies being owned by and the proceeds payable to the firm. The amount appearing after defendant's name on the schedule attached to the copy of the partnership agreement with was received in evidence was $167,500. We think the trial court would be justified in adding to this sum the value of defendant's capital account and treating the total as the Presumptive value of defendant's partnership interest in the firm. We say Presumptive value only, because either plaintiff or defendant will be entirely at liberty to challenge the figure so determined as not being reflective of true value.

Generally speaking the monetary worth of this type of professional partnership will consist of the total value of the partners' capital accounts, ⁴ accounts receivable, the value of work in progress, any appreciation in the true worth of tangible personalty over and above book value, together with good will, ⁵ should there in fact be any; the total so arrived at to be diminished by the amount of accounts payable as well as any other liabilities not reflected on the partnership books. Once it is established that the books of the firm are well kept and that the value of partners' interests are in fact periodically and carefully reviewed, then the presumption to which we have referred should be subject to effective attack only upon the submission of clear and convincing proofs. ⁶

Defendant offers a number of objections to the consideration of partnership accounts receivable in connection with the proposed equitable distribution. Most of his agreement rests upon the mistaken assumption that the court is directing the apportionment of the accounts themselves. This is not the case. The accounts receivable are not the subject matter of any proposed distribution; they are being examined and valued simply as one element to be included in determining the...