Vicario v. Vicario

• Decision Date: 29 June 2006
• Docket Number: No. 2005-244-A.,2005-244-A.
• Citation: 901 A.2d 603
• Parties: Kathleen C. VICARIO v. Paul Michael VICARIO.
• Court: Rhode Island Supreme Court

901 A.2d 603

Kathleen C. VICARIO v. Paul Michael VICARIO.

No. 2005-244-A.

Supreme Court of Rhode Island.

June 29, 2006.

Jerry L. McIntyre, Esq., Providence, for Plaintiff.

Donald R. Lembo, Esq., North Providence, for Defendant.

Present: WILLIAMS, C.J., and GOLDBERG, FLAHERTY, SUTTELL, and ROBINSON, JJ.

OPINION

Justice SUTTELL, for the Court.

The defendant, Paul Michael Vicario, appeals from a Family Court order granting an absolute divorce to him and the plaintiff, Kathleen C. Vicario, and distributing their assets. The defendant contends that the general magistrate erred in: (1) rejecting the opinion of his expert witness concerning the value of one of his businesses; (2) awarding the plaintiff 60 percent of the marital estate; (3) awarding the plaintiff rehabilitative alimony; and (4) sanctioning him $10,000 for failing to comply with court orders concerning the discovery of certain financial documents. This case came before the Supreme Court for oral argument pursuant to an order directing the parties to show cause why the issues raised in this appeal should not be decided summarily. After considering the written and oral submissions of the parties and examining the record, we are of the opinion that the issues raised in this appeal may be resolved without further briefing or argument. For the reasons set forth herein, we affirm the order of the Family Court.

Facts and Procedural History

Kathleen and Paul were married on November 1, 1987, and they have two children. After approximately fourteen years of marriage, the parties separated around September 2001. Kathleen filed a complaint for divorce on September 25, 2001, and Paul filed an answer and counterclaim on December 7, 2001. Each party cited irreconcilable differences that caused the irremediable breakdown of the marriage as the ground for divorce. The general magistrate of the Family Court heard the matter on various dates from March 26, 2003, to June 1, 2004, during which hearings the following facts were revealed.

Kathleen testified that she was employed as an assistant manager for a clothing store when the couple wed, making about $12,000 to $15,000 annually. She said that she and her husband agreed that she would not work after their first son was born, and that she did not work throughout the remainder of the marriage until they separated. During the marriage, the couple had a joint checking account containing money that Kathleen could utilize. She said that her husband would give her about $500 per week to pay bills and buy food, but that there was one point when she asked her father for financial assistance because Paul was not providing adequate funds and she was receiving notices from creditors that bills were not paid.

Kathleen testified that although the entire family would vacation together at the beginning of the marriage, later she would go with the children and without Paul because he always had to work. She said that the couple argued about whether their sons would play sports and that Paul occasionally would belittle her in front of the children. Kathleen said that at the time of trial, she was forty-five years old, in good health, and pursuing a degree in advertising at the Rhode Island School of Design. She purchased her own home in Barrington in May 2003, where she and her sons were living at the time of trial. Paul advanced $70,000 to Kathleen for the down payment on the house.

Kathleen further testified that during the course of the marriage, there always were problems when she asked her husband for money to buy furniture or plan vacations. She said that there was never enough money to pay for the children's clothes, tutors, or renovating the house, and that her parents and Paul's parents had to help pay for such expenses. She alleged, however, that Paul purchased expensive clothing for himself through his business and also made other costly purchases without her knowledge. Kathleen indicated that during the marriage, she was the primary caretaker for the children and the home while her husband worked. She attended business functions with her husband and socialized with his friends. However, by the end of the marriage, she said, she wanted a divorce because Paul ignored her, refused to communicate, was uncooperative and secretive, and did not share. She testified that she asked her husband to accompany her to counseling, but that he claimed that she, not he, was the one with the problem.

Paul, a certified public accountant, testified that he was the sole shareholder of an accounting business, Leonelli and Vicario, Ltd. He and his wife owned the real estate where the business was located, at 240 Chestnut Street in Warwick. Paul also said that he held a 50 percent interest in Abacus Benefit Consultants, Inc. (Abacus), an actuarial consulting business in Cranston. Abacus was located in a building owned by ABAX, LLC, another business in which Paul held a 50 percent interest. He testified that his accounting business grossed approximately $700,000 in 2001 and 2002 and that Abacus grossed about $1 million in 2001. Paul said that he did not receive a yearly salary from Abacus; instead, he received only enough money to enable him to pay taxes on income distributions that passed through to him after the business's expenses were paid. Paul's individual 2001 tax return showed a total gross income of $312,832 for that year. At the time of trial, Paul was forty-three years old and in good health.

The parties owned property at 28 Tockwotten Farm Road in North Kingstown, which they purchased in 1996. According to Kathleen, she did a number of renovations on the home and selected a majority of the furniture. Paul said that his wife expressed the view that she did not wish to live in the home only after they bought and moved into the property, while Kathleen said she informed her husband that she did not want to live there before they agreed to purchase the home. Kathleen wanted to move to Barrington instead because she liked that town's educational system and it was close to her parents. Nonetheless, the Tockwotten Farm Road home became the marital domicile.

Paul testified that in April 2002, while the couple were still married, he began a romantic relationship with another woman. He said that from time to time this woman had been in the presence of his children. Pursuant to a court order, the parties were required to engage in counseling to deal with issues pertaining to Paul's visitation of the children, including visitation in the presence of third parties. Paul said that he participated in such counseling only once and continued to see his paramour in the presence of his children thereafter. During the trial, the general magistrate warned Paul that he would impose harsh sanctions if Paul continued to disregard a previously entered court order prohibiting him from exercising visitation with the children in the presence of this other woman.

For reasons not entirely clear from the record, the proceedings were bifurcated¹ on the second day of trial, and the general magistrate granted an absolute divorce to each party, continuing for further hearings the issues of alimony, child support, custody, and an equitable distribution of the parties' assets. Both parties agreed to this procedure. When the trial resumed, both parties also agreed on the appraised value of certain properties, but they could not agree upon the value of Paul's interest in Abacus. Accordingly, during the second portion of the trial, each party presented an expert witness to testify about the value of this corporate entity.

Craig M. Bilodeau, a certified public accountant, testified for plaintiff. Mr. Bilodeau testified that in evaluating Abacus, he used the income approach to valuation. He explained that the two most common methods of valuing companies under this approach are the discounted future cash flow method and the capitalization of earnings method. He said that he was unable to apply the former method because Paul did not provide any projected income statements—an indispensable component of the discounted future cash flow calculation.² Mr. Bilodeau used the capitalization of earnings method instead, which involved calculating the "weighted adjusted net cash flows," which were approximately $167,000, and dividing that figure by the capitalization rate, which was 21 percent, to get a value of the company of $795,000. Mr. Bilodeau then applied adjustments to this value. In particular, he applied a 25 percent discount for the lack of marketability of the company and a 10 percent discount for defendant's lack of control in the company. Ultimately, Mr. Bilodeau concluded that Paul's fair-market value interest in Abacus was $268,000.³

The defendant presented the testimony of Michael Pendergast, another certified public accountant, as his expert witness. Mr. Pendergast testified that Paul's interest in Abacus was worth $100,000. He said that to determine this value, he used the income or cash flow approach to valuation. He explained that he developed a cash flow of the business, made some normalization adjustments, applied a capitalization rate, subtracted a value for an existing covenant not to compete, and then "applied marketability discount on small minority discount to arrive at the value." Mr. Pendergast also said that he "tax-affected the earnings of the corporation."⁴ He added that it was his understanding that Paul's role in Abacus was as an investor and that his partnership activity was "[p]assive."

Mr. Pendergast explained that the discrepancy between his valuation and Mr. Bilodeau's was caused by the fact that he, unlike Mr. Bilodeau, tax-affected the earnings, considered the business's nonrecurring revenue, and subtracted values for a covenant not to compete and Paul's business partner's personal goodwill. Mr. Pendergast also testified that Mr. Bilodeau's calculations of the net income cash basis were inaccurate, causing his overall...