Wadsworth v. Wadsworth

• Citation: 641 N.Y.S.2d 779,219 A.D.2d 410
• Decision Date: 19 April 1996
• Docket Number: No. 1,1
• Parties: Sarah WADSWORTH, Respondent-Appellant, v. James WADSWORTH, Appellant-Respondent. (Appeal)
• Court: New York Supreme Court — Appellate Division

Page 779

641 N.Y.S.2d 779

219 A.D.2d 410

Sarah WADSWORTH, Respondent-Appellant, v. James WADSWORTH, Appellant-Respondent. (Appeal No. 1.)

Supreme Court, Appellate Division Fourth Department.

April 19, 1996.

Appeals from Judgment of Supreme Court, Erie County, Howe, J.--Equitable Distribution.

Sullivan, Benatovich, Oliverio and Trimboli by Richard Sullivan, Buffalo, for Appellant-Respondent.

Barbara Ellen Handschu by Paul Ivan Birzon, Buffalo, for Respondent-Appellant.

Before PINE, J.P., and WESLEY, BALIO, DAVIS and BOEHM, JJ.

DAVIS, Justice.

The primary questions presented on this appeal from a judgment of divorce are whether Supreme Court properly valued defendant's law practice and properly declined to value separately defendant's law license. We conclude that the court erred in both respects.

I

The parties were married on August 26, 1961. At the time of their marriage, each had recently received an undergraduate college degree. During the first three years of the marriage, defendant attended Stanford University Law School. Upon his graduation from law school and his admission to the New York bar, defendant was hired as an associate at a Buffalo law firm, Hodgson, Russ, Andrews, Woods & Goodyear. In 1969 he became a junior partner in that law firm and in 1972 he became a general partner. As of the date on which this action was commenced, defendant was the law firm's managing partner in charge of administration and management. He earned $228,000 in 1992. Additionally, he testified at trial that, as of 1992, he had a stock portfolio worth $13,336.32, had an interest in the Buffalo Sabres hockey team worth $85,000 and had a law firm pension worth $180,993.09. In addition, he testified that he had an IRA account worth $61,654.73 and a 401K plan worth $134,802.10.

Plaintiff worked full time during the first two years of the parties' marriage, until the birth of the first of the parties' four children. In 1981 she received her master's degree in social work from the State University of New York at Buffalo and she was thereafter employed full time in various jobs from 1981 until January 1990, when she ceased working of her own volition.

As of 1992, plaintiff had a stock portfolio valued at approximately $449,000, which produced an annual income of approximately $21,000. In addition, in 1992 she received income of approximately $15,000 as the beneficiary of a trust established under the will of a grandparent and a $20,000 gift from her father. Plaintiff is the beneficiary of two irrevocable trusts and expects to receive an inheritance of approximately $1.2 million upon her father's death.

Both parties testified at trial that their marriage was a true economic partnership. The parties had a high standard of living throughout their 30-year marriage. They sent their four children to private schools, from grade school through college. The family enjoyed many expensive vacations and had memberships in several social clubs. The parties own three homes--the marital residence in Buffalo, a summer home in Thunder Bay, Ontario, Canada and a vacation home in Jackson Hole, Wyoming.

The court, largely crediting the testimony of plaintiff's expert, concluded that the value of defendant's interest in the law practice as of the date of the commencement of the action was $621,663 and made a distributive award to plaintiff of 50% of that amount. In determining the value of defendant's law practice, the court utilized the death benefit provision of the law firm's partnership agreement; that provision provides for the payment of an amount equal to the deceased partner's capital account and share of the accounts receivable, plus an amount equal to the deceased partner's average salary for the five years immediately preceding death [$189,920] less an amount equal to "two times the amount by which the amount of group term life insurance on the life of the deceased partner * * * exceeds $270,000 [$180,000]". The court subtracted the "Dome Project" receivable, or $46,596, from the death benefit provision, and then added a $360,000 group term life benefit.

The court declined to value separately defendant's law license, finding that the requirement set forth in Finocchio v. Finocchio, 162 A.D.2d 1044, 556 N.Y.S.2d 1007, to value separately a law license was inapplicable because, "[f]irst, there was no partnership agreement valuation basis involved in Finocchio such as exists here. Second, and more importantly, using the death benefits basis for valuation under the agreement leaves nothing beyond the practice itself to be valued, because that approach assumes that the life of the license (of the degree), like that of the licensee (or degree holder) with which it is necessarily coterminous, has come to an end".

Further, the court awarded plaintiff a 50% interest in the "Dome Project" receivable, before payment of income taxes. The court determined that defendant's interest in the Buffalo Sabres hockey team was marital property and awarded plaintiff 50% of defendant's interest in that team. The court further awarded plaintiff a 50% interest in defendant's law firm pension but declined to award her a share of either the IRA account or the 401K plan.

The court awarded plaintiff maintenance of $30,000 per year for a term of 10 years or upon the happening of any of the following contingencies: 1) the death of either party, 2) plaintiff's remarriage or 3) plaintiff's receipt of the anticipated inheritance from plaintiff's father. Defendant appeals and plaintiff cross-appeals from certain portions of the judgment of divorce.

II

Both parties challenge the court's valuation of defendant's law practice. Additionally, plaintiff challenges the court's failure to value separately defendant's law license.

We conclude that the court erred in determining the value of defendant's law practice and in failing to value separately defendant's law license (see, McSparron v. McSparron, 87 N.Y.2d 275, 639 N.Y.S.2d 265, 662 N.E.2d 745; Finocchio v. Finocchio, supra, at 1045-1046, 556 N.Y.S.2d 1007). We further conclude that the court did not err either in utilizing the death benefit provision of the law firm partnership agreement in reaching its determination of the value of defendant's law practice or in rejecting the argument that taxes should be deducted from the death benefit (see, Harmon v. Harmon, 173 A.D.2d 98, 105, 578 N.Y.S.2d 897). The court properly deducted from the value of the practice the potential "Dome Project" receivable. The court erred, however, in adding to the death benefit valuation a $360,000 group term life insurance benefit. It should have added to that valuation $180,000, representing the amount that was previously deducted and is equal to "two times the amount by which the amount of group term life insurance on the life of the deceased partner exceeds $270,000" in determining the value of defendant's law practice.

We observe that there is no uniform rule for fixing the value of a law practice for equitable distribution purposes (see, Amodio v. Amodio, 70 N.Y.2d 5, 7, 516 N.Y.S.2d 923, 509 N.E.2d 936) and that valuation of a law practice is "an exercise properly within...