Wegman v. Wegman

• Decision Date: 01 December 1986
• Citation: 123 A.D.2d 220,509 N.Y.S.2d 342
• Parties: Bernice WEGMAN, Appellant-Respondent, v. Edwin WEGMAN, Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 342

509 N.Y.S.2d 342

123 A.D.2d 220

Bernice WEGMAN, Appellant-Respondent, v. Edwin WEGMAN, Respondent-Appellant.

Supreme Court, Appellate Division,

Second Department.

Dec. 1, 1986.

As Amended Feb. 23, 1987.

Jerome R. Halperin, P.C., New York City (Alice Slater, on brief), for appellant-respondent.

Taylor, Atkins & Ostrow, Garden City (Michael J. Ostrow and Carol S. Eisenberg, on brief), for respondent-appellant.

Before BROWN, J.P., and RUBIN, LAWRENCE and KOOPER, JJ.

BROWN, Justice Presiding.

This case gives us the opportunity to consider the "troublesome matter of what is the proper date for valuing marital property" under the Equitable Distribution Law (see, Litman v. Litman, 123 A.D.2d 310, 506 N.Y.S.2d 345 (2d Dept.1986).

I.

The plaintiff Bernice Wegman, who at the time of the commencement of this action was 60 years of age, married the defendant Edwin Wegman, who is one year her senior, on June 20, 1943, in Brooklyn, New York. At the time of their marriage, Mrs. Wegman was completing her studies toward a Master's Degree in social work and Mr. Wegman, who had a Master's Degree in public administration, was employed as an organization and methods specialist by the Federal government in Washington, D.C. Following their wedding, Mrs. Wegman joined her husband in Washington and, during the following two years, worked as a probation officer. Thereafter, she took a position as a social worker.

In February 1947 Mr. Wegman learned that his position was being phased out, and, in June 1947 the parties returned to New York and moved in with Mrs. Wegman's parents. Mr. Wegman began working for the S.J. Wegman Company, a mail order business which had been owned and operated by Mr. Wegman's uncle, Samuel J. Wegman, until his death in the latter part of 1946. At that time, the assets of the business passed by intestacy to the uncle's seven nieces and nephews, among whom were Mr. Wegman and his three brothers.

Upon the Wegmans' return to New York, Mrs. Wegman resumed full-time employment as a social worker. According to Mrs. Wegman's trial testimony, which was disputed by her husband, she provided all of the couple's support from the time of her return to work in November 1947 until January 1949, since her husband was unable during that period to draw any money from the S.J. Wegman Company.

In January 1949 Mrs. Wegman stopped working and the couple moved from Mrs. Wegman's parents' home into their own apartment. Shortly thereafter, Mrs. Wegman became pregnant and the couple's first child, Mark, was born in November 1949. Mrs. Wegman stayed at home to care for the child.

Sometime during 1952, the Wegmans received a settlement of approximately $25,000 resulting from their involvement in a 1947 automobile accident, most of which was used as a downpayment on a newly-constructed house in Freeport, New York. In August 1954 the Wegmans moved into their new home, and during the following November a second child, Thomas, was born.

In 1957 Mrs. Wegman resumed her employment as a social worker, initially working only one day each week, but gradually increasing her hours until by 1966 she was employed on a full-time basis.

During the late 1960's the Wegmans apparently began experiencing marital difficulties. Discussions with marriage counselors failed to improve their situation, and, in September 1972 Mr. Wegman left the marital home and moved into his own apartment. According to Mrs. Wegman, she discussed the possibility of reconciliation with her husband on many occasions, but was continually rebuffed. Mr. Wegman acknowledged that telephone conversations took place between the parties, but stated that they always concerned money and that there was never any mention of a possible reconciliation.

In June 1973 Mr. Wegman began an action for a divorce, claiming cruel and inhuman treatment and constructive abandonment. A jury trial was held in April 1977, following which the action was dismissed upon the merits. At some point during the pendency of that action, it appears that Mr. Wegman obtained a Haitian divorce decree but he never attempted to establish the validity of that decree in New York.

In July 1981 Mrs. Wegman commenced the instant action for divorce, and on December 6, 1983, the defendant's motion for reverse partial summary judgment was granted on the plaintiff's cause of action for a divorce on the ground of abandonment. A trial on economic issues was held in March 1985. Much of the testimony at trial dealt with the valuation of the S.J. Wegman Company, and its various holdings, which by then was controlled by Mr. Wegman.

The S.J. Wegman Company began, as heretofore indicated, as a mail order business operated as a sole proprietorship by Mr. Wegman's uncle, Samuel J. Wegman. When Mr. Wegman's uncle died intestate in October 1946 his estate, including the assets of the mail order business, passed in equal shares to Mr. Wegman, his three brothers, and their three cousins. Following the uncle's death, the business remained in operation and continued to produce a small return. In 1947, the four Wegman brothers bought out their cousins, paying them $7,200 for their three-sevenths share. Each brother was to contribute $1,800, but, since Mr. Wegman did not have the necessary funds, one of his brothers gave him a gift of $1,800 in order that he could pay for his share. In 1947, his brothers stepped aside and Mr. Wegman took control of the operation of the business.

Initially, Mr. Wegman and his brothers had no formal financial arrangement governing their respective interests in the business. According to Mr. Wegman, he and his brothers had an understanding that the business principally belonged to him since it was he who was involved in its day-to-day operation and who built it up following their uncle's death. Mr. Wegman testified that he "took what needed" from the business and from time to time his brothers took "small amounts" therefrom. It was not until February 1969 that a written partnership agreement was entered into which provided that Mr. Wegman would have an 85% share of the profits and losses and each of his three brothers would have a 5% share therein. At the trial, it was conceded that Mr. Wegman's interest in the S.J. Wegman Company at that time amounted to 85% thereof.

The business prospered under Mr. Wegman's direction. It expanded into a number of new products and in 1951, it formed the Honor House Products Corp. (hereinafter Honor House) to conduct the mail order business in a corporate form. All of the stock of Honor House was owned by the S.J. Wegman Company. In 1953, the company constructed its own building in Lynbrook, New York, and another corporation the Wilbur Street Corporation (hereinafter Wilbur Street) was formed in 1952 to acquire title to the building.

In 1957, the S.J. Wegman Company formed a wholly-owned subsidiary corporation called Agricultural Biologicals Corp. (hereinafter ABC) to develop and market gibberellic acid, a substance which stimulates growth in plants. This product proved unsuccessful and was subsequently abandoned. However, as a result of this effort, Mr. Wegman's attention was called to collagenase, a substance used to treat skin ulcers, burns and bedsores. The company used profits from the mail order business to develop collagenase, and changed the name of ABC to Advance Biofactures Corporation.

In 1965, ABC received approval from the Food and Drug Administration to market collagenase. However, the product was not actively marketed until 1972. Ultimately, collagenase became an extremely successful product and, by the time of trial, accounted for 95% of ABC's income. The mail order business became much less significant and finally, in 1983, all of the assets of Honor House were sold for the amount of its liabilities. ABC used much of the money earned from the sale of collagenase for the research and development of new drugs (over $5,000,000 in a seven-year period).

During the 1960's, a number of outside investors, including Mrs. Wegman's father and some of the Wegmans' neighbors, invested in ABC stock. In 1969 and again in 1972, ABC attempted to sell its shares to the general public. Both efforts, however, were eventually abandoned. As a result, the S.J. Wegman Company continued to own 70% of ABC's shares. By the time of trial, ABC employed about 60 people, had four subsidiaries, and had retained earnings of nearly $3,000,000.

The role played by Mrs. Wegman in the growth of her husband's business holdings was a matter which was sharply disputed at trial. According to Mrs. Wegman, she was required to totally support her husband and herself until January 1949 and always contributed all of her earnings toward the expenses of the household. She claimed that she had suggested new products to be sold and sought out new employees, including her cousin's husband, who had worked in a medical laboratory. She also stated that she entertained large numbers of business guests on an average of twice per month, doing all of the planning, preparing, and cooking herself. She testified that she obtained investors from among her acquaintances and became active in civic affairs in order to meet people who might be helpful to her husband in his business.

Not surprisingly, Mr. Wegman testified that his wife's contributions to the growth of the business had been minimal. He stated that he and his wife "rarely" entertained business associates, although he did admit that they frequently socialized with "friends", some of whom they had met through his wife's civic involvement. He acknowledged that some of these individuals had invested in his business. He also acknowledged that his wife had introduced him to an advertising agent whom he had employed for a brief period. Mr. Wegman claimed that his wife's earnings were not contributed to the household, but instead were used to pay for her own clothing and for the services of a full-time maid.

The parties presented...