Marital property is often at the center of contention in a divorce case. Among the many types of property that may be considered part of the marital estate are retirement accounts and pension plans, business assets, and inheritance assets—and these assets are often litigated in a seriously contentious manner.
A recent Massachusetts appellate case, Dilanian v. Dilanian, addressed the issues of business assets, inheritances, and pension plans as part of the marital estate.
Background:
In the case, the parties were married for thirty-one years, living a comfortably upper-middle-class lifestyle. The wife stayed home, while the husband ran a successful business. He originally started the business with his father but was the sole owner by the time of the divorce proceedings. The parties filed for divorce; while they amicably resolved issues regarding some of the marital property, including the marital home, much of the trial centered around the value of the husband’s business and the husband’s share in various assets. These included pension plans.
The trial judge reviewed the husband’s income from his business. The judge noted that in order to avoid double taxation, the husband paid himself a salary and a year-end bonus each year. This left little funds in the company’s account as retained earnings. The husband’s financial statement reported significant income increases between 2008 and 2010; then, his income was drastically reduced in 2011 and 2012 (after the divorce proceedings started). Yet, at the same time, the amount of cash left in the business accounts increased by over $294,000, contrary to the husband’s prior practice.
Decision:
The judge found that the husband had artificially lowered his income. He found the husband’s real annual income to be approximately $325,000. The judge ordered alimony to be paid to the wife in the amount of $2,000 per week. In valuing the marital estate, the judge did accept the husband’s valuation of the business. He only added the amount of a promissory note payable to the husband for a personal loan made to the company. The judge allowed the husband to keep the business.
Two pension plans that the husband contributed to during the marriage were at issue. Additionally at issue was an inheritance from his father, which occurred very late in the course of the marriage. The judge found the husband received the inheritance so late it was not “woven into the fabric of the marriage”. It therefore belonged to the husband. However, the judge also ordered the husband to transfer 60% of both pension plans to the wife.
Appeal:
The husband appealed, claiming that the trial judge abused discretion in both the judge’s valuation of the business and in giving the wife 60% of the pension plan benefits. He argued that the company’s defined contribution plan belonged partially to his now-deceased father. Thus, it now belonged partially to his sister, who received part of the father’s estate after the father died.
Pension plan:
The Appeals Court disagreed. The Court explained: “contrary to the husband’s argument, the judge’s order will not adversely affect the interests of third persons. The plan documents establish that the beneficiaries of any portion of the defined contribution plan that belonged to the husband’s father are the husband and his sister, in equal shares. The sister, as coexecutor of the estate, signed an estate tax return taking the position that $663,961 of the plan belonged to the father. Accordingly, half of that amount ($331,981) could be claimed by the sister. Once sixty per cent of the plan is transferred to the wife, the remaining amount will be well in excess of the amount the sister claimed in the estate tax return and appears able to claim.”
Valuation of the business:
The Appeals Court also found no issue with the trial judge’s business valuation as part of the marital estate. It held that there was nothing unreasonable in considering the $150,000 note payable part of the value of the company. The Court disagreed with the husband’s assertions that the income imputed by the judge to him at trial was incorrect.
“[C]ontrary to the husband’s assertion, the evidence supported the finding that the husband’s reported income was increasing until he filed for divorce in 2011, and that the husband intentionally reduced his own salary while amassing corporate earnings usually directed toward his personal income,” the Court held. “Given this evidence and the husband’s furtive financial disclosures, including his failure to prepare a 2012 financial statement for [the company], the trial judge could reasonably conclude the husband artificially reduced his income to alter his financial condition in light of the impending divorce.”
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