NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-0700-17T3
EDWARD FOX, III,
Plaintiff-Appellant,
v.
CATHERINE FOX,
Defendant-Respondent. ____________________________
Argued November 14, 2018 – Decided April 9, 2019
Before Judges Ostrer and Currier.
On appeal from Superior Court of New Jersey, Chancery Division, Family Part, Camden County, Docket No. FM-04-0355-16.
Robert J. Wittmann argued the cause for appellant.
Michael J. Confusione argued the cause for respondent (Hegge & Confusione, LLC, attorneys; Michael J. Confusione, of counsel and on the brief).
PER CURIAM Plaintiff, Edward Fox III, appeals from the trial court's equitable
distribution of his bowling equipment company, EBN Services, Inc. (EBN).
After trial, the court split the value of the company equally between Edward and
his former spouse, Catherine Fox.
Edward presents three arguments on appeal. He contends that EBN should
not have been subject to equitable distribution because Catherine did not
contribute to the company's growth during or after the marriage. Second, he
argues if EBN is subject to equitable distribution, then it should have been
distributed according to its value in 2012, the date of separation, instead of 2015,
when Edward filed for divorce. Last, Edward contends that the trial court abused
its discretion by distributing the business equally.
After reviewing the facts and underlying legal principles, we remand for
a determination of the company's pre-marital value. Edward started his
company in 2001, about three years before the couple married in 2004. The trial
court assumed that EBN did not have a positive value in 2004 because it was
not profitable at the time. The court therefore subjected EBN's full 2015 value
to distribution. On remand, Edward will have an opportunity to refute the trial
court's assumption. We otherwise affirm.
A-0700-17T3 2 I.
We discern the following facts from the record. Edward and Catherine
first met and moved in together in 1996. Shortly after, the two had their first
child together, E.F., who has autism. The couple had a second child, A.F., in
1999. Edward and Catherine each brought a son from a previous partner into
the relationship – D.E. and C.P. The relationship broke down in late 1999 and
the couple split up for the first time.
During the separation, Edward worked as a bowling alley mechanic, but
he also started his own small business, EBN, in 2001. The company mostly
acquired and resold used bowling equipment. Edward ran EBN out of his
apartment as a part-time endeavor. Between 2001 and 2004, the business did
not turn a profit. In 2004, the business had a net loss of roughly $13,000 on
gross receipts of over $208,000, according to Edward's tax return.
Edward and Catherine moved back together in 2003 and married in July
2004. During the marriage, Catherine and Edward shared the household work.
Edward testified that he did most of the grocery shopping and transported the
kids to and from school four days a week. He admitted that Catherine did the
laundry and most of the other shopping. He said that he and the older children
took care of the younger children most of the time. However, Catherine testified
A-0700-17T3 3 that she had primary responsibility for all the kids. The older children also
testified and mostly corroborated Edward's testimony. They said they did most
of the household cleaning. When it came to cooking responsibilities, no one
agreed.
Around the time he married Catherine, Edward quit his mechanic job and
began pursuing EBN full time. The business grew over the next four years,
although the record does not include tax returns or financial reports for 2005,
2006 or 2007. By 2008, EBN had over $770,000 in gross sales, although it still
had a net loss of around $20,000. In 2008, EBN started to backslide because of
the down economy. Then in 2010, Edward grappled with personal issues that
affected the business. Those resolved in 2011 and did not recur.
Edward testified that Catherine never worked for EBN in any significant
manner. She worked as a hairdresser. Her annual-reported income was steady
at around $28,000 between 2005 and 2007. Her income started to drop in 2008.
According to Edward, Catherine was losing clientele. In 2011, Catherine went
to school to become a medical assistant. She graduated and has been working
part-time at a chiropractor's office since then.
Edward asserted that Catherine's income remained above his own until
around 2012. However, there was conflicting evidence on this assertion. For
A-0700-17T3 4 some period of time, Edward comingled his personal and business funds. In
2010, Edward more formally started to take a shareholder distribution from the
company. An accountant hired to value EBN found an average normalized
officer compensation of around $45,000 between 2008 and 2011 and average
actual distributions of around $23,000. From this, we can infer that Edward
shouldered much of the financial burden for the family. Furthermore, Edward
claimed that he was primarily responsible for paying the family's bills.
The couple separated in May 2012. By this time, the older children were
adults. Edward moved out and Catherine remained at home with their two
younger children. Both parties testified that they knew the separation was final.
Eventually Edward and Catherine found other paramours and cohabitated with
them.
A couple of months after the separation, Edward contacted an attorney
who drafted a written separation agreement. Catherine said she read the
agreement but did not move forward with it because she could not afford an
attorney. The court credited Catherine and found that she did not accept the
written agreement. Instead, as the court found, the parties entered an oral
agreement for post-separation support. Catherine testified she received $1600 a
month from Edward, but Edward claimed to pay slightly more. Once the
A-0700-17T3 5 children finished their schooling, Catherine and Edward agreed to sell the house
and split the proceeds. They did not discuss EBN.
EBN flourished after the separation. Edward said that he was able to give
more time to the business than before because Catherine was spending more
time with the kids. EBN also expanded in two important ways. First, it acquired
new product lines – EBN started to act as a distributor for a number of suppliers
in the industry. Second, it acquired Ashford Manufacturing and was thus able
to manufacture and sell some parts and components internally. Also, Edward
said that the earlier economic slowdown had driven a number of his competitors
out of business.
Nearly two-and-a-half years after the separation, Edward filed for divorce
on September 2, 2015. Edward and Catherine both explained that the delay had
to do with financial considerations.
Edward and Catherine jointly hired the accountant to value EBN. She
assessed the business's fair market value at two points in time. She valued EBN
at $183,000 in 2015 and, using a less involved methodology, valued it at
between $43,000 and $56,000 in June 2012. She did not value the company as
of 2004.
A-0700-17T3 6 The court equitably distributed half of the $183,000 value to Catherine,
payable in sixty-one monthly installments. The only other significant marital
asset, the marital home, was to be sold after E.F. graduated from school, and its
proceeds equally divided. Based on Catherine's cohabitation, the court denied
her alimony. The court ordered Edward to pay $203 in weekly child support for
E.F., and declared A.F. emancipated.
II.
Edward presents three issues are on appeal, all pertaining to the equitable
distribution of EBN: (1) was EBN subject to equitable distribution; (2) if so,
should it be valued as of the date of separation, or the date of the divorce filing;
and (3) did the trial court err by awarding EBN's value equally between Edward
and Catherine.
We review the trial court's fact findings with substantial deference, Cesare
v. Cesare, 154 N.J. 394, 411-12 (1988), but review legal conclusions de novo,
Manalapan Realty v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). We
apply an abuse-of-discretion standard in reviewing an equitable distribution. La
Sala v. La Sala, 335 N.J. Super 1, 6 (App. Div. 2000). In other words, we will
only overturn a distribution award if the trial court's decision "was not premised
upon consideration of all relevant factors, was based upon consideration of
A-0700-17T3 7 irrelevant or inappropriate factors, or amounts to a clear error in judgment."
Masone v. Levine, 382 N.J. Super. 181, 193 (App. Div. 2005).
A.
We first consider whether EBN was subject to equitable distribution. The
trial court held that it was subject to equitable distribution because EBN was an
active-immune asset, which increased in value during the marriage, partly due
to Catherine's contributions. We agree.
Property acquired before marriage is generally immune from equitable
distribution. Painter v. Painter, 65 N.J. 196, 214 (1974); N.J.S.A. 2A:34-23.1
The party asserting immunity has the burden of proof. Pascale v. Pascale, 140
N.J. 583, 609 (1995); Painter, 65 N.J. at 214. However, once a party proves that
an asset is generally immune, the non-owner spouse may overcome the
"rebuttable presumption that any subsequent increase in value will also be
immune." Sculler v. Sculler, 348 N.J. Super. 374, 381 (Ch. Div. 2001). Three
elements must be shown:
(1) there has been an increase in the value of the asset during the term of the marriage; (2) the asset was one which had the capacity to increase in value as a result of the parties' effort (an active immune asset); and (3)
1 Pre-marital property may also lose its immunity if the owner commingles it with marital assets, with the intent to gift it to the marital enterprise. See, e.g., Ryan v. Ryan, 283 N.J. Super. 21, 25 (Ch. Div. 1993). A-0700-17T3 8 the increase in value can be linked in some fashion to the efforts of the non-owner spouse.
[Ibid.]
The first element speaks for itself. We explain the other two.
Immune assets can be either passive or active. Valentino v. Valentino,
309 N.J. Super. 334, 338 (App. Div. 1998). Passive assets fluctuate in value
solely due to external market conditions. Ibid. Active assets fluctuate in value
due to the efforts of involved persons. Ibid.
The non-owner spouse can contribute to an asset's appreciation in a
number of ways. For instance, a non-owner spouse can provide the necessary
support that allows his or her partner to devote time and energy to a business.
Id. at 339 (concluding that a spouse who "took care of the home, worked part -
time and raised [their son]" contributed to an asset's appreciation).
The trial court did not err in finding that EBN was subject to equitable
distribution. The asset increased in value during the marriage. While the
increase was directly tied to Edward's efforts, Catherine indirectly contributed
to the increase by enabling Edward to devote time and resources to EBN.
Edward argues that this is incorrect for two reasons. First, he claims that
Catherine did not contribute to EBN because she did not perform the majority
of the household duties during the marriage. This argument is inconsistent with
A-0700-17T3 9 Valentino. Catherine provided financial stability and flexibility so that Edward
could pursue EBN, a risky business venture. As the trial court found, based on
adequate support in the record, "[I]t was his marriage to [Catherine], and her
financial and non-financial contributions to the household and child rearing, that
allowed plaintiff to devote his full-time efforts to building EBN."
Second, Edward argues that most of EBN's appreciation took place after
the 2012 separation. Consequently, he suggests Catherine did not contribute to
EBN's growth. However, the fact that the company grew significantly post-
separation but pre-complaint is relevant to the ultimate allocation decision, not
the question whether EBN was subject to distribution in the first place. The
Supreme Court has explained that the effects of a separation should enter the
trial court's analysis when distributing the assets between the parties. Portner v.
Portner, 93 N.J. 215, 222-23 (1983); Rothman v. Rothman, 65 N.J. 219, 232
(1974) (distinguishing between a trial court's decision to identify, valuate, and
equitably distribute an asset).
Separately, Edward argues that the trial court improperly subjected EBN's
full $183,000 value at the end of the marriage to equitable distribution. He
correctly notes that only the value that appreciated during the marriage is subject
to equitable distribution, and then, only if the appreciation is "derived, in part
A-0700-17T3 10 or in whole, from the efforts of the non-owner." Valentino, 309 N.J. Super. at
338.
The trial court assumed that EBN had no value in 2004, at the start of
marriage. At first glance, this assumption seems reasonable. Edward
established EBN in 2001 but first decided to pursue it as a full-time business in
2004, a year for which EBN reported a net loss of $13,000. Edward argues that
the trial court should not have made that assumption. We agree.
An unprofitable business may still have a positive fair market value. 2 For
instance, a business can have valuable tangible assets or inventory, as well as
intangible assets, such as goodwill and customer lists. Notably, EBN had sales
of over $208,000 in 2004 and a gross profit, after deducting cost of goods, of
over $38,000. EBN possessed inventory and two vehicles. Nevertheless, the
record in this case does not establish what value, if any, EBN held in 2004. A
remand is necessary to develop more information.
2 See Shannon P. Pratt et al., Valuing a Business: The Analysis and Appraisal of Closely Held Companies 53 (4th ed. 2000) ("[T]he value of a business or business interest is the sum of the expected future benefits to its owner . . . .") (emphasis added); David Lara, Shannon P. Pratt, Business Valuation and Federal Taxes: Procedure, Law, and Perspective Ch. 17 (2d ed. 2011) (describing an approach used to value companies that are "unprofitable for the foreseeable future"). A-0700-17T3 11 We consider whether Edward or Catherine should have the burden of
proof to establish EBN's value in 2004. Sculler explains that the non-owner
spouse must show that "there has been an increase in value of the asset during
the term of the marriage." 348 N.J. Super. at 381. Naturally, to establish an
asset's appreciation, its value must be established at both the beginning and the
end of the valuation period. Sculler can be read to suggest it was Catherine's
burden to prove EBN's value in 2004.
We do not think such a rule makes sense in this case. General principles
suggest that courts must consider the parties' "comparative interests" and
"relative litigational strengths," their "access . . . to proof[s]," and the "objectives
to be served by the evidence," when assigning the burden of proof. Romano v.
Kimmelman, 96 N.J. 66, 89 (1984). Here, Edward contends EBN had value
before marriage. In other words, he asserts part of the asset is immune from
equitable distribution. Because the burden to establish an asset's immunity
"rest[s] upon the spouse who asserts it," Painter, 65 N.J. at 214, we hold that
Edward must prove that EBN had value in 2004. As it may have been unclear
that he had that burden, it is fair to remand to give him an opportunity to present
proof as to EBN's pre-marital value.
A-0700-17T3 12 B.
We next consider whether EBN should be subject to distribution using its
value in 2015 or 2012. We conclude that the trial court correctly used 2015 as
the valuation date.
Property acquired after a marriage has ended is not subject to equitable
distribution. Thieme v. Aucoin-Thieme, 227 N.J. 269, 285 (2016) ("[T]he
property to be divided is that which was earned, or otherwise acquired, during
the period in which the parties acted in pursuit of the shared enterprise of a
marriage or civil union."). Equitable distribution of an asset is thus bounded by
the end date of the marriage.
The Painter Court considered various dates that could constitute a
marriage's end date for purposes of an asset's valuation. 65 N.J. at 217-18. The
Court rejected the divorce judgment date because it would create a burdensome
bifurcated trial. Ibid. The Court then considered whether, on public policy
grounds, the date of "irretrievable breakdown of the marriage" should be used.
Ibid. The Court said it "would be unworkable" because it would be too difficult
to establish with "any reasonable precision" when the marriage broke down.
Ibid. The Court settled on a pragmatic solution: the day the divorce complaint
was filed. Ibid.
A-0700-17T3 13 Over time, the Court moved away from this bright-line rule in limited
situations. The Court rebalanced Painter's pragmatic concerns, where possible,
with public policy considerations. The Court recognized two exceptions to the
Painter rule: first, where the couple physically separated and entered into a
written separation agreement, the agreement date governs; second, where the
couple separated and actually divided their assets pursuant to an oral agreement,
"assets acquired afterwards are not eligible for equitable distribution." Portner,
93 N.J. at 220 (quoting Brandenburg v. Brandenburg, 83 N.J. 198, 208-09
(1980)). In such cases, the parties have physically separated and there was "an
event that clearly indicated that both parties had agreed that marriage was
completely and finally dissolved." Portner, 93 N.J. at 220.
This case does not satisfy either exception. Although Edward and
Catherine physically separated, they only reached an oral agreement regarding
financial support. Here, the parties never agreed about the disposition of EBN,
never submitted a written agreement dividing assets, and never actually divided
assets. The court correctly valued EBN using the date the divorce complaint
was filed in 2015.
Edward argues that 2012 should be used because both parties testified that
they believed the marriage was over in 2012. Quoting Portner, he asserts "an
A-0700-17T3 14 event that marks the end of a marriage for the purpose of equitable distribution
should reflect an unconditional intent to end the marriage." 93 N.J. at 221.
Edward misunderstands Portner. Evidence of a marriage-ending event, such as
infidelity, does not suffice. The Court fashioned a rule to avoid litigation over
"the ever-elusive date when the marriage truly ended." Id. at 223. To depart
from the divorce complaint's filing date, Portner requires a party to present
reliable evidence in the form of a written agreement or the actual division of
assets, which formally ended the shared pursuit of marriage.
C.
Edward argues that the trial court abused its discretion by dividing EBN
equally between himself and Catherine. He claims that Catherine did not
significantly contribute toward EBN or the household; he bore the risk of
pursuing EBN, and he should receive just reward as the primary risk bearer.
The Legislature enumerated a non-exhaustive list of sixteen factors that a
trial must consider when equitably distributing marital property. N.J.S.A.
2A:34-23.1. To apply the factors, a trial court "shall make specific findings of
fact." Ibid. While a trial court may not "mechanistically" divide marital assets
equally, Gibbons v. Gibbons, 174 N.J. Super. 107, 114 (App. Div. 1980), rev'd
on other grounds, 86 N.J. 515 (1981), equal division may be appropriate, see,
A-0700-17T3 15 e.g., Overbay v. Overbay, 376 N.J. Super. 99, 114 (App. Div. 2005). In this
case, the trial court considered all sixteen factors and made specific findings of
fact for all of them.
The trial court observed that Edward did not pursue EBN full-time until
after he decided to marry Catherine. The court found that Edward was able to
safely pursue EBN because of Catherine's financial and non-financial
contributions. The record shows that Catherine contributed a significant
portion, if not most, of the household income between 2004 and 2012. Catherine
helped raise the kids and performed at least some household chores, such as the
laundry. The trial court's findings were based on sufficient evidence in the
record. Therefore, we shall not disturb them.
Edward's risk-based argument fails to respect the partnership nature of a
marriage. While he was pursuing EBN, Catherine lacked the benefit of a
spouse's regular income and stable employment. In other words, Catherine
shared in the risk with Edward when he pursued EBN.
Most of EBN's appreciation occurred after the separation, but we find that
the trial court properly considered this fact when it distributed EBN. While EBN
grew for a number of reasons, Edward himself admitted that the separation gave
him more time to work on EBN because Catherine assumed a greater share of
A-0700-17T3 16 the household and child-rearing duties. We shall not disturb the trial court's
finding that "[Catherine] made an equal, non-financial contribution to the
appreciation in value of [EBN] even after the parties separated."
We remand to allow Edward the opportunity to prove EBN had positive
pre-marital value. We otherwise affirm. We do not retain jurisdiction.
A-0700-17T3 17