J-S92013-16
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
SHERRI ADELKOFF, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellee
v.
STEVEN ADELKOFF,
Appellant No. 711 WDA 2016
Appeal from the Decree April 25, 2016
In the Court of Common Pleas of Allegheny County
Family Court at No(s): FD 13-008242-016
BEFORE: SHOGAN, MOULTON, and STRASSBURGER,* JJ.
MEMORANDUM BY SHOGAN, J.: FILED APRIL 21, 2017
Appellant, Steven Adelkoff (“Husband”), purports to appeal from the
trial court’s equitable distribution order dated January 12, 2016, as modified
by the trial court’s order of February 10, 2016, granting in part and denying
in part Husband’s motion for reconsideration. The orders were made final by
the entry of the divorce decree between Husband and Sherri Adelkoff
(“Wife”) on April 25, 2016.1 After careful review, we affirm in part, vacate in
part, and remand for additional proceedings.
*
Retired Senior Judge assigned to the Superior Court.
1
The caption incorrectly noted the appeal was from the February 10, 2016
order granting in part and denying in part Husband’s motion for
reconsideration. However, a pre-divorce decree distributing marital property
is interlocutory and cannot be reviewed until it has been rendered final by
the entry of a decree in divorce. Wilson v. Wilson, 828 A.2d 376, 378 (Pa.
Super. 2003) (citation omitted). We have amended the caption to reflect
that the appeal properly lies from the entry of the divorce decree.
J-S92013-16
The trial court summarized the factual background and procedural
history as follows:
[Husband] and [Wife] were married on March 6, 1994.
The parties signed a prenuptial agreement before their date of
marriage. The agreement specified that the parties’ separately-
owned property acquired before the marriage would remain their
separate property. No children were born of the marriage. The
parties separated on September 12, 2013. Their marriage lasted
approximately nineteen (19) years.
The procedural history of this case is extensive. The
[c]ourt will discuss only the relevant case history here. Wife
initiated this action by filing a Complaint in Divorce on November
6, 2013. Wife’s Complaint raised claims for divorce, alimony
pendente lite/spousal support, alimony, equitable distribution
and counsel fees, costs and expenses. On November 12, 2013
Wife filed a Petition for a Temporary Protection from Abuse Order
(“TPFA”) against Husband, which was granted. The pending PFA
Petition was disposed of on December 3, 2013 when the parties
reached a Consent Order of Court. The Order granted Wife
exclusive possession of the marital residence. Husband agreed to
pay Wife $3,000.00 per month in alimony pendente lite.
On March 10, 2015 Wife presented a Petition for Injunctive
Relief wherein she alleged that the company partly-owned by
Husband, International Electric Power, LLC (“IEP”), had a
successful business venture in the Cayman Islands. Wife alleged
that Husband had received a substantial amount of money as a
result of the Cayman Islands deal and requested that any such
money be deposited into an escrow account pending equitable
distribution. The [c]ourt denied Wife’s request.
A three (3) day equitable distribution hearing was
scheduled for September 24 & 25, 2015 and October 1, 2015.
Additional testimony was required to develop a complete record.
The hearing continued on October 6, 14 & 30, 2015. The [c]ourt
issued a Findings of Fact and Order of Court on January 12, 2016
disposing of the parties’ pending economic claims. The [c]ourt
found that Husband’s ownership interest in IEP was marital
property and that its value could not be determined. The [c]ourt
also found that the parties’ mar[it]al assets that could be valued
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were worth a total of $1,365,884.09. The [c]ourt awarded each
party 50% of the marital estate. Husband was ordered to hold
his IEP membership units as a fiduciary in a constructive trust on
behalf of both parties. Husband was ordered to pay Wife a sum
equal to 50% of all distributions, dividends, proceeds and excess
return of capital received as a result of ownership of the
Membership Units.
The [c]ourt found that Husband had an earning capacity of
$300,000.00 per year. The [c]ourt found that Wife had an
earning capacity of $81,000.00 per year. Husband was ordered
to pay Wife alimony pendente lite in the amount of $4,240.00
per month retroactive to November 19, 2013. Husband was
ordered to pay Wife $3,000.00 per month in alimony for a period
of five (5) years following the issuance of a divorce decree.
On February 5, 2016 Husband presented a Motion for
Reconsideration of the [c]ourt’s January 12, 2016 Order.
Husband requested that the [c]ourt reconsider its findings that
Husband’s ownership interest in IEP was marital and that the IEP
interest could not be valued. Husband requested that the
[c]ourt modify several sections of its order including: (1)
requiring Husband to hold the IEP membership units in
constructive trust for both parties; (2) awarding Wife a sum
equal to 50% of all distributions, dividends, proceeds and excess
return of capital that Husband has received or will receive as a
result of ownership of the IEP units; (3) requiring Husband to
pay all capital calls, liabilities and taxes associated with the IEP
membership units and be subsequently reimbursed; (4)
awarding Wife alimony pendente lite and alimony; and (5)
awarding Wife counsel fees. The [c]ourt issued an order on
February 10, 2016 granting Husband’s Motion in part. The
[c]ourt ordered that Husband: (1) be reimbursed for any and all
capital calls, liabilities and taxes associated with the IEP
membership units prior to any distribution paid to Wife; (2)
withhold a reasonable amount owed to Wife for ongoing
obligations, contractual liabilities and relevant taxes; (3) pay
Wife alimony pendente lite until his appeal is resolved; and (4)
immediately implement all aspects of the [c]ourt’s January 12,
2016 Order not addressed in Husband’s Motion for
Reconsideration. Husband timely filed his Notice of Appeal of the
[c]ourt’s January 12, 2016 Order of Court as modified by its
February 10, 2016 Order.
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Trial Court Opinion, 7/7/16, at 1–3 (footnote omitted).
Husband presents the following questions for appellate review:
1. Whether the trial court erred as a matter of law in its
treatment of Husband’s interest in International Electric Power,
LLC (“IEP”):
a. by finding that his interest was marital property in
violation of the language and intent of the prenuptial
agreement and in violation of the precedent regarding
short-term transfers into and out of marital accounts;
b. assuming arguendo that his interest was marital, by
failing to assign any value to his interest when that
interest should have been valued as of the date of
separation;
c. assuming arguendo that his interest was marital, by
imposing a constructive trust on his interest in IEP for an
unlimited duration of time; and
d. by failing to interpret the Operating Agreement of IEP
as causing Wife to hold a Class B interest in IEP when the
Court awarded 50% of Husband’s interest in IEP to Wife
pursuant to a constructive trust.
2. Whether (a) the trial court erred as a matter of law when
awarding Wife alimony and alimony pendente lite based on
earnings from Husband’s interest in IEP while also awarding Wife
50% of Husband’s entire interest in IEP and (b) reinstating
Wife’s alimony pendente lite award during the appeal without
requiring a showing of need and failing to consider the
substantial marital estate Wife has already received.
Husband’s Brief at 3.
Our standard of review of awards of equitable distribution is well
settled:
A trial court has broad discretion when fashioning an
award of equitable distribution. Our standard of review when
assessing the propriety of an order effectuating the equitable
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distribution of marital property is whether the trial court abused
its discretion by a misapplication of the law or failure to follow
proper legal procedure. We do not lightly find an abuse of
discretion, which requires a showing of clear and convincing
evidence. This Court will not find an abuse of discretion unless
the law has been overridden or misapplied or the judgment
exercised was manifestly unreasonable, or the result of
partiality, prejudice, bias, or ill will, as shown by the evidence in
the certified record. In determining the propriety of an equitable
distribution award, courts must consider the distribution scheme
as a whole. We measure the circumstances of the case against
the objective of effectuating economic justice between the
parties and achieving a just determination of their property
rights.
Reber v. Reiss, 42 A.3d 1131, 1134 (Pa. Super. 2012) (quoting Biese v.
Biese, 979 A.2d 892, 895 (Pa. Super. 2009)).
Husband first challenges the trial court’s designation of Husband’s
ownership interest in International Electric Power, LLC (“IEP”) as marital
property. More specifically, Husband contends that he used funds from his
trust account to purchase the IEP stock, and, therefore, the stock is his
separate property not subject to equitable distribution under the terms of
the prenuptial agreement. The trial court disagreed, as follows:
Husband acquired a 15% ownership in IEP consisting of
200,000 units of Class A stock in exchange for $15,000.00 paid
via check #168 dated October 15, 2010 and cashed on October
26, 2010. Check #168 was written from the parties’ jointly-
titled account #9655. Husband transferred $30,000.00 from his
separate trust account into account #9655 on October 13,
2010.[2] Husband used $15,000.00 from that account to
purchase the IEP stock. Ex. 9. No writings were generated
regarding the separate or marital character of the $15,000.00
2
The actual date of the transfer is October 15, 2010. N.T., 10/6/15, at
685; Exhibit 9—Tracing and Analysis of Transfers from [Husband] to the
Joint Marital Account (Schedule 1).
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used to purchase the stock. Because the IEP stock was acquired
during the marriage, it is presumed to be marital property.
Husband bears the burden of overcoming this presumption by
showing that the IEP stock was acquired in exchange for his
separate property. 23 Pa.C.S.A. §3501(b).
The [c]ourt found that Husband’s lack of effort to
segregate the $15,000.00 evidenced his intent to gift it to the
marriage. Husband argued in his Motion for Reconsideration that
he did not take steps to segregate the $15,000.00 used to
purchase the stock because he relied on the language in the
prenuptial agreement to maintain the separate character of the
$15,000.00 after its deposit into a marital account without the
need for a writing. Husband’s trust account is indisputably his
separate property under the prenuptial agreement. The
prenuptial agreement states that “at no time during or after the
marital relationship shall [one party have an interest in the
other’s] Separate Property [and at no time during or after the
marital relationship shall there be any commingling of any of
their Separate Property] interest into jointly owned property or
into marital property except as the parties shall specifically agree
as evidenced by a written agreement.” Prenuptial Agreement at
2. Husband argues that because the prenuptial agreement
protected the $15,000.00 from becoming marital property due to
commingling, it retained its separate character after being
deposited into the joint account.
The [c]ourt noted in its Findings of Fact that Pennsylvania
has rejected the “transmutation” theory, which transforms
ownership of separate property into marital property if there is
any commingling of the two. Winters v. Winters, 512 A.2d 1211,
1215 (Pa. Super. 1986). The [c]ourt did not, therefore, find that
the $15,000.00 was marital property due to commingling or
transmutation. The [c]ourt’s finding, therefore, is not contrary
to the prenuptial agreement’s protection against commingling.
The parties’ prenuptial agreement states that “[m]arital
property, as used herein, shall mean: [...] (v) any gifts from any
source made to or titled in the name of both parties.” Under
Pennsylvania case law a spouse gifts his separate property to the
marriage when he has donative intent, the property is delivered
and the property is accepted. Lowry v. Lowry, 544 A.2d 972,
977 (Pa. Super. 1988). On October 1[5], 2010[,] $30,000.00
was delivered and accepted into the parties’ jointly-titled account
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#9655. Ex. 9. The question, therefore, is whether [H]usband
intended all $30,000.00 of his separate property deposited into
the joint account to be a gift to the marriage. Donative intent is
the “intention to make an immediate gift.” Wagner v. Wagner,
466 Pa. 532, 537 (1976), quoting In re Parkhurst Estate, 402 Pa.
527, 531 (1961).
Husband’s intention to make an immediate gift of the
$30,000.00 transfer from his trust to the jointly-titled account is
evidenced by the immediate use of the money for marital
purposes and Husband’s history of making such gifts to the
marriage. Wife testified that the money deposited from
Husband’s trust account into joint account #9655 was routinely
used for marital expenses including vacations, home
improvement, jointly-filed taxes, pool service and window
cleaning for the marital residence, Wife’s medical costs and
Husband’s life insurance. Tr. at 176-79. Ex. 9. Wife credibly
testified that Husband deposited money from his trust into joint
account #9655 multiple times during the marriage to overcome
a shortfall and pay marital expenses. Id. Husband intended for
such transfers to be used for marital expenses as stated in an
email from Husband to Wife dated August 23, 2013. Tr. at 182-
83; Ex. 6F. Husband testified that the parties were able to
sustain their lifestyle after a decrease in his income that started
in 2009 because he supplemented their cash flow with money
from his trust. Tr. at 869-70. . . .
Husband transferred $30,000.00 from his trust account to
the joint account #9655 on October 15, 2010. Husband argues
that $15,000.00 from the October 15, 2010 [transfer] remained
his separate property from the date of the transfer into the
marital account until IEP cashed check #168 on October 26,
2010. Immediately following the transfer of $30,000.00 from
Husband’s trust account on October 15, 2010 the following
expenses were paid from account #9655: cash withdrawals,
payments to animal hospitals, gas stations, grocery stores,
restaurants, hair salons, pharmacies, a pet store, a parking
garage and a wine store and a mortgage payment. Ex. 9.
Husband did not argue against classifying these as marital
expenses. . . .
Husband testified that he used joint account #9655 as a
conduit to move $15,000.00 of his separate property from his
trust account to IEP. Tr. at 995. He testified that he did not
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have a checkbook for his trust account, did not ask his father for
his trust account’s checkbook, did not know how to obtain a
“starter check,” and did not know how to wire the money directly
from the trust account to IEP. Tr. at 999-1002. At the time of
trial, Husband was employed as General Counsel and Chief
Financial Officer of IEP. His duties included structuring
international and domestic project financing and negotiating
equity and debt financing. Tr. at 1009. Husband worked as an
equity partner for K&L Gates, an international law firm, where he
developed expertise in black box transactions, off-balance sheet
financing and Shariah-compliant investment platforms. Tr. at
1011-1012. Husband received an M.B.A. from Cornell. He has
been working with financial transactions at a high level for over
twenty (20) years. The [c]ourt did not find his testimony that he
did not know how to write a check or transfer money directly
from his trust account to IEP credible. The [c]ourt has no doubt
that Husband would have segregated the $15,000.00 used to
buy his interest in IEP if he so desired. His lack of action to
segregate the funds is evidence that he intended to gift the
entire $30,000.00 transfer to the marriage.
The [c]ourt did not find Husband’s testimony regarding his
lack of intention to gift the $30,000.00 to the marriage credible.
The exhibits and credible testimony show a history of Husband
gifting money from his trust account to the marriage. The
[c]ourt’s conclusion that Husband gifted the $30,000.00 transfer
to the marriage is fully supported by the record and must stand.
Trial Court Opinion, 7/7/16, at 5–9.
After careful review, we conclude that the trial court’s disposition of
this issue is supported by the record and the relevant law. As described
above, the trial court first found that Husband’s failure to segregate the
$15,000.00 from other funds in Account # 9655 “evidenced his intent to gift
it to the marriage.” Trial Court Opinion, 7/7/16, at 5. Second, the trial
court relied upon Lowry v. Lowry, 544 A.2d 972, 977 (Pa. Super. 1988),
for the proposition that Pennsylvania law provides that “a spouse gifts his
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separate property to the marital estate when he has donative intent, the
property is delivered and the property is accepted.” Trial Court Opinion,
7/7/16, at 6. Thus, the trial court examined the October 15, 2010 transfer
of funds to Account # 9655 and concluded that Husband’s donative intent to
gift the marriage was established by Husband’s “immediate use of the
money for marital purposes and Husband’s history of making such gifts to
the marriage.” Id. at 7. Third, the trial court credited Wife’s testimony
concerning the numerous times between May 2010 and March 2013 that
Husband transferred money from his trust account to Account # 9655 to pay
for marital expenses and noted that Husband did not argue against
classifying certain enumerated expenses as marital. Id. at 7–8. In
contrast, the trial court rejected Husband’s testimony that “he used joint
account #9655 as a conduit to move $15,000.00 of his separate property
from his trust account to IEP.” Id. at 8. Given that Husband had an MBA
from Cornell, had been an equity partner at K & L Gates, was General
Counsel and Chief Financial Officer at IEP, and had over twenty years of
experience dealing with complex financial transactions, the trial court found
that Husband’s testimony that he intended the $15,000.00 utilized to
purchase the IEP stock to remain separate property lacked credibility. This
Court will not reverse credibility determinations as long as they are
supported by the evidence. Morgante v. Morgante, 119 A.3d 382, 395
(Pa. Super. 2015). The trial court’s reasons for rejecting Husband’s
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testimony are supported by the record, and we decline to revisit the trial
court’s credibility determinations. Accordingly, Husband’s first argument
lacks merit.
Husband next contends that, even if the trial court correctly included
the IEP stock in the marital estate, the trial court erred by failing to assign a
value to the stock and imposing a constructive trust of unlimited duration.
After careful review, we are compelled to agree.
At trial, Husband and Wife each presented an expert witness to render
an opinion regarding the value of the IEP stock. Wife’s expert, Richard
Brabender, testified that the IEP stock could not be valued based upon the
information available at the time of trial. Husband’s expert, Joshua
Lefcowitz, utilized the asset accumulation method to value the stock as of
both the date of separation and the date of trial. Mr. Lefcowitz determined
that the IEP stock was worth $58,503.00 on the date of separation, and
$426,040.00 as of the date of trial.
In the findings of fact issued after the trial on the parties’ economic
claims, the trial court summarily resolved the issue of the disputed value of
the IEP stock by “accept[ing] the testimony of Wife’s expert, Richard
Brabender, that the value of Husband’s IEP stock cannot be accurately
appraised at this time.” Findings of Fact and Order of Court, 1/12/16, at 12.
Husband challenged this finding in his motion for reconsideration, averring
that the trial court was required to offer an explanation for rejecting his
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expert’s opinion. Husband thus requested the trial court to “adopt his
expert’s valuation of IEP or provide a detailed explanation as to why it did
not accept the valuation.” Motion for Reconsideration, 2/5/16, at 6. He
further argues on appeal that the trial court should have accept his expert’s
valuation as of the date of separation.
In its 1925(a) opinion, the trial court offered the following rationale
for crediting Wife’s expert, Mr. Brabender:
In determining the value of marital assets, a court must
choose a date of valuation which best promotes economic justice
between the parties. Smith v. Smith, 904 A.2d 15, 18 (Pa.
Super. 2006) (quotation marks and citations omitted). The
Superior Court has noted that the general rule is to value marital
assets as of the date of distribution. Id. [a]t 19. There are
limited circumstances when it is proper to deviate from the
general rule, such as when one party causes the asset to
depreciate or be disposed of or when valuation as of the date of
distribution is significantly more difficult than valuation as of a
different date. Id. Husband did not argue in favor of or present
evidence to support deviating from the general rule. The
[c]ourt, therefore, properly endeavored to value IEP as of the
date of distribution.
* * *
Mr. Lefcowitz testified about his two (2) valuations for IEP:
one (1) valuation as of the parties’ date of separation and one
(1) valuation as of the date of trial. For his date-of-trial
valuation Mr. Lefcowitz [utilized] an asset accumulation method,
which is commonly used to value holding companies. Although
IEP was not a holding company, Mr. Lefcowitz analogized its
operations to that of a holding company to explain his use of the
asset accumulation method. He chose to use the asset
accumulation method because despite its stated purpose to build
and operate power plants, none of IEP’s completed deals have
resulted in the building or operation of power plants. Neither IEP
nor its subsidiaries had any projects in the pipeline. Mr.
Lefcowitz opined that Husband’s shares of IEP were worth
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$58,503.00 as of the parties’ date of separation and
$246,040.00[3] as of the date of trial. He did not include an
analysis of what drove the increase in value in his report or
testimony. Mr. Lefcowitz testified that IEP was “significantly
reliant on the attributes of the principals of the business.” He
did not add any value contributed to the company by the “unique
qualifications” of the principals.
Mr. Brabender credibly opined that Mr. Lefcowitz’s date-of-
trial valuation was inaccurate because it improperly assumed
zero dollars in future cash flow for IEP. Mr. Brabender explained
that omitting a value for future cash flow resulted in a liquidation
value for IEP as opposed to a going concern value, which was
improper because all indications were that IEP would continue to
seek out business. Both experts agreed that the expertise,
contacts and personal knowledge of IEP’s members were what
generated its revenue. Mr. Lefcowitz, however, did not include
any monetary value for the members’ nonmonetary
contributions to IEP. Mr. Brabender credibly opined that this
omission rendered Mr. Lefcowitz’s valuation inaccurate.
Mr. Brabender reached the conclusion that Husband’s
interest in IEP cannot be valued. The court found
Mr. Brabender’s opinion well-reasoned and credible.
Mr. Brabender testified that the income approach was the most
appropriate for IEP but that the lack of information regarding
IEP’s future deals made it impossible for him to assign an
accurate value. Mr. Brabender opined that the market approach,
another valuation method, would not yield an accurate valuation
for IEP because there were not enough comparable transactions
from which to glean a reliable value.
The [c]ourt carefully considered the testimony and report
of each party’s expert. The [c]ourt found that Wife’s expert,
Mr. Brabender, credibly opined that Husband's shares of IEP
could not be accurately valued with the available information.
The [c]ourt was within its discretion to credit the testimony of
one expert and discard the testimony of another. The [c]ourt’s
credibility determination must stand.
3
It appears the trial court inadvertently transposed this figure.
Mr. Lefcowitz testified that the value of the IEP stock as of the date of trial
was $426,040.00. N.T., 10/6/15, at 1083.
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Trial Court Opinion, 7/7/16, at 9–11 (record references omitted).
On appeal, Husband disputes the trial court’s observation that
Husband did not offer any evidence supporting a deviation from the general
rule that marital assets should be valued as of the date of distribution.
Husband claims that his position throughout the litigation was that the IEP
stock should be valued as of the date of separation, owing to the fact that
IEP’s largest and more lucrative projects were completed after the parties’
separation. Finally, Husband asserts that the trial court’s rationale for
rejecting Mr. Lefcowitz’s expert opinion was not supported by the record.
Specifically, Husband contends that the trial court’s finding that a willing
hypothetical buyer would pay some amount to purchase upcoming IEP
projects was contradicted by Husband’s testimony that IEP did not have any
identified future projects and his expert’s representation that no “prudent
hypothetical investor . . . would ascribe any value to future projects that
have not been identified.” N.T., 10/6/15, at 1138.
As set forth above, a trial court has broad discretion when fashioning
an award of equitable distribution. Childress v. Bogosian, 12 A.3d 448,
455 (Pa. Super. 2011). “Moreover, it is within the province of the trial court
to weigh the evidence and decide credibility and this Court will not reverse
those determinations so long as they are supported by the evidence.” Id.
(citing Sternlicht v. Sternlicht, 822 A.2d 732, 742 (Pa. Super. 2003)). In
applying these principles, we cannot conclude that the trial court erred in
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endeavoring to value the stock as of the date of distribution. Husband did
not present sufficient evidence, which the trial court found credible, to
support deviating from the general rule.
Furthermore, Husband’s contention that the trial court erred in not
accepting his expert’s valuation opinion as of the date of distribution is
premised upon an incomplete summation of the reasons the trial court
doubted Mr. Lefcowitz’s testimony. In addition to accepting Mr. Brabender’s
critique of Mr. Lefcowitz’s date-of-trial valuation because it “improperly
assumed zero dollars in future cash flow for IEP,” the trial court noted that
Mr. Lefcowitz’s testimony and report “did not include an analysis of what
drove the increase in value” of the IEP shares between the date-of–
separation and the date-of-trial. Trial Court Opinion, 7/7/16, at 10. The
trial court also faulted Mr. Lefcowitz for not considering “any value
contributed to the company by the unique qualifications of the principals” in
light of the expert’s testimony that the value of IEP “was significantly reliant
on the attributes of the principals of the business.” Id. at 10–11 (internal
quotations and record references omitted). However, for similar reasons, we
are troubled by the trial court’s blanket acceptance of Mr. Brabender’s
position that the IEP stock could not be valued.
First of all, Mr. Brabender opined that Mr. Lefcowitz’s date-of-trial
valuation was inaccurate because it assumed zero cash flow and that this
resulted in a liquidation value, as opposed to a going concern value.
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According to the trial court, Mr. Brabender further explained that this date-
of-trial was improper because “all indications were that IEP would continue
to seek out business.” Trial Court Opinion, 7/7/16, at 9-11. Secondly, Mr.
Brabender opined that Mr. Lefcowitz’s failure to assign any monetary value
to the members’ nonmonetary contributions to IEP rendered Mr. Lefcowitz’s
valuation inaccurate. Id. On the other hand, however, Mr. Brabender
concluded that “the lack of information regarding IEP’s future deals made it
impossible for him to assign an accurate value” based on the income
approach, which he testified was the most appropriate method of valuing the
IEP stock. Id.
We recognize the difficulty the trial court faced in assigning a value to
this relatively new business as of the date of trial. However, as noted
above, a trial court has broad discretion when fashioning an award of
equitable distribution. Childress, 12 A.3d at 455. Furthermore, the Divorce
Code does not specify a particular valuation method and the trial court is
free to accept all, part or none of the evidence offered as the correct value.
Id. at 456. It is clear that the trial court viewed this business as a going
concern. We thus conclude that the trial court erred in not assigning a value
as such.
Also, the trial court’s acceptance of Mr. Brabender’s expert opinion
that IEP could not be valued led to the trial court’s problematic disposition of
Husband’s future obligations regarding the IEP membership units, to wit:
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i. Husband as a fiduciary shall hold the Membership Units
in constructive trust on behalf of both parties. The voting rights
shall be exercised by Husband as a fiduciary.
ii. Husband shall be responsible for paying all capital calls,
liabilities and taxes associated with the Membership Units, for
which he will be reimbursed as soon as practicable from the
dividends, distributions and proceeds.
iii. Husband shall pay Wife a sum equal to 50% of all
distributions, dividends, proceeds and excess return of capital
received as a result of ownership of the Membership Units that
Husband has received during the pendency of this proceeding.
iv. Husband shall pay Wife a sum equal to 50% of all
future distributions, dividends, proceeds and excess return of
capital received as a result of ownership of the Membership Units
within ninety (90) days of receipt by Husband.
Findings of Fact and Order of Court, 1/12/16, at 22.
In his motion for reconsideration, Husband objected to several aspects
of the trial court’s distribution of the IEP shares to a constructive trust.
Generally, Husband contended that the non-specified duration of the trust
precluded a final resolution of the parties’ economic issues and perpetuated
an ad infiniutm entanglement between the parties—an outcome disfavored
by the policy and intent of the Divorce Code. Husband also challenged the
trial court’s imposition of the constructive trust because: 1) the distribution
of the IEP shares to the trust violated IEP’s operating agreement; 2) it
required Husband to serve as a fiduciary to someone other than his
partners; 3) it risked IEP’s business opportunities if there is a disagreement
between Husband and Wife regarding the extent of Husband’s fiduciary
obligation to Wife; 4) it rendered Husband susceptible to perpetual discovery
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and litigation with Wife and indentures Husband to Wife in perpetuity; and
5) it failed to account for any forfeiture event where Husband’s IEP shares
could convert to Class B, non-voting shares. Accordingly, Husband proposed
that the trial court wholly award him the IEP shares as part of a revised
equitable distribution order. Alternatively, Husband requested the trial court
to reconsider the portion of its order dictating Husband’s responsibility for all
capital calls, liabilities, and taxes associated with the IEP shares, but
providing that Husband shall be reimbursed for these costs from only future
IEP proceeds. Husband additionally asserted that, in the event he is entitled
to reimbursement of these costs, the amount must be paid to him prior to
any distribution of Wife. Finally, Husband urged the trial court to afford him
discretion to retain a reasonable portion of IEP distributions for ongoing
financial liabilities of the company.
The trial court partially granted Husband’s motion for reconsideration,
as follows:
a. Husband’s reimbursement for any and all capital calls,
liabilities and taxes actually paid by Husband in prior and future
deals associated with the Membership Units of [IEP] shall be paid
to him prior to any distribution to [Wife];
b. Husband shall have the discretion to hold back a
reasonable portion of prior or future distributions, dividends,
proceeds and excess return of capital due Wife in accordance
with the Order dated January 12, 2016 for ongoing obligations,
contractual liabilities and all relevant taxes;
c. So long as Husband acts in good faith, Husband will
have no liability to Wife related to decisions he makes
concerning IEP. Husband is not required to suffer loss or subject
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himself to liability or obligations as a result of being required to
act as a fiduciary to Wife, so long as Husband acts in good faith;
d. Husband may resign from IEP at any time he believes it
is in his best interest. Husband may join or associate with any
other business (as owner or employee) he believes in good faith
is in his best interest. So long as Husband has acted in good
faith, no portion of such future business, association or venture
shall be considered in any way or manner marital property, and
Wife shall have no interest whatsoever in any such future
business, association or venture[.]
Order, 2/10/16, at 1–2.
On appeal, Husband argues that the trial court’s modification did not
go far enough in addressing his concerns. Husband focuses his challenge on
the trial court’s imposition of the constructive trust, arguing that the trial
court erred when it “impos[ed] a constructive trust in his interest in IEP for
an unlimited duration of time without any showing of fraud, duress, undue
influence, mistake or other bad acts.” Pa.R.A.P. 1925(b) Statement, 6/8/16,
at 1–2. Husband also avers that legal error occurred when the trial court
“fail[ed] to interpret the Operating Agreement of IEP as causing Wife to hold
a Class B interest in IEP when the [c]ourt awarded 50% of Husband’s
interest in IEP to Wife pursuant to a constructive trust.” Id. at 2.
To these allegations of error, the trial court responded:
In his Concise Statement of Matters Complained of on
Appeal Husband argues that the [c]ourt improperly imposed a
constructive trust on the IEP interest “without any showing of
fraud, duress, undue influence, mistake or other bad acts.”
Husband did not previously make this argument to the [c]ourt
and it should be deemed waived pursuant to Pa.R.A.P. 302(a).
The [c]ourt assumes that Husband plans to argue that the
[c]ourt could have imposed a constructive trust only if the
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parties’ prenuptial agreement was invalidated due to fraud,
duress, undue influence, mistake or other bad acts. Because the
[c]ourt found that the prenuptial agreement’s provisions did not
apply . . . the [c]ourt was able to order that the IEP units be
held in a constructive trust without first invalidating the
prenuptial agreement. The argument cannot be sustained.
Husband complains that the [c]ourt erred by failing to
interpret IEP’s Operating Agreement as causing Wife to hold a
Class B interest in IEP when the [c]ourt awarded 50% of
Husband’s interest in IEP to Wife pursuant to a constructive
trust. Husband’s complaint plainly mischaracterizes the [c]ourt’s
Order and should be denied.
The [c]ourt heard Husband’s testimony about IEP’s
Operating Agreement and reviewed the document. IEP’s
Operating Agreement contains a provision that transforms Class
A stock into Class B non-voting stock upon its voluntary or
involuntary transfer. Husband testified that he believes the
transfer provision would cause any stock transferred to Wife in-
kind to be downgraded to Class B non-voting stock. The [c]ourt
agreed with Husband’s interpretation of the Operating
Agreement on this point and did not order the IEP stock
transferred in-kind to avoid that result. Husband also testified
that he believed that if he were ordered to hold the stock in a
constructive trust and pay Wife a portion of the proceeds
received upon his sale of the IEP interest, the transfer provision
of the Operating Agreement would be triggered and his stock
would be downgraded to Class B non-voting stock.
The [c]ourt did not find Husband’s self-serving testimony
credible. The [c]ourt specified in its January 12, 2016 Order of
Court that the IEP Membership Units would remain titled in
Husband's name and that Husband would pay Wife a sum equal
to all distributions and other income generated by his
membership interest. The [c]ourt properly interpreted IEP’s
Operating Agreement to preserve the Class A status of
Husband’s Membership Units so long as Husband holds legal
title. The [c]ourt’s Order should be sustained.
Trial Court Opinion, 7/7/16, at 11–13 (record references and quotation
marks omitted).
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We first address the trial court’s finding of waiver of Husband’s
challenge to the imposition of the constructive trust and disagree that the
issue is waived for failure to present it to the trial court in the first instance.
It appears that the first time the concept of a constructive trust arose in this
litigation was after the trial court issued its January 12, 2016 Findings of
Fact and Order of Court. Husband then timely filed his Motion for
Reconsideration outlining his objections to the distribution of the IEP stock to
the constructive trust, including that it frustrated the intent of the Divorce
Code. Motion for Reconsideration, 1/30/16, at ¶ 6(a). Husband, therefore,
did not waive review of this issue.4
Additionally, we find merit in Husband’s position that the trial court’s
distribution of the IEP stock to a constructive trust constituted error. As
noted, the trial court’s imposition of the trust was occasioned by its
acceptance of Wife’s expert’s opinion that the IEP stock could not be valued.
This resulted in the trial court’s unwieldly construct of a legal device that
financially obligated Husband to Wife for an unrestricted duration as regards
the IEP stock.
4
The trial court presumed that Husband’s contest to the imposition of the
constructive trust was premised upon the validity of the parties’ prenuptial
agreement. See Trial Court Opinion, 7/7/16, at 12–13. However, Husband
did not refer to this agreement in his request that the trial court reconsider
its decision to impose the trust; rather, he claimed, inter alia, that the
unlimited duration of the trust was contrary to the policy of the Divorce
Code. The trial court did not address this argument.
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“One of the overarching purposes of the Divorce Code is to work
economic justice between the parties. 23 Pa.C.S. § 3102(a)(6).” Dean v.
Dean, 98 A.3d 637, 642 (Pa. Super. 2014). The open-ended nature of the
constructive trust, placing an onerous burden on Husband to remain
accountable to Wife indefinitely, does not effectuate the desired equitable
distribution of the marital assets. Moreover, the trial court’s imposition of
the trust for an unspecified period implicates concerns related to deferred
distribution of marital assets. The Pennsylvania Supreme Court has decreed
that “[t]here are sound reasons to avoid the [deferred distribution] approach
due to its drawback of necessitating ongoing future proceedings and
preventing finality and certainty in the litigation.” Fisher v. Fisher, 769
A.2d 1165, 1169 (Pa. 2001); see also Dean, 98 A.3d at 643 (the
advantages of immediate distribution are that “Husband and Wife would
avoid further entanglement and the court would avoid continued
involvement and enforcement.”). Therefore, for the reason that the
unlimited duration of the constructive trust thwarts the goal of effectuating
economic justice between the parties, we conclude that the trial court
abused its discretion in imposing the trust. As such, the matter must be
remanded to refashion the equitable distribution order.
We are aware that our determination poses a quandary as to how the
trial court should proceed on remand. As noted, the trial court concluded
that the IEP stock could not be valued and thus, devised the constructive
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trust remedy. However, the trial court assumed that IEP was a going
concern when it imposed the constructive trust. Therefore, the matter is
remanded for a hearing on the value of the IEP stock as of the date of
distribution. Given the passage of time, information that was not available
in September and October of 2015 should now be available to the parties.
The trial court should direct that the valuation experts retained by the
parties be provided with all the necessary documentation and available
information to assess the value of IEP as a going concern on the date of
distribution. 5
Husband’s second argument concerns the awards of alimony and
alimony pendente lite (“APL”) to Wife. In its January 12, 2016 equitable
distribution order, the trial court decreed that “Husband shall pay Wife [APL]
in the amount of $4,240 per month beginning on February 1, 2016 and
continuing until a divorce decree has been filed.” Order, 1/12/16, at 23.
The trial court also decided that “Husband shall pay Wife $3,000 per month
in alimony for a period of five (5) years following the issuance of a divorce
decree.” Id.
In his motion for reconsideration, Husband requested the trial court to
order that his “alimony obligation begin February 1, 2016 and extend for a
5
After the trial court renders its decision on the monetary worth of the
stock, it would be preferable in this situation that the interest in IEP be
distributed to Husband, with an offset to Wife. However, we recognize that
it is the role of the trial court to fashion the specifics of the equitable
distribution award. As such, we decline to address Husband’s argument
concerning the interpretation of the Operating Agreement of IEP.
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period of 5 years therefrom irrespective of the entry of the divorce decree.”
Husband’s Motion for Reconsideration, 2/5/16, at 10.6 After oral argument,
the trial court granted in part and denied in part Husband’s motion. The
court denied Husband’s request regarding the starting date of his alimony
obligation. Regarding APL, the trial court ruled that in the event that
Husband files an appeal to this Court: “The parties shall process a PACSES
order setting [APL] payable to Wife by Husband in the amount of $4,240 per
month, effective February 1, 2016 and continuing until the exhaustion of
appeals. . . .” Order, 2/10/16, at 2.
Husband’s appellate challenge to the alimony and APL awards has two
components: 1) Wife’s alimony and APL amounts were impermissibly based
upon Husband’s interest in IEP, and 2) Wife failed to demonstrate a need for
APL. The trial court determined that Husband waived his first allegation of
error because he did not raise it in his motion for reconsideration. See
Pa.R.A.P. 302(a) (“Issues not raised in the lower court are waived and
cannot be raised for the first time on appeal.”). We agree and, thus,
address Husband’s final argument concerning the propriety of the trial
court’s alimony pendente lite award. The trial court explained its decision to
award Wife APL during the pendency of the appeal, as follows:
6
As the trial court noted, Husband presented his reconsideration motion on
February 5, 2016, and the trial court granted the motion in part on
February 10, 2016. Trial Court Opinion, 7/7/16, at 3. The docket indicates
the motion was ultimately filed on June 1, 2016.
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In his Motion for Reconsideration filed on February 10,
2016 Husband asked the [c]ourt to terminate APL and begin
alimony payments to Wife as of February 1, 2016. The [c]ourt
denied his request and ordered that Husband continue to pay
APL in the amount of $4,240.00 per month and defer alimony
payments until the resolution of his appeal. Husband claims that
the [c]ourt did not require Wife to demonstrate a need for APL or
consider the substantial portion of the marital estate that she
already received. Before making its ruling the [c]ourt carefully
considered Wife’s financial situation in its nineteen (19) page
Findings of Fact filed on January 12, 2016. The [c]ourt’s
analysis included consideration of each equitable distribution
factor listed in 23 Pa.C.S.A. §3502(a) and a discussion of Wife’s
vocational skills, employability, income and earning capacity.
The [c]ourt properly found that, based on Wife’s financial
situation and earning capacity, she was entitled to APL and
alimony under the factors set forth in 23 Pa.C.S.A. §3701(b).
The [c]ourt found Wife’s evidence demonstrating her need for
APL and alimony credible.
The [c]ourt carefully considered the equitable distribution
factors listed in 23 Pa.C.S.A. §3502(a) before ordering the
distribution of marital assets as set forth in its Order of January
12, 2016. Much of Wife’s award consisted of retirement
accounts which may not be easily accessible for the purposes of
funding Wife’s appeal defense. Wife had very limited separate
financial resources. The [c]ourt was fully aware of the details of
Wife’s equitable distribution award and financial situation before
ruling that Wife shall receive APL until Husband’s appeal is
resolved. Husband’s claim that the [c]ourt did not require a
showing of need before awarding Wife APL during the pendency
of the appeal fails to consider the [c]ourt’s diligence in
fashioning the detailed equitable distribution Findings of Fact and
Order of Court issued in this case.
Trial Court Opinion, 7/7/16, at 14.
This Court has set forth our standard of review and summarized the
law with regard to the continuation of APL during an appeal as follows:
Where an order regarding alimony pendente lite “is bolstered by
competent evidence, the order will not be reversed absent an
abuse of discretion by the trial court.” Jayne v. Jayne, [663
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A.2d 169, 176 (Pa. Super. 1995)]. The obligation to pay
alimony pendente lite “continues even after the entry of a final
decree in equitable distribution when an appeal remains pending
and terminates only after all litigation has ended.” Id. The right
to receive alimony pendente lite during an appeal is not
absolute, however; “alimony pendente lite may be terminated
before the litigation is concluded where the recipient has
acquired assets of income which sufficiently equalized the
financial ability of the parties to pursue the action.” Id.
Brody v. Brody, 758 A.2d 1274, 1281 (Pa. Super. 2000). Additionally,
[a]n appellate court’s standard of review in cases involving
support matters is whether the trial court abused its discretion.
An abuse of discretion exists when the judgment of the trial
court is manifestly unreasonable or is the result of prejudice,
bias or ill-will. While it is not an appellate court’s duty to create
the record or assess credibility, we must nevertheless examine
the existing record to ascertain whether sufficient facts are
present to support the trial court’s order. If sufficient evidence
exists in the record to substantiate the trial court’s action, and
the trial court has properly applied accurate case law to the
relevant facts, then we must affirm.
Hibbitts v. Hibbitts, 749 A.2d 975, 976-977 (Pa. Super. 2000) (internal
citations omitted).
Husband contends that he should be discharged from his APL
obligation because Wife “has received substantial marital assets and is
receiving alimony.” Husband’s Brief at 10. Husband’s argument is
unavailing. First, it is not accurate that Wife is receiving alimony. The trial
court’s order on reconsideration specifically states that “alimony shall be
deferred until the resolution of the appeal.” Order, 2/10/16, at 2. Second,
the fact that the equitable distribution order awarded Wife a significant dollar
amount does not automatically mandate that her need for APL is
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extinguished. As set forth above, the trial court comprehensively explained
its rationale for continuing APL through the pendency of Husband’s appeal,
and we discern no abuse of discretion in the trial court’s ruling.7
To conclude, we affirm the portion of the trial court’s decree that
designated the IEP shares as marital property and its award of alimony and
APL to Wife. We vacate the equitable distribution order in that it distributed
the IEP shares to a constructive trust of unlimited duration. The matter is
remanded for a hearing on the value of the IEP as a going concern as of the
date of distribution. The trial court is directed to then craft an amended
equitable distribution award reflective of this economic adjustment.
Decree affirmed in part, vacated in part, and remanded for further
proceedings consistent with this memorandum. Jurisdiction relinquished.
Judge Moulton joins the Memorandum.
Judge Strassburger files a Dissenting Memorandum.
7
In his reply brief, Husband requests that in the event the APL award is
upheld he be credited for the thirty-day extension that Wife requested and
received to complete her appellate brief. Issues presented before this Court
for the first time in a reply brief are waived. See Pa.R.A.P. 2113 (scope of
the reply brief is limited to matters raised by appellee and not previously
addressed in appellant’s brief). Additionally, Husband has not demonstrated
that he made this request to the trial court. See Pa.R.A.P. 302(a) (“Issues
not raised in the lower court are waived and cannot be raised for the first
time on appeal.”).
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 4/21/2017
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