Mohen v. Mohen

The appellate court (AC) vacated the trial court order (TC) that erroneously charged the husband with $4,360,158 in unaccrued interest on marital assets that the husband fraudulently dissipated from the marital estate. This altered the equitable distribution, so the case was further remanded to the TC to issue a new order per this AC opinion.

The wife left employment in 1990 to “tend to the children.” At the time of the divorce, the wife’s income was $1,072 per month, while the husband earned $64,000 per month. Both parties were accountants. The husband purchased and operated various real estate entities during the marriage. They amassed marital assets worth millions of dollars.

“On October 4, 2011, Husband had the first series of meetings with an estate attorney to create trusts for the parties’ children and update his estate plan. Husband did not include Wife in the meetings.” His August 2012 will named the wife as the beneficiary of his estate. On Oct. 5, 2012, the husband executed trust documents transferring common stock in his businesses to his three children. Each trust corpus was worth approximately $3 million. The wife indicated that she did not learn of the trusts until the couple was separated in December 2013.

The wife averred that the transfers to the trust were fraudulent transfers and the value of the trusts should be charged against the husband in the parties’ equitable distribution scheme. The husband claimed that he had told the wife of these trusts. The parties stipulated that the trusts held a combined asset value of $9,291,372. The TC deemed the husband’s transfers of assets to the trusts for the children to be fraudulent and void and thus chargeable against the husband in the equitable distribution.

“Based on the earlier finding that Husband dissipated assets from the marital estate, the trial court charged Husband with $14,642,475.00, representing the stipulated value of the trusts plus interest.” The TC ultimately ordered that the husband needed to satisfy the amount due wife “via any accounts/funds necessary.”

Husband filed an appeal and raised the following issues:

1. Did the TC err in overriding the AC decision in Balicki v Balicki (citations omitted) in declining to deduct taxes associated with the sale of the husband’s business and business real estate holdings?
2. As to the trusts created for the children, did the TC err in:
3. Concluding that the husband’s creation of the trusts was a fraudulent transfer and thus charging the husband with receipt of the trust assets in the equitable distribution?
4. There was no basis for the finding that $4.36 million had accrued on the trusts’ assets from December 2016 to April 2019?
5. It was declining to deduct taxes from the value of the trust assets where the TC charged the husband with the receipt of those assets?
6. Did the TC err in ordering the husband to pay $9.8 million within 60 days despite the finding that the husband did not have even a third of that amount in cash and retirement assets?

Tax Ramifications of Sale of Business Assets

According to the husband, he would be unable to meet the equitable distribution payment schedule without selling his businesses, which would result in considerable tax implications. The husband contended case law required the TC to consider tax ramifications of a sale regardless of whether a deal is likely (Carney v Carney). The TC was not persuaded by the proposed tax implications for the sale of the businesses or real estate and thus did not consider any such tax ramifications. “In a marital estate as large and complex as this one, Husband has not convinced us that we should interfere with the trial court’s ample discretion to value the assets.”

The Trusts

Fraudulent Transfer

Section 350(e) of the divorce code provided that “[a]n encumbrance or disposition of marital property to third persons who paid wholly inadequate consideration for the property may be deemed fraudulent and declared void.” The TC stated that the husband had met with the estate planner in several meetings without the wife present. The husband emphasized that he retained no control over the assets, that they were gifts to the children, and that they were done before the parties separated. The TC also emphasized that the husband had started a relationship with a new fiancée before the execution of the trusts.

“[T]he trial court found that Husband did not create the trusts for estate planning and instead created the trusts to dissipate the parties’ marital assets.” The TC found the wife’s testimony on whether she had been informed of the trusts more credible than the husband’s testimony. The AC said it would not disrupt the credibility findings, which were in the purview of the TC. The AC also found the husband’s argument unpersuasive that he could not have intended to defraud the wife because the $3 million trusts “paled in comparison” to the $10.9 million he intended to leave the wife in his will. This argument ignored the reality that the property at issue was not solely owned by him but was marital property. Further, Subsection 3505(e) states that children are third parties. 

The husband also raised the issue of whether Subsection 3505(e) applied only to post-separation transfers. The AC observed that there was no temporal restriction on this section and that it was at the discretion of the TC to fashion an equitable distribution. The AC found no abuse of discretion from the TC in this matter.

Interest

The husband questioned the TC’s valuation of the trusts, including accrued interest. When calculating the amount to charge the husband, the TC included $990,945 of interest paid to the trusts between December 2016 and April 2019. “The trial court also found that ‘additional interest payments’ had ‘accrued in the amount of $4,360,158[.00], making the total value of the trusts as of April 2019[,] $14,642,475[.00].’” The husband asserted that the court erred in adding the additional $4,360,158 of interest. It was not based on the evidence of record and that the TC should have applied the parties’ stipulated value without adding further interest.

The AC stated that there was no agreement that no further payments to or interest accrued would not be added to the value of the trusts, and, thus, the TC did not abuse its discretion. However, the husband was correct that the record does not support the addition of $4,360,158. Using the TC’s testimony of the wife’s expert, Stephen Juska, the AC concluded that “the trial court’s inclusion of $4,360,158.00 of interest was manifestly unreasonable and an abuse of discretion.”

Taxation of the Trusts

The TC declined to deduct taxes from the value of the trusts, finding that there would be no tax consequences to either the husband or the wife. “Husband disagrees, arguing that taxes will need to be paid upon distribution of the assets regardless of who owns them, which reduces the value of the asset.” The AC found no abuse of discretion in the TC’s decision not to include taxes on the trusts. The TC made the husband pay the consequences of setting up the trusts unilaterally. Without a change of title, either party would pay no taxes, and the beneficiaries would pay the taxes on the trust income. 

Timing of Payments to Wife

Since the vacation of the interest will change the equitable distribution, this argument by the husband was moot.