Survey of 1991 Developments in Connecticut Family Law
| Pages | 40 |
| Publication year | 2021 |
66 CBJ 40. Survey of 1991 Developments in Connecticut Family Law
A. Dissolution of Marriage
1. No Error
In 1991, for the most part, the Connecticut Appellate Court and the Connecticut Supreme Court upheld trial court financial orders made at the time the decree of dissolution or separation entered. (fn1) Several of the decisions are nonetheless noteworthy.
a. Earning Capacity Is Not A Ceiling
In Graham v. Graham, (fn2) the trial court was upheld where it ordered the husband to make payments, including alimony, child support, mortgage, and other maintenance costs of the home, which totaled almost twice the husband's earning capacity. The parties were married for approximately eleven years. The wife's earning capacity exceeded $50,000 a year. The 34-year old husband's earning capacity was $25,000 per year. He had a stock portfolio, acquired through his family, of approximately $200,000. The husband was ordered to pay the wife $125 a week child support for the parties' five year old minor child and alimony of $200 a week for five years. The husband was awarded exclusive use and occupancy of the parties' jointly owned home until its sale, the proceeds of which, anticipated to approximate $250,000, were to be divided 65% to the wife and 35% to the husband. The husband was permitted to keep his stock portfolio.
The Appellate Court, in Graham, rejected the husband's contention that the trial court had abused its discretion because the court-ordered payments, including those for the home, exceeded his earning capacity of $480 per week by $435 per week. The Court stated that a payor's earning capacity is not a cap on the periodic orders and that, in fashioning its orders, the trial court properly considered the husband's stock portfolio and the standard of living enjoyed by the parties which had exceeded their combined earning capacities.
b. Consideration of a Vested Inheritance Deferred
Eslami v. Eslami, (fn3) another case where the trial court was upheld in its exercise of discretion in making financial orders, presented several issues. The most significant question involved the wife's inheritance. At the time of trial, the estate of her deceased father had not yet been settled, because the wife's brother was contesting the will. The wife testified that she had incurred expenses of approximately $73,000 in the will contest and that she expected to net approximately $180,000 from the estate if the will were upheld, but only $80,000 if not. The trial court stated that it did not consider the wife's interest in her father's estate in making its financial awards because the value of the wife's interest could not be determined. The court expressly provided that receipt of the inheritance would be a basis for modification of alimony.
While not mandating that approach in every similar case, the Supreme Court, in Eslami, held that order to be within the court's discretion. In previous cases, the Supreme Court had held that evidence of the mere expectancy of receiving an inheritance in the future is inadmissible. (fn4) Eslami, however, stands for a different proposition. A vested interest may be ignored where valuation is problematic. Although the wife's interest in her father's estate vested upon his death and ceased to be a mere expectancy, because its value could not be ascertained with certainty, it was within the trial court's discretion to ignore it in connection with its property orders. Permitting the husband the right to file a motion for modification upon the wife's actual receipt of the inheritance is, at best, a hollow victory and could
prove illusory. Only alimony, and not property division, can be modified at that time. (fn5) Other circumstances could change before receipt of the inheritance which could significantly reduce its impact. And, alimony may terminate before that time because of the death of either party or the wife's remarriage. Thus, the Eslami "solution" of deferring consideration of an asset because of uncertain value is, at best, imperfect. Should the same approach be adopted to pending personal injury claims and vested remainder interests in trusts where there exist powers to invade for the benefit of the income beneficiary?
c. Valuation of Goodwill in a Professional Practice
Eslami also involved valuation of a medical practice. The Court held that the trial court did not err in accepting an expert's opinion which valued the goodwill of the husband's radiological practice through a capitalization of excess earnings method. In reaching that conclusion, the Court addressed a classic problem in matrimonial matters involving a personal services company or professional practice, i.e., the so-called "double dipping" issue. Should the spouse's earning capacity be taken into account in both the property division and alimony awards? For example i in the case of a personal services company, the payor will presumably pay alimony from the income to be received from that company. To award property to the other spouse because of a valuation of that company which includes a capitalization of that income would be a double dip.
The Eslami Court recognized that goodwill may constitute an element of value of a professional practice, as well as other businesses, distinct from the tangible assets of the practice.
Its value, however, must be determined on the basis of the price that a willing buyer would pay in excess of the tangible assets to acquire the practice. Obviously, the most persuasive evidence of such value would be prices obtained in comparable sales of similar medical practices, if sufficient information of that kind can be found. (fn6)
The Eslami Court rejected the notion that goodwill could be valued without consideration of the saleability of the practice
and the existence of a market for its purchase.
To the extent that the goodwill of the practice cannot be detached from the personal reputation and ability of the practitioner through a sale, it cannot be said to have any significant market value, even though it may enhance the earning power of the practitioner so long as he continues to work in the same community. (fn7)
In language that will often be cited by matrimonial practitioners, the Eslami Court emphasized that:
[I]f goodwill depends on the continued practice of a particular individual, such goodwill, by definition, is not a marketable asset distinct from the individual. (fn8)
To avoid "double dipping," the Supreme Court expressly disapproved of valuation methods that do not differentiate between goodwill which will result in a higher sales price and the practitioner's own enhanced earning power.
A valuation method that does not differentiate between the goodwill of the practice as a saleable entity and the practitioner's own earning power as enhanced by such goodwill may well result in counting the same basis for a financial award in dissolution cases twice, once as an asset of his estate subject to allocation and again, as a component of his earning capacity forming the basis for alimony. (fn9)
The Eslami Court approved of the "capitalization of excess earnings method" of valuing goodwill because it seeks to determine the price a prospective purchaser would pay to acquire a stream of income in excess of the amount he would expect to earn by engaging in the profession through other avenues. (fn10)
d. Failure to Value Permits an Inference
Another issue in Eslami concerned the husband's Iranian pistachio nut farm. The wife testified that the husband, before the fall of the Shah, had said that he wanted to sell the farm for over one million dollars. The husband testified that social,
religious, and political upheaval in Iran rendered "this basis for a current valuation of his interest in the Iranian farm quite problematic." (fn11) The husband, however, gave no opinion about the farm's value; in fact, he had not even mentioned the farm on his financial affidavit. The trial court, in its articulation memorandum, referred to the husband's admission to the wife that the value of his interest in the farm was one million dollars. The Supreme Court refused to equate that statement with a finding that the farm had that value. Perhaps, because no motion for review or request for further articulation was filed, the Court declined to find error in the trial court's statement. It concluded that the trial court was justified in drawing an inference that the farm had substantial value from the failure of the husband to produce some evidence of its value to contradict the effect of the wife's testimony. (fn12)
e. Attorney's and Expert Fees
The Eslami Court affirmed an order that the husband contribute $25,000 towards the counsel fees of the wife and $23,000 in reimbursement to her for expert witness fees. The trial court had awarded lump sum alimony of $300,000 and the wife's affidavit showed $95,000 of savings and securities, the totality of which "would be more than adequate to pay the wife's liabilities and litigation expenses." (fn13) Because the trial court stated that the award was justified and a denial of fees would be an abuse of discretion by substantially undermining her other awards, the Supreme Court found no error."
2. Error
a. No Retroactive Modification
In Trella v. Trella, (fn14) a pendente lite order of $400 a week as unallocated alimony and child support had entered. The marriage was dissolved approximately two years later. The trial
court, inter alia, found that the wife owed her father approximately $27,000 because of unpaid rent and cash outlays that he had made on her behalf during the period the pendente lite order was...
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