Dave v. Steinmuller

SHARER, J. The parties to this appeal, Mukut K. Dave and Susan E. Steinmuller, were divorced by judgment of the Circuit Court for Baltimore County, Hon. Michael J. Finifter presiding. Mukut K. Dave, appellant, seeking to enhance his substantial monetary award and alimony allowance, takes exception to certain of Judge Finifter’s fiscal determinations. After a three day trial, the court filed a memorandum opinion and judgment of divorce, granting Dave an absolute ⁶⁵⁷ divorce.

The court ruled the parties’ premarital agreement invalid and unenforceable; thus, it proceeded to determine the status of property as marital or nonmarital, valued the property, and made a disposition. The court ordered the sale of the jointly titled marital home and an equal division of the proceeds; 1 ordered the parties’ joint Charles Schwab brokerage account to be divided equally; ordered Steinmuller’s pension to be distributed according to the Bangs formula, with Dave to receive one-half of 78/300 of each monthly payment; ordered that appellant receive one-half of the marital portion of Steinmuller’s deferred compensation account (valued at $157,248); granted Dave a monetary award in the amount of $24,397; awarded Dave rehabilitative alimony of $27,000 per year for two years; and awarded Dave attorneys’ fees of $16,000 and expert witness fees of $2,000. In total, appellant’s severance package was worth nearly $450,000, not including the portion of Steinmuller’s pension benefit paid to him each month. In his timely appeal, Dave presents for our review four questions, which we have consolidated and rephrased: 2 I. Did the circuit court abuse its discretion in its determination that the Legg Mason securities account was not marital property? ⁶⁵⁸ II.

Did the circuit court commit error in not awarding indefinite alimony, and in the amount of alimony ordered?

III

Did the circuit court abuse its discretion in the award of attorneys fees to appellant? We answer all of appellant’s questions in the negative, and therefore shall affirm. FACTUAL and PROCEDURAL HISTORY At the time of trial, Dave was 56 years of age and Steinmuller was 61. Dave was born in India and educated there, having obtained a bachelor’s degree in electrical engineering and a master’s degree in business administration (MBA).

In India, he was employed as a media planner, manager, and director in advertising agencies. He arrived in the United States in 1976 on a student visa, 3 and later worked for two advertising agencies in Chicago, until 1982 when he was laid off. In January 1983, he was hired as a media director by a Baltimore advertising agency. Steinmuller was an employee of the City of Baltimore, before and during the marriage.

The parties met in August 1984, and were married in January 1985, in Baltimore. Within a few days of becoming engaged, Steinmuller informed Dave that she wanted a prenuptial agreement. She presented him with a prepared agreement, which he signed on the evening before they were married. 4 Dave obtained permanent resident status in the United States by virtue of the marriage. Steinmuller continued in her employment with the City of Baltimore through 1991, ⁶⁵⁹ when she retired.

Dave continued to work for the advertising agency in Baltimore until he was terminated in 1985, at which time he began freelancing, with minimal success, in the media planning and market research areas until March 1987. He testified that he could not find advertising jobs in the Baltimore/Washington metropolitan area. After his unsuccessful job search, the parties agreed that he would manage Steinmuller’s investment portfolios. 5 Dave stated that he took this on as if it were his full-time employment and, in the ensuing years, dedicated an average of 30 hours each week to the financial management. 6 The Brokerage Accounts Steinmuller had a premarital account with Edward Yiner. Her inherited funds were placed into a separate account with Alex Brown.

In April 1986, Steinmuller and Dave attended a meeting, at Steinmuller’s insistence, with her broker at Alex Brown to discuss the evaluation of her holdings in the Viner and Alex Brown accounts. Dave testified that at that time he performed a detailed analysis of the portfolios, and he and Steinmuller discussed the broker’s recommendations. Steinmuller allowed Dave to make decisions on the spot, rejecting some, and accepting some, of the broker’s recommendations. She acknowledged that Dave’s knowledge of investments was greater than her own.

When Dave assumed the management of the accounts, the Alex Brown account consisted of 19 different stocks; 13 stocks were held in the Viner account. At that time, the combined portfolios were apportioned nearly equally in tax free bonds, cash, and equities. Dave’s approval was required of any decisions by Alex Brown about the account. On occasion his decisions were made contrary to the broker’s recommendations. ⁶⁶⁰ In November 1987, Dave, with Steinmuller’s approval, transferred the Alex Brown account to Smith Barney.

Prior to the transfer of the account, Dave went to New York alone to interview Smith Barney representatives. On October 27, 1987, Dave and Steinmuller signed signature cards and a securities account agreement with Smith Barney. Steinmuller also executed a trading authorization, conferring upon Dave full authority to purchase and sell securities on her account through Smith Barney. Notwithstanding the trading authorization, the Smith Barney account remained in the sole name of Steinmuller, resulting from the merger with the previous Alex Brown account.

Later, in 1990, Steinmuller’s Viner account was merged into the same Smith Barney account. Ultimately, in 1997, the Smith Barney account was closed and its assets transferred to an account with Charles Schwab. A Merrill Lynch account, originally in Dave’s name only, later became a joint account. It too was moved to Smith Barney.

At the time of the parties’ separation on March 21, 2001, Dave’s management of the investment account terminated. Steinmuller then moved the account to Legg Mason. On March 31, 2001, the account had a value of $4,049,371.64. Other Accounts Steinmuller’s individual retirement account (IRA) had a value of $22,933 at the time of the divorce.

The joint Charles Schwab account had a value of $144,170 on February 28, 2003. Income and Expenses Evidence was produced of the incomes of the parties, ranging from $89,210 in 1985 to $141,628 in 2000. In the years that the parties filed joint income tax returns their income averaged more than $107,000. At the time of trial, Steinmuller had a gross monthly income of $9,430 and net monthly income of $8,354.

She was not yet drawing Social Security benefits. She claimed monthly expenses of $8,175, including $2,400 in temporary alimony she was paying to Dave, and non ⁶⁶¹ recurring legal expenses relating to the divorce in the amount of $1,370. Steinmuller’s assets included real estate valued at $200,000 (one-half of the $400,000 value of the marital home); Municipal Employees’ Credit Union (“MECU”) savings of $54,892 and checking of $1,688; a First Union account of $15,545; the Legg Mason account of $3,130,599 (as of February 20, 2003); the Schwab account of $72,235 (one half of the joint account of $144,470); United States bonds in the amount of $3,175; deferred compensation of $384,011 as of December 31, 2002; an IRA with a value of $22,933; jewelry valued at $14,000; and an automobile valued at $1,015. Receivables included $16,546 due from a Federal tax refund and $4,514 due from a Maryland tax refund.

Her total net worth was $3,925,243. Dave, who was still unemployed at the time of trial, had income of $2,849.01 per month, $2,400 of which was the temporary alimony, against monthly expenses of $6,547. His assets consisted of one-half of the value of the $400,000 marital home; one half of the $144,470 joint Schwab account; a Merrill Lynch IRA in the amount of $10,541; a 1993 Mazda valued at $4,944; a checking account of $1,044; a savings account of $18,855; and a Schwab IRA valued at $1,044. On the other side of the ledger, he listed $60,044.88 in liabilities, including $23,472.96 in attorneys’ fees.

The remainder was credit card debt which he testified was incurred to fund the litigation. Standard of Living The parties enjoyed a high standard of living during their marriage. In December 1986, Steinmuller purchased the real estate known as 4403 Langtry Drive, Phoenix, Maryland. In October 1992, she conveyed the property to herself and Dave, jointly.

The home was a four bedroom, four bathroom, two car garage, colonial home that was well-landscaped on two acres, with a swimming pool and tennis court. They dined out frequently and traveled extensively within the United States and abroad, including Mexico, England, Portugal, Hong Kong, ⁶⁶² India, Germany, China, Australia, New Zealand, Switzerland, and France. Steinmuller retired in 1991, after which the parties spent a great deal of time together. They shared housekeeping duties.

She made coffee in the morning and cleaned the kitchen at night, and also did the laundry. Dave testified that he did all the cooking, all exterior maintenance of the house, and almost all other household chores. Steinmuller told the court that Dave was a cheerful person at the beginning of the marriage, but that he became both physically abusive and verbally threatening. In contrast, Dave claimed that his wife suffered from depression during the marriage and became quiet and withdrawn.

They formally separated on March 21, 2001, when Steinmuller left the marital home. The Trial The case was tried on April 7, 8, and 9, 2003. On July 9, 2003, Judge Finifter filed a thorough memorandum opinion and entered a judgment of divorce. The court granted Dave an absolute divorce; found the parties’ premarital agreement invalid and unenforceable; and ordered the sale of the jointly titled marital home and an equal division of the net proceeds, ordered equal division of the joint Charles Schwab brokerage account, ordered that Dave would receive a portion of Steinmuller’s pension based upon 50% of 78/300 of each monthly payment, and that Dave receive 50% of the marital portion of Steinmuller’s deferred compensation account ($157,248).

In addition, the court granted Dave a monetary award of $24,397, awarded him rehabilitative alimony in the amount of $27,000 per year for two years. Lastly, Dave was awarded attorneys’ fees of $16,000 and expert witness fees of $2,000. Specifically, Judge Finifter concluded that Dave had not met his burden of proving that any amount of the Legg Mason portfolio ($3,130,599) was marital, and that he did not prove that the accretion to the portfolio during the marriage was the result of his efforts. Appellant noted this appeal. ⁶⁶³ DISCUSSION I. Did the circuit court abuse its discretion in its determination that the Legg Mason securities account was not marital property?

(1) This aspect of the appeal is governed by Md.Code (1999 Repl. vol.), Fam. Law §§ 8-201 to 213, otherwise known as “The Marital Property Act” (“Act”). Section 8-201 defines marital property: (e)(1) “Marital property” means the property, however titled, acquired by 1 or both parties during the marriage. (2) “Marital property” includes any interest in real property held by the parties as tenants by the entirety unless the real property is excluded by valid agreement.

(3) Except as provided in paragraph (2) of this subsection, “marital property” does not include property: (i) acquired before the marriage; (ii) acquired by inheritance or gift from a third party; (iii) excluded by valid agreement; or (iv) directly traceable to any of these sources. Fam. Law § 8-201 (e) (1999 Repl.Vol.). The purpose of this provision is to provide a method for equitably distributing certain property of the spouses.

Jandorf v. Jandorf, 100 Md.App. 429, 437 , 641 A.2d 971 (1994). In determining marital and nonmarital property, Maryland follows the “source of funds” theory: [u]nder the Maryland Act the appropriate analysis to be applied is the source of funds theory. Under that theory, when property is acquired by an expenditure of both non-marital and marital property, the property is characterized as part nonmarital and part marital. Thus, a spouse contributing nonmarital property is entitled to an interest in the property in the ratio of the nonmarital investment to the total nonmarital and marital investment in the property.

The remaining property is characterized as marital property and its value is subject to equitable distribution. Thus, the spouse who contributed nonmarital funds, and the marital ⁶⁶⁴ unit that contributed marital funds each receive a proportionate and fair return on their investment. Pope v. Pope, 322 Md. 277, 281-82 , 587 A.2d 481 (1991) (citing Harper v. Harper, 294 Md. 54, 80 , 448 A.2d 916 (1982)). “Under the statute, a gift made to only one of the spouses is not marital property; a gift to both spouses may be marital property, depending upon the nature of the gift.” Paradiso v. Paradiso, 88 Md.App. 343, 358 , 594 A.2d 1200 , cert. denied, 325 Md. 95 , 599 A.2d 447 (1991). A spouse who owns nonmarital property is permitted to preserve its nonmarital status even if it changes in character or form during the marriage, as long as the spouse can trace the asset acquired during marriage directly to a nonmarital source.

With regard to traceability, we opined in Melrod v. Melrod, 83 Md.App. 180 , 574 A.2d 1 , cert. denied, 321 Md. 67 , 580 A.2d 1077 (1990): FL § 8-201(e)(2)(iv) is quite specific; it excludes from marital property any property acquired during the marriage that is directly traceable to a non-marital source. “Directly traceable” is not synonymous with “attributable.” ... This inability to trace property acquired during the marriage directly to a non-marital source simply means that all property so acquired was marital property. Id. at 187, 574 A.2d 1 (emphasis in original) (citing Brodak v. Brodak, 294 Md. 10 , 447 A.2d 847 (1982)). “[T]he judgment of the lower court will not be set aside on the evidence unless clearly erroneous and due regard will be given to the opportunity of the lower court to judge the credibility of the witnesses.” Brodak, supra, 294 Md. at 26, 447 A.2d 847 (quoting former Maryland Rules 886 and 1086) Securities Accounts and Husband’s Involvement Dave testified that he dedicated an average of 30 hours per week in activities dedicated to managing Steinmuller’s portfolio. His daily activities, from 1986 until the parties separated, consisted of research of the markets, including reading daily flagship publications and watching various financial programs ⁶⁶⁵ on cable and network television.

He followed a detailed process in determining whether to buy or sell stocks, reviewing publications such as Value Line, The Wall Street Journal, and Business Week. He created a test of 15 factors that he used to evaluate a particular company and applied his own detailed analysis based on the stability of earnings and assets. Shares of a particular company would not be purchased unless all 15 of his test factors were satisfied. His factors included an analysis of price to book value, price to earnings, price to earnings on a three year average, continuity over five years and ten years, interest coverage, dividends over the past twenty years, the current ratio, and net current assets versus long term debt.

The Expert Testimony David Citron, an investment expert and chartered financial analyst, testified as an expert for Dave in the field of portfolio evaluation and analysis. In analyzing the portfolio, Citron went through each monthly statement, entered all transactions, and charted the cash flow. He accounted for living expenses, and determined the performance for each time period. He opined that the overall performance of the portfolio, without fixed income from December 31, 1985 to August 31, 2000, under a time-weighted net analysis, was 16.09%.

The portfolio value during that period increased to $3,998,879.21. An average of approximately 10% of the portfolio was in cash in a money market account, which was considered to be an “anchor,” returning significantly less than stocks. Citron, whose written report was introduced into evidence, concluded that Dave had done a “very, very good job” in his management of the portfolio. The performance would have put him in the top quartile of all managers of mutual funds.

His report reflects that an average investor received a 5% annual return in the decade of the 1990’s. As to the heart of the matter, however, Citron testified that he could not quantify the extent to which Dave’s efforts, as contrasted with the rise in productivity in the United States, the tax environment, rising corporate earnings, rising personal income, and an increased accep ⁶⁶⁶ tance of risk among United States investors, contributed to the increase in the value of the portfolio. Steinmuller’s expert, Joel Morse, Associate Dean of the Merrick School of Business at the University of Baltimore, and former Director of the Division of Economics, testified that the U.S. securities markets were successful from 1987 through 2001. He attributed that success to a number of factors, including an economy with rising productivity and an acceptance of equity risk by investors; a rise in the price/earnings multiplier; a stable tax environment; a rising stream of corporate earnings; and rising personal income, all allowing for the purchase of financial assets by households.

Morse testified that these factors explained substantially why the Standard and Poor’s (“S & P”) 500 Index 7 and the individual investing experience of many people did well in that period. Morse disagreed with Citron’s assessment of the quality of Dave’s management performance, noting that he underperformed the S & P Index. He conceded that there were many other indices to which he did not compare the portfolio. Dave posits that at least a portion of the accretion of the portfolio value, as a result of his efforts, has been transformed from nonmarital to marital property.

He argues that his efforts bring him within the rule of the Court of Appeals’ decision in Brodak, supra, because, although not a titled owner of the accounts, he put forth work efforts throughout the marriage in managing the portfolio, for which he received no compensation. He asserts that his active management, including the buying, selling and holding of stocks, resulted in the acquisition of additional assets to the portfolio and its substantial increase in value. Dave asks us to focus on his effort, and to find error in the trial court’s refusal to quantify his marital component “however large or small.” He notes his ⁶⁶⁷ investment expertise, citing Steinmuller’s admitted inferior knowledge and her willingness to allow him to control the portfolio. 8 Steinmuller relies on the fact that her premarital and inherited assets continued to be held in her name only. While she concedes, as she must, that Dave was the primary manager of her accounts, she argues that there were numerous economic and market factors that contributed to the increase in the portfolio’s value.

In