Lee v. Andochick

SALMON, J. Keith A. Lee, appellant, has a projected salary for 2006 of $1,760,282.00 annually and, after taxes, a net income of $998,000.00. Appellee-cross-appellant, Dr. Lori Andochick, a dentist, grosses $267,000.00 per year. Her after-tax income (without alimony) is approximately $203,300.00 per year. 1 After a trial in the Circuit Court for Frederick County, the court granted Dr. Andochick an award of 1) indefinite alimony in the amount of $10,000.00 per month starting January 1, 2007; 2) child support in the amount of $15,000.00 per month; 3) a monetary award of $1,250,000.00 payable at the rate of $250,000.00 per year for five years; and 4) attorney’s fees of $150,000.00. Additionally, Mr. Lee was ordered to pay for the cost of his children’s private school, including tuition, transpor ²⁷³ tation, lunch, fees, and cost of extracurricular activities, which amounts to about $2,200.00 per month.

Under ordinary circumstances, requiring Mr. Lee to pay alimony and support payments totaling $326,400.00 a year might seem reasonable in light of his large annual income. But a factor that clouds the issue is the fact that he is burdened with almost $6,000,000.00 in debt and is required to pay over $635,000.00 annually in principal and interest on that debt. For the reasons spelled out below, the judgment entered by the circuit court will be affirmed in part, reversed in part, vacated in part, and the case shall be remanded to the Circuit Court for Frederick County for further proceedings consistent with the views expressed in this opinion. I. The parties married in October 1993, separated in May 2004, and were granted a judgment of absolute divorce on January 12, 2007.

Two children were born of the marriage: Alexander, born July 10, 1995, and Olivia, born May 13, 1997. Since the commencement of the marriage, Mr. Lee has been employed by an investment firm known as “Brown Capital Management” (“Brown Capital”), a subchapter S corporation headquartered in Baltimore, Maryland. Mr. Lee was hired by Brown Capital in 1991 to create a division that would invest in small companies, on behalf of clients of Brown Capital. When he was hired in 1991, Mr. Lee was offered a choice as to how he would be compensated.

The first option was to have an “industry competitive salary” and cash bonus each year. The second option was to be paid a “livable” wage which would be just enough money to pay his mortgage, feed his family, and cover his travel expenses. But if he chose the latter option, Mr. Lee would also receive a percentage of revenues generated by Brown Capital. Mr. Lee selected the second, more risky, option.

His starting salary was $50,000.00. He was also offered, and accepted, an “entrepreneurial” option, which ²⁷⁴ allowed him the right to purchase 5% of the stock of Brown Capital at a later date. About two years after the parties were married, in 1995, Brown Capital’s business started to grow at a fast pace and the corporation began to acquire significant assets. Mr. Lee was offered the right to purchase another 5% of stock in Brown Capital.

It was not, however, until 1999 that Mr. Lee exercised his options and purchased 10% of the corporation’s stock. The purchase price for the stock was $837,500.00. To finance the purchase, he borrowed $670,000.00 from Eddie C. Brown, the chief stockholder of Brown Capital and its majordomo. A promissory note, evidencing this debt, required Mr. Lee to make quarterly payments to Mr. Brown of $17,365.43 through January 1, 2006, when the entire balance was to come due.

Mr. Lee acquired an additional 2,650 shares of Brown Capital in the period between 2000 and 2002. And, on September 30, 2003, he signed an agreement to buy 3,350 shares of the company for $2,696,750.00. The agreement provided that Mr. Lee was to pay $539,350.00 at the time that the agreement was signed, with the remaining principal and interest to be paid in five annual installments of $431,480.00. The terms of this agreement, were later changed so that Mr. Lee was obligated to make a balloon payment of $2,013,573.00 on September 30, 2011, in lieu of annual installments.

The revised interest due under this last mentioned note is $7,031.00 per month. Mr. Lee’s stock in Brown Capital was worth, as of the date of the divorce, $6,272,000.00. Currently, Mr. Lee owes Mr. Brown $2,506,869.00 on two promissory notes and, due to his stock purchases, he also owes Harbor Bank an additional $574,081.00. After subtracting the monies borrowed to make the stock purchases, the marital property value of the stock in Brown Capital was $3,191,050.00 as of the date of the divorce.

Currently Mr. Lee owns 16% of the stock in Brown Capital. His wages since 1999 have been: 2006: $1,760,282 [projected]; 2005: $2,336,631; 2004: $3,466,681; 2003: $2,526,512; 2002: ²⁷⁵ $4,339,411; 2001: $2,769,815; 2000: $2,503,049; 1999: $1,346,539. Mr. Brown testified that from the end of 2004 to the end of 2005 there had been approximately a 50% drop ($5,278,000,-000.00 to $2,636,000,000.00) in the dollar amount of money invested by Brown Capital. Brown Capital lost “a number of clients” during that period and also lost the assets represented by those clients in that one-year period.

The reason for the loss of clients was because Brown Capital’s performance relative to that of other money managers did not meet certain industry benchmarks. In regard to the issue of what income could be expected in the future, the trial judge in his written opinion said: Mr. Brown testified that in the past few years [Brown Capital] has been less successful than it had been previously. He attributes the trend to a combination of factors: under performance of managed assets as compared to benchmarks i.e., Standard and Poors Index, a loss of clients and concomitant reduction in assets under management. He produced company records which demonstrate a downward trend. [Mr. Lee’s] compensation is determined by calculating 20.5% of fees generated by the Small Company Investment Services unit of BCM and 1.5% [of] fees generated by mid/large capitalization mutual funds.

Mr. Brown testified that he granted the latter to [Mr. Lee] as an extra benefit to him. Those fees have diminished consistently in 2004 and 2005. [Mr. Lee] attributes some of the decrease in income to his preoccupation with the pending divorce proceeding. He has deferred the filing of his 2005 income tax return, and the evidence he submits regarding that income is somewhat vague. However the court can ascertain that in 2005 he earned $468,061.00 in dividend distributions.

His expert witness calculated his 2006 gross income will be $1,760,282.00. ²⁷⁶ Dr. Andochick finished dental school in December 1990. She was immediately hired by a small dental practice outside of Charlottesville, Virginia. After her 1993 marriage, Dr. Andochick regularly commuted from the home she and Mr. Lee shared in Frederick, Maryland to Charlottesville, Virginia. She would leave on Monday morning and drive to Charlottesville and stay with friends in that town until Thursday.

She would then return to Frederick on Friday evening. About two years after the parties were married, Dr. Andochick accepted an offer from her father to join his dental practice in Frederick. Since the fall of 1995, Dr. Andochick has continued to practice dentistry with her father. As of the date of trial, she works 32 hours per week and earns $267,000.00 annually.

Both of the parties are 46 years of age and are in good health. During the marriage, they enjoyed an “extravagant” lifestyle. The trial judge summarized his “lifestyle findings” as follows: The parties enjoyed a very high standard of living in the later part of their marriage as their wealth increased. During the years between 1999 and 2004, they jointly earned between $2.7 million and $3.6 million annually.

They bought a mansion and spent great sums of money on its expansion. They went on extravagant vacations and traveled by private jet. They enjoyed their trips to Bermuda to such an extent that they seriously considered buying a vacation home there. The children are enrolled in private school and various extracurricular activities.

The parties employed domestic help; [Dr. Andochick] has had at least one in-home assistant daily to assist with household maintenance and the transporting of children. They own four motor vehicles of substantial value.

II

Construction of and Improvements to the Marital Home The marital home mentioned in the excerpt just quoted is located at 7700 Fingerboard Road in Frederick County. The ²⁷⁷ home was completed in March 1998 on property that was purchased, pre-marriage, by Mr. Lee. The home as originally built was huge, containing almost 7000 square feet above grade and a 5000 square-foot basement together with an 1100 square-foot garage. Construction on the marital home was financed with two loans.

The first loan, evidenced by a note signed by both parties on March 8, 1996, was in the original amount of $875,000.00 and was secured by a thirty-year first mortgage payable to M & T Bank. As of the date of trial, $759,831.00 was due on that loan. The second loan was made by Harbor Bank and has a current balance of $165,970.00; it is secured by a fifteen year mortgage on the marital home. This second loan was obtained in Mr. Lee’s name alone.

Even though the marital home, as constructed, was a true “show place,” the parties elected to make additional renovations and improvements. In 2002 they initially planned to add a pool, pool house, stairs to the deck, and to enlarge the closets in the master bedroom. But those initial plans expanded into what turned out to be an extremely ambitious and foolishly expensive renovation project. As revised, the plans called for removing the brick off of the entire exterior of the house and replacing the brick with limestone.

The revised building plans also called for building a theater, a new garage, replacing the existing roof with one made of slate, and building a gym big enough to include a basketball court. Construction began in July of 2003 and continued until the time the parties separated in May of 2004. After the parties separated, Dr. Andochick signed, as did Mr. Lee, documents necessary to obtain a $1,000,000.00 line of credit with Mercantile Safe Deposit and Trust Company as a bridge loan until a $5,000,000.00 permanent loan could be secured to finance the cost of construction. Subsequently, Dr. Andochick refused to execute the necessary documents to obtain the $5,000,000.00 loan.

Due to Dr. Andochick’s refusal, construction stopped on the residence. Even though 1.65 million dollars has been spent for the enlargement and “improvement” to the property, the marital ²⁷⁸ home currently remains unfinished. Approximately 19-20,000 square feet of space is under roof but most of it has no heating or air-conditioning. Floors are made of concrete or plywood, and most of the exterior of the house is covered in Tyvec construction paper.

The only habitable parts of the house are the master bedroom and a bathroom on one level, and a study and bar-kitchen on another level. The gymnasium remains incomplete. It is estimated that it will cost another $4,500,000.00 to complete the renovations. 2 Mr. Lee continues to live in the marital home even though it only has a few habitable rooms. The value of the land and house is $1,400,000.00.

But, because the debt associated with the marital home far exceeds its appraised value, the court gave it a value of zero for purposes of determining its marital property value. Since the parties separated in 2004, Dr. Andochick has lived in a house in Frederick with her two children. The house is worth $650,000.00, and Dr. Andochick pays rent for the house in the amount of $2,500.00 per month. III. 7802 Fingerboard Road About four months prior to his marriage to Dr. Andochick, Mr. Lee bought 8.5 acres of land on Fingerboard Road from the estate of his great-grandfather, John Lee.

This land was ²⁷⁹ later subdivided into two parcels. One parcel, approximately 7.5 acres in size, is the land on which the marital home was built. The second parcel, approximately one acre in size, is the property now known as 7802 Fingerboard Road. In conjunction with his acquisition of the land, Mr. Lee promised to build a home on the property where his grandmother, great-aunt, and their brother could live for the rest of their lives.

About six months after the marriage, Mr. Lee obtained quitclaim deeds to the 8.5 acres from several other heirs of his late great-grandfather. In exchange for the quitclaim deeds, Mr. Lee paid some of the heirs a sum of money. The amounts paid ranged from $5,000.00 to $7,000.00, although the precise amount expended for the quitclaim deeds was not revealed in the record. In 1994, approximately, construction commenced on the home where Mr. Lee’s relatives were to live.

Dr. Andochick and Mr. Lee financed the construction of the house by obtaining two loans, one in the amount of $150,000.00 and a second in the amount of $118,000.00, each to mature in 2025. The court found that the fair market value of 7802 Fingerboard Road is $540,000.00. Of that latter figure, $250,000.00 represents the value of the land, and the remaining $290,000.00 represents the value of the house. As of the date of trial, the loans taken out by the parties to finance the building of the house had a current total balance of $233,327.00, and Mr. Lee currently pays mortgage payments on those loans of $2,472.00 per month.

Additional facts will be set forth in order to answer the questions presented.

IV

Analysis A. Did the trial court err in finding that Mr. Lee could afford to pay $10,000.00 per month in alimony? Mr. Lee claims that the trial judge erred in awarding Dr. Andochick indefinite alimony in the amount of $10,000.00 per ²⁸⁰ month. His argument is based on five separate contentions, viz: 1) the trial court erred in finding that Mr. Lee could afford to pay indefinite alimony in the monthly amount of $10,0000.00; 2) Dr. Andochick failed to meet her burden of proving entitlement to indefinite alimony because she did not show that unless an award of indefinite alimony was granted her standard of living, when compared with that of Mr. Lee, would be unconscionably disparate; 3) even if, hypothetically, Dr. Andochick’s evidence was sufficient to allow a finder of fact to conclude that her post-divorce standard of living would be unconscionably disparate with that of Mr. Lee, the trial judge never found that the standard of living would be unconscionably disparate; 4) an award of indefinite alimony was not warranted in light of the fact that the trial judge did not find that Dr. Andochick needed $10,000.00 per month, nor did the evidence support a conclusion that such a need existed; 5) in awarding indefinite alimony, the trial court failed to take into consideration the income Dr. Andochick would receive from the payment of the monetary award and the sale of jointly owned property. Prior to concluding that an award of indefinite alimony was warranted, the trial judge made extensive findings of facts as to each of the factors set forth in Md.Code (2006 Repl.Vol.), § 11 — 106(b) of the Family Law Article (“FL”).

In this regard, the court found, inter alia, the following: 1) Dr. Andochick, at present, is “essentially self-supporting” and has been throughout the marriage; 2) Dr. Andochick presently is engaged in “suitable employment” and has obtained “sufficient education and training for [her] self-support”; 3) both parties made substantial financial contributions to the well-being of the family but Dr. Andochick has also made substantial non-monetary contributions by supporting Mr. Lee’s professional advancement and by running the household, albeit with outside domestic help; 4) many causes led to the estrangement of the parties, but some of the major ones were that: a) Mr. Lee was secretive about family finances and resisted efforts by Dr. Andochick to inform herself about such matters, and b) Mr. Lee was controlling to such a degree that his wife was ²⁸¹ frequently withdrawn in his presence but outgoing when he was not around; 5) many of the expenses listed by Mr. Lee on his financial statement were not reasonable; 6) Mr. Lee owes creditors almost $6,000,000.00, of which Dr. Andochick is jointly liable for $993,158.00; 7) Mr. Lee has a retirement fund worth $492,248.00 whereas Dr. Andochick’s retirement fund is only worth $44,745.00. None of the findings, just mentioned, are disputed for purposes of this appeal. The court made several other findings that are disputed, which will be discussed infra. At trial, Mr. Lee introduced evidence showing that his debt obligations required him to pay out $69,045.00 per month.

That latter figure assumed that he would have to make regular payments of principal and interest of $34,997.00 per month to Mr. Brown, whom he owed over $2,000,000.00 on a promissory note. The trial court concluded that due to the close personal relationship between Mr. Lee and Mr. Brown, the latter would allow Mr. Lee to pay only interest on the note until it came due in September 2011. Accordingly, the court reduced by $27,967.00 Mr. Lee’s claim of monthly debt payment obligations. But even with that reduction, the total monthly debt obligation to Mercantile Bank, Harbor Bank and Mr. Brown amounted to $41,078.00 per month or $492,936.00 annually.

Mr. Lee also was obligated to pay $11,971.00 in monthly mortgage payments for loans that encumbered the two Fingerboard Road properties. These mortgage payments totaled an additional $143,652.00 annually. Thus, the total annual debt obligation of Mr. Lee was $636,588.00. Given the fact that Mr. Lee’s after-tax income was $998,000.00, this would leave him with only $361,412.00 ($998,000.00 less $636,588.00) annually to support himself and pay child support and alimony.

It would cost Mr. Lee $72,000.00 per year ($120,000.00 x 60%) in after-tax dollars to pay Dr. Andochick $10,000.00 per month alimony. Additionally, child support payments of $180,000.00 per year plus other court imposed obligations (cost of private school, etc.) of $26,400 ($2200.00 per month x 12) ²⁸² would mean that he was obligated to use, all told, $278,400.00 annually of after-tax dollars to pay Dr. Andochick what the court ordered. This would leave Mr. Lee with only $88,012.00 ($361,412.00 less $278,400) for personal expenses and nothing with which to pay the five annual $250,000.00 payments he was to make to satisfy the $1,250,000.00 monetary award. In calculating reasonable living expenses, the court carefully scrutinized Mr. Lee’s claim that he had monthly expenses, excluding debt service, of $26,008.00.

There were numerous items in one section of the financial statement, which totaled $15,897.00 per month, that the court found unreasonable. The court reduced that figure by 50%, i.e., down to $7,948.50. The court also reduced by half the $2,800.00 per month Mr. Lee estimated he spent for utilities (propane gas) and the $1500.00 per month budgeted for home repairs. With these deductions, the court concluded that Mr. Lee’s reasonable non-debt living expenses were $15,909.50 per month or $190,914.00 per year.

Lastly, the trial judge concluded that if one deducted, as he had done, the unreasonable expenses mentioned above and also deducted the amount of principal owed to Mr. Brown that would not have to be paid, then Mr. Lee would “have sufficient income to pay alimony and child support” as well as sufficient money to pay his personal living expenses. Mr. Lee argues that the trial judge “did not do the math” when he reached the aforementioned conclusion. We agree. In support of the trial judge’s ruling that Mr. Lee could afford to pay the alimony and child support awarded, plus his debt obligations, Dr. Andochick first emphasizes that many of the personal living expenses estimated by Mr. Lee on his financial statement were found by the court to be excessive.

This is. true. But the court, taking into consideration the excessiveness of Mr. Lee’s estimates, reduced the figure for reasonable expenses to $15,909.50 per month. Dr. Andochick does not attempt to refute the fact that Mr. Lee’s ongoing debt obligations are as calculated by Mr. Lee. She simply points out that part of the debt obligation totaling $9,490.00 per month is for the two properties located on ²⁸³ Fingerboard Road that are titled solely in Mr. Lee’s name.

Although this is true, we fail to see how this in any way supports Dr. Andochick’s argument that the trial judge did not err when he found that Mr. Lee had the ability to pay $10,000.00 per month alimony after paying his child support and debt obligations as well as his personal living expenses. Dr. Andochick further argues: The trial court found that the Husband had the ability to pay alimony to the Wife. The court discussed the Husband’s projected earnings for 2006 and his extensive earnings history. In addition, the court noted that some of the decrease in the Husband’s income was attributable to the Husband’s preoccupation with the divorce proceeding.

The court also discussed the expenses and debts listed on the Husband’s financial statement. The trial court also found that the Husband could restructure the repayment of his debts. For example, based on the testimony and exhibits introduced, the court found that the Husband could pay interest only on the large debt to Mr. Brown, despite the Husband’s desire to pay principal and interest. Again, the Wife testified that she was unaware of the amount of debt to Mr. Brown.

The Husband also testified that he was waiting until after the divorce trial to restructure the loan from Harbor Bank and was considering converting the loan from interest only to interest and principal. The first three sentences in the aforementioned argument suggest that the trial judge found that appellant could earn more than the amount projected for 2006, i.e., $1,760,282.00. If the trial judge thought that appellant could earn more than the projected amount, he did not say so, nor can it be inferred, legitimately, from what he did say, that he thought that in the future he would exceed the $1,760,282.00, 2006 projected income figure. It is true, as Dr. Andochick points out, that the trial court found that Mr. Lee could restructure the repayment of one of his debts, i.e., the debt due to Mr. Brown.

This finding was not clearly erroneous and has been taken into consideration by ²⁸⁴ us. But the trial judge did not find that Mr. Lee could restructure any of his other debts so that he could have more cash on hand. Dr. Andochick points out that Mr. Lee testified that he hoped to convert his interest only line of credit into a conventional loan after the divorce. But it simply does not follow, as Dr. Andochick’s brief suggests, that Mr. Lee’s monthly payments would be any less or that he could borrow any more from the bank so as to lighten his monthly debt obligations. ' As shown above, while Mr. Lee cannot afford to pay $27,200.00 monthly in combined alimony, child support, and school tuition if he expends $190,914.00 per year for his personal living expenses, he could afford to pay alimony and child support in those amounts if he reduced his personal living expenses to $83,012.00 annually (approx. $6,918.00 per month). 3 This certainly is not impossible because a majority of the population in this country lives on far less.

But if Mr. Lee has $83,012.00 annually to spend for personal expenses and Dr. Andochick has $203,000.00, it is obvious that Dr. Andochick’s life style will not be unconscionably disparate when compared with that of her ex-spouse. y. Did Dr. Andochick Meet Her Burden of Proving That Without an Award of Alimony, Her Standard of Living, When Compared to Mr. Lee’s, Would Be Unconscionable Disparate? The trial court’s decision to grant Dr. Andochick’s request for indefinite alimony was based on section ll-106(c)(2) of the Family Law Article, which reads in pertinent part: alimony may only be awarded indefinitely if “the court finds that ... even after the party seeking alimony will have made as much ²⁸⁵ progress of becoming self-supporting as can reasonably be expected, the respective standards of living of the parties will be unconscionably disparate.” Mr. Lee asserts that the trial court “failed to find the parties’ standard of living would be unconscionably disparate” if an award of indefinite alimony were not granted. In the alternative, he contends that even if we were to find that the trial court impliedly concluded that there would be an unconscionable disparity in the standard of living following a divorce, the record in this case fails to support such an implied conclusion.

In reaching his decision, the trial judge recognized that because Dr. Andochick was self-supporting, he could not award indefinite alimony unless he found, post-divorce, that the standard of living of the parties would be unconscionably disparate. The court also recognized, citing Solomon v. Solomon, 383 Md. 176, 198 , 857 A.2d 1109 (2004), that an award of indefinite alimony could not be granted simply by comparing the relative percentages of gross or net income of the parties. Nevertheless, the trial judge went on to say: [T]he relative percentages in unconscionable disparity cases offer some guidance in identifying an unconscionable disparity. Plaintiffs current income is $267,000.00 per year and the court declines to impute additional income.

Defendant’s projected 2006 income is $1,760,282.00. Plaintiffs income is 15% of Defendant’s income. The disparity of income between Plaintiff and Defendant is greater than the disparity of incomes in cases cited by the Court of Appeals in Solomon (16%-46%) where an unconscionable disparity was found. [Mr. Lee] cites Karmand v. Karmand, 145 Md.App. 317 , 802 A.2d 1106 (2002) to support his assertion that any disparity between the parties (self-supporting) incomes is not unconscionable. The Court of Special Appeals opinion in that case is helpful, but not for the reason urged by the Defendant.

In Karmand , the court endorsed Judge Sundt’s analysis in determining that indefinite alimony was not ²⁸⁶ called for. Judge Sundt described the analytical steps the trial judge must take: In plain English, unconscionably means, “morally unacceptable ... Shocking.”... Furthermore, [a] finding of mathematical disparity will not automatically trigger an award of indefinite alimony ... the court must apply equitable considerations on a case-by-case aided by several factors.

The standard of living of the parties must be considered as well as how and when that standard was acquired. Additionally, the assets of the parties and whether a monetary award was given impact the decision awarding alimony. [Dr. Andochick’s] financial and non-financial contributions of the well-being of the family enabled them to establish the standard of living which they achieved. [Mr. Lee] has applied his considerable talents and efforts to earn an income far above the reach of most people. That he would do so as a husband and father has been made possible with the contributions of [Dr. Andochick]. The parties have enjoyed an income which has enabled them to live without significant limitation on their discretionary spending.

While [Dr. Andochick] can clearly be self-supporting, she can resume a portion of the standard of living of the parties only with alimony from [Mr. Lee]. The court finds that $10,000.00 per month indefinite alimony is an appropriate amount to be paid to the Plaintiff by the Defendant commencing January 1, 2007. (Citations omitted.) As Mr. Lee stresses in his brief, the trial judge did not say in his opinion that the standards of living post-divorce would be unconscionably disparate unless an award of indefinite alimony was granted. But since the trial judge was obviously familiar with the applicable standard, he impliedly made such a finding.

Nevertheless, the court’s opinion provides only one clue as to how it arrived at that [implied] finding, viz: the huge differences in the parties’ gross incomes. Mr. Lee, citing Hart v. Hart, 169 Md.App. 151, 169-70 , 899 A.2d 965 (2006), claims the judge’s failure to explain how he ²⁸⁷ concluded that the respective standards of living would be unconscionably disparate constituted reversible error. In Hart , Judge Adkins, speaking for this Court, said: Just as it is error to deny a request for indefinite alimony “without explicitly discussing the disparity issue,” see Kelly v. Kelly, 153 Md.App. 260, 279 , 836 A.2d 695 (2003), so too is it error to grant such a request without explicitly discussing the disparity issue. See Brewer v. Brewer, 156 Md.App. 77, 104-05 , 846 A.2d 1 , cert.