McCleary v. McCleary

DAVIS, Judge. Appellant Christopher R. McCleary appeals an order issued by the Circuit Court for Anne Arundel County that granted appellant an Absolute Divorce and awarded appellee Mari Kathleen McCleary .a marital property award totaling $2,100,000, indefinite alimony in the amount of $6,000 per month, and a $150,000 contribution toward appellee’s attorney’s fees. On appeal, appellant presents for our consideration four issues, 1 which we have rephrased and combined into three questions as' follows: • I. Did the trial court err in granting appellee a $2,100,000 marital property award? II. .

Did the trial court err in finding that appellant had dissipated $964,175 of the marital assets? ⁴⁵³ III. Did the trial court err in awarding appellee attorney’s fees? We answer appellant’s questions one and two in the affirmative and question three in the negative, thereby vacating the judgment of the trial court. FACTUAL BACKGROUND The parties were married in 1978.

Three children were born of the marriage, all of whom are still minors. Both parties have undergraduate degrees. In August 1978, shortly after their marriage, the parties moved to Arnold, Maryland, and purchased a townhouse in which they resided. Appellant was employed at American Seamless Tubing, earning a salary of $18,000 per year.

Appellee was an elementary school teacher at St. Jane Frances. In 1979, the parties moved into a house that they built in the Chartridge Community in Severna Park, Maryland. They kept the Arnold townhouse as investment rental property. Appellee was employed as a waitress at the Crofton Country Club and eventually became the banquet manager.

It was at the country club that she engaged in an extramarital affair with a co-worker. The parties separated and later reconciled. The parties began a series of moves spanning from 1981 through 1993, which were dictated by appellant’s movement up the ladder in the corporate and financial world. The cities in which the parties lived included Fairfax, Virginia, Houston, Texas, Cincinnati, Ohio, Washington, D.C., and Reston, Virginia.

Appellee was employed with various hotel chains until the birth of their first child, Caitlin, in 1986. The parties decided that appellee would resign from her employment to be Caitlin’s primary caretaker. Kelsey, the parties’ second child, was born in 1989. Approximately five years later, Caroline, the parties’ third child was born.

In January 1996, appellant accepted employment as the President and Chief Executive Officer of Digex in Beltsville, ⁴⁵⁴ Maryland, at a salary of $150,000 per year plus bonus. In 1997, when Digex was sold, appellant was earning $250,000 per year plus bonus and had stock options worth $8.4 million. After the sale, appellant resigned in contemplation of starting his own company and exercised his stock options. Consequently, in 1997, appellant had income of $9,161,265 and the family’s net worth increased to more than $6 million.

Appellant began planning the structure of the company that would become USinternetworking, Inc. (USi), an application service provider leasing application software over the internet. Along with two other individuals, appellant founded USi, incorporating on January 4, 1998. Appellee, who wanted to return to the workplace, began working as Vice President of Corporate Relations at USi, although she did not receive a salary. The parties, therefore, employed Alice Drinnon as a full-time housekeeper and nanny.

Additional nannies were hired to care for the children throughout the day. In 1998, the parties had a joint income of $584,685, of which $131,455 was appellant’s salary and $367,000 was interest and capital gains on the Digex funds. In August 1998, the parties purchased 37 Boone Trail at a cost of $865,000, with a mortgage of $700,000. The property was extensively renovated and redecorated at a cost of $1,176,854.

In January 1999, appellant formed McCleary Maritime Properties, LLC (MMP) to purchase an Annapolis marina for $2.1 million. Appellant did not discuss the purchase with appellee until after he had bought the property. Appellant formed Wildcat Marine Operating Co., Inc., later renamed McCleary’s Pier 4 Marina, Inc., to operate the marina. Appellee managed the operation of the marina and office rentals.

On April 4, 1999, USi made its initial public offering. In December 1999, appellant exercised an option to buy 375,000 shares at $20.50 for a total of $2,250,000. Appellant financed the option exercise by borrowing $2.25 million from USi. The loan was represented by a promissory note dated September 24, 1999.

Because the option exercise resulted in taxable income of more than $5 million, USi lent appellant another ⁴⁵⁵ $1,900,000 to cover his additional tax obligation. This loan was also represented by a promissory note dated December 21,1999. Both loans were later consolidated into a single loan of $4,284,744 represented by a promissory note dated July 24, 2000, bearing nine percent annual interest, payable on demand with ninety-days’ notice. In February 2000, appellant sold 313,968 of his USi shares for $18,841,220.

The parties placed $3.4 million of the Digex funds into brokerage accounts at Merrill Lynch, Legg Mason and Credit Suisse First Boston (CSFB). On March 15, 2000, appellant purchased a twenty-five percent timeshare interest in a Citation II aircraft from Flight Option for $684,866. The parties also purchased property at Ferry Farms for $2,034,836. On June 2, 2000, appellant formed AHS to develop a charter helicopter service.

AHS purchased a helicopter for $1.45 million in cash with funds advanced by appellant. In March 2001, AHS negotiated a $1 million loan from General Electric Capital (GE Capital), secured by the aircraft and by appellant’s individual guaranty. The proceeds went to McCleary Capital Group, LLC (MCG) — appellant’s wholly-owned company that served as a holding company for AHS and MMP. USi stock prices declined drastically in 2001.

On September 28, 2001, USi served appellant with a demand for repayment of the note plus accrued interest on or before December 27, 2001. Appellant protested, stating that he had understood that the consolidated note was merely a “retention hook” loan to be forgiven if he fulfilled his obligations under his employment agreement. USi disagreed, and its vice president and general counsel stated that the company would take any necessary action to collect on the note. In January 2002, the company declared bankruptcy and the bankruptcy court terminated appellant’s employment contract.

Meanwhile, in January 2000, appellee began exhibiting erratic behavior by drinking to excess and staying out late. A few months later, one of the household assistants resigned upon learning that appellee had purchased Phentermine in her ⁴⁵⁶ name over the internet. It was subsequently learned that appellee had made similar purchases in Caitlin’s name. On May 6, 2000, appellee went to Ocean City, Maryland, and committed adultery with the parent of one of Caitlin’s schoolmates whom she had met on Caitlin’s school trip to Europe.

Appellant became suspicious of appellee and hired a detective in June 2000. Later that month, appellant learned of the affair and e-mailed appellee with offers of reconciliation. All attempts at reconciliation failed and the parties formally separated on August 25, 2000. Additional facts will be provided as they become relevant to our discussion of the issues raised in this appeal.

LEGAL ANALYSIS I Appellant contends that the trial court erred in granting appellee a $2,100,000 marital property award. Specifically, appellant asserts that the court erred in valuing his interest in AHS. Appellant also avers that, because he had a negative net worth, the court should not have ordered him to pay appellee $2.1 million. Appellant concludes that the court must have disregarded his insolvency because it erroneously considered his earning capacity in determining the marital property award.

We will address each contention in turn. A Appellant first asserts that the court incorrectly valued his interest in AHS. According to appellant, the court should have valued his interest in MCG, which owned AHS, in order to determine the value of his interest in AHS. Appellant also contends that “the valuation was incorrect because the trial court did not deduct the $1 million secured debt to GE Capital in valuing the interest in AHS.” Maryland Rule 8 — 131(c) permits us to review cases that have been tried without a jury on both the law and the evidence.

Under Md.Code (1999 RepLVol.), Fam. Law (F.L.), ⁴⁵⁷ § 8-205(a), whether to grant a monetary award is generally a decision within the sound discretion of the trial court. In making this decision, the court must follow a three-step process: First, for each disputed item of property, the court must determine whether it is marital or non-marital. Second, the court must determine the value of all marital property.

Third, the court must determine if the division of marital property according to title will be unfair; if so, the court may make an award to rectify the inequity. Collins v. Collins, 144 Md.App. 395, 409 , 798 A.2d 1155 (2002) (citations omitted). We will not overturn a trial court’s decision in granting a monetary award “unless the judgment [sic] is clearly erroneous and due regard will be given to the trial judge’s opportunity to judge the credibility of the witnesses.” Caccamise v. Caccamise, 130 Md.App. 505, 521 , 747 A.2d 221 (2000); see Collins, 144 Md.App. at 408-09 , 798 A.2d 1155 . In its valuation of AHS, the trial court issued the following findings: [AHS] is an LLC owned by [MCG], which is owned by [appellant].

It was established in June 2000 to acquire a helicopter and conduct an airfare service. While the parties had serious marital problems, [appellant], through AHS, purchased a Bell 507 helicopter for $1.45 million cash ... No marital debt was utilized to acquire the asset. On March 8, 2001, AHS obtained a loan of $1 million from GE Capital Credit Corporation.

The proceeds were deposited by MCG and disbursed for other investments through the LLC’s, including the Whitehall property ... The business has been valuated by an expert, but the best value of the LLC is that of its underlying asset — the helicopter. [AHS] also has an operating checking account at Farmers Bank [ ], which has a balance of $258. Therefore, the [c]ourt finds that the asset is marital, titled to [appellant], with a value of $1,200,258. (Emphasis added.) The trial court’s findings are clearly erroneous.

Undisputed evidence demonstrated that AHS owned the helicopter, that ⁴⁵⁸ the sole membership interest in AHS was owned by appellant’s holding company, MCG, and that the GE Capital loan was to AHS and not to appellant. Nonetheless, the court improperly classified AHS’s debt to GE Capital as appellant’s non-marital debt and effectively pierced the LLC’s veil of limited liability. Although we agree that AHS is marital property, the trial court erred in designating AHS’s debt as appellant’s non-marital debt, which resulted in an overstatement of appellant’s marital property by $1,000,000. B Appellant next avers that it was clear error for the court to order- him to pay a $2,100,000 marital property award to appellee when his net worth was negative $279,977.

Appellee responds that the trial court considered all applicable statutory factors and did not abuse its discretion in determining the monetary award. Maryland law requires a trial' court to make an equitable division of marital property, not an equal division. Alston v. Alston, 331 Md. 496, 508 , 629 A.2d 70 (1993). In determining the amount of the monetary award, the trial court is required to consider the following factors: (1) the contributions, monetary and non[-] monetary, of each party to the well-being of the family; (2) the value of all property interests of each party; (3) the economic circumstances of each party at the time the award is to be made; (4) the circumstances that contributed to the estrangement of the parties; (5) the duration of the marriage; (6) the age of each party; (7) the physical and mental condition of each party; (8) how and when specific marital property or interest in the pension, retirement, profit sharing, or deferred compensation plan, was acquired ...; ⁴⁵⁹ (9) the contribution by either party of property described in [F.L.] § 8-201(e)(3) [ ] to the acquisition of real property held by the parties as tenants by the entirety; (10) any award of alimony and any award or other provision that the court has made with respect to family use personal property or the family home; and (11) any other factor the court considers necessary or appropriate to consider in order to arrive at a fair and equitable monetary award....

F.L. § 8-205(b); see Doser v. Doser, 106 Md.App. 329, 350-51 , 664 A.2d 453 (1995). The statutory factors are not prioritized in any way. Consequently, “[t]he application and weighing of the factors is left to the discretion of the trial court.” Alston, 331 Md. at 507 , 629 A.2d 70 . In the case sub judice, the trial court discussed each of the eleven statutory factors in determining the monetary award.

The court found that both parties made significant monetary and non-monetary contributions to the acquisition of their marital property. Although appellant indicates that appellee was solely to blame for the demise of the marriage, the trial court clearly found otherwise, as it attributed actions by both parties to their estrangement. Factor three required the trial court to consider the economic circumstances of the parties. The record demonstrates that the court accepted the uncontradicted evidence presented at trial and acknowledged appellant’s liabilities in its “Schedule of Property Interests,” which the court attached to its memorandum opinion.

The court specifically found that appellant’s liabilities included the $4,699,110.88 debt to USi and the $1,125,000 tax liability to the Internal Revenue Service (IRS). 2 Consequently, the court found the non-marital debt ⁴⁶⁰ rendered appellant insolvent with a negative net worth of $279,977. Yet, despite its findings, the court seemingly, discounted appellant’s negative net worth in its analysis of factor three. In analyzing the parties’ economic circumstances, the court found that appellant “was the financially dominant spouse, has the ability to earn far more than [appellee] and has more financial security.” The court briefly mentioned, under its factor eleven analysis, that the parties had “accumulated a significant amount of marital and non-marital debt,” which caused the parties’ wealth to greatly diminish since the date of their separation. The court, however, failed to distinguish between the amount of appellant’s marital and non-marital debt — $7,812,111—and appellee’s total debt — $714,400.

The fact that appellant’s debt was greater than appellee’s by at least $7 million warranted discussion in the court’s marital property analysis. The trial court’s failure to consider the extent of appellant’s debt constitutes clear error. C Appellant concludes that, because the court granted such a large monetary