Lead Opinion
Defendant appeals as of right a judgment of divorce following a bench trial'. Because the trial court failed to address defendant’s request for attorney and expert fees pursuant to MCR 3.206(C)(2)(a), erred by determining as a matter of law that the value of a business cannot be used for purposes of both property division and spousal support, abused its discretion by imputing to defendant an income of $40,000 for the purpose of determining spousal support, appropriately imposed a restriction prohibiting defendant from competing with the business that the trial court awarded to plaintiff in the property distribution, and made findings regarding fault and whether defendant was responsible for the support of their adult son that were not clearly erroneous, we affirm in part, reverse in part, and remand for further proceedings.
I. ATTORNEY AND EXPERT FEES
Defendant first argues that the trial court erred when it failed to award her attorney and expert fees pursuant to MCR 3.206(C)(2)(a). “Generally, an issue is not properly preserved if it is not raised before, addressed, or decided by the circuit court or administrative tribunal” and need not be addressed if first raised on appeal. Polkton Charter Twp v Pellegrom,
We review a trial court’s decision whether to award attorney fees for an abuse of discretion, the trial court’s findings of fact for clear error, and any questions of law de novo. Myland v Myland,
MCR 3.206(C)(2)(a) provides:
A party who requests attorney fees and expenses must allege facts sufficient to show that
(a) the party is unable to bear the expense of the action, and that the other party is able to pay ....
“This Court has interpreted this rule to require an award of attorney fees in a divorce action ‘only as necessary to enable a party to prosecute or defend a suit.’ ” Myland,
The trial court’s failure to address defendant’s request for attorney and expert fees under MCR 3.206(C)(2)(a) in light of her multiple requests was an abuse of discretion. In Myland,
II. SPOUSAL SUPPORT
Defendant next argues that the trial court erred by imputing to plaintiff a yearly income of $130,000 for the purpose of determining spousal support. It is within the trial court’s discretion to award spousal support, and we review a spousal support award for an abuse of discretion. Woodington v Shokoohi,
Defendant contends that the trial court erred by imputing to plaintiff a yearly income of $130,000 for the purpose of calculating spousal support instead of basing the calculation on plaintiffs $240,000 yearly salary from QPhotonics, LLC, a company that plaintiff formed in 2000 and at which he began working full time in 2004. Plaintiff, on the other hand, argues that the trial court’s decision to base spousal support on the lesser amount was appropriate to avoid a “double-dip” because the court awarded defendant one-half of the value of QPhotonics when it divided the parties’ marital assets.
When the main value of a business (such as a service business or professional practice) is goodwill derived from its ability to generate future income, the appraisal typically involves determining the reasonable compensation of the owner, that is, what the owner would earn working for someone else if he or she did not own the business. The extra income (sometimes called excess compensation) earned over and above that reasonable compensation represents the investment return of the business and is an important element in the value of the business. To the extent that a nonowner spouse shares in excess compensation that was rolled into the value of the business, some practitioners argue that this same income should be excluded from consideration in support calculations because to include it would amount to a double dip by awarding a share of that excess compensation as part of the property division, and then another share of the same income stream as part of a support award. [2 Kelly, Curtis & Roane, Michigan Family Law (7th ed) (ICLE, 2011), § 15.40, p 15-46.]
In this case, the trial court determined that the value of QPhotonics was $280,000. The court awarded the company to plaintiff and awarded defendant $140,000, or one-half of the value of the company. The trial court then addressed spousal support, stating, in relevant part:
[T]he critical issue for the Court is what income will be used by the parties in calculating support. The issue is whether — and the primary issue here is what the Court has deemed and has been referred to as the double-dip. The issue is whether the plaintiffs share of the business future profits, that being the value of the company, in this case, the $280,000, can be used for both division of the marital assets, as the Court has now just done, and for calculation of spousal support.
The Court has been cited to, has read and agrees with plaintiffs argument that the holding of the court in Heller v Heller [2008-Ohio-3296 (Ohio App, 2008) (Heller I)], a 2008 case, that that rationale, that awarding part of the same asset twice, results in an unequal property division. So, for purpose of the record, the Court in Heller determined this double-dipping in the context of spousal support and talks in part about - and distinguishes the issue of pensions, which I believe should be distinguished, but then goes on to talk about that the Heller case used the capitalization of earnings method, that which was used in this case, in determining the value of the S corporation, again, like QPhotonics, at issue in this case, which the court indicated effectively and appropriately kept the concepts of defendant’s salary and ownership profits separately.
I believe the court in Heller, which our Court of Appeals, for whatever reason, has, at least at this point, failed to undertake, clearly identifies what the issue is, and for purposes of fairness and being equitable, identifies that the determination of whether or not the valuation of the business is either for purpose of distribution of property or spousal support and not both. In this case, given that it’s been for business purpose, forthe utilization of that amount, then, for purpose of spousal support, at least short-term, if not for the entirety of spousal support, would be unfair.
Therefore, this Court determines that the income of the plaintiff to be utilized for calculating spousal support purposes is $130,000.[3 ]
This Court has previously addressed double-dipping in the context of pensions. In McCallister v McCallister,
As discussed in McCallister, Michigan’s statute governing spousal support favors a case-by-case approach to determining spousal support. MCL 552.23(1) provides:
Upon entry of a judgment of divorce or separate maintenance, if the estate and effects awarded to either party are insufficient for the suitable support and maintenance of either party and any children of the marriage who are committed to the care and custody of either party, the court may also award to either party the part of the real and personal estate of either party and spousal support out of the real and personal estate, to be paid to either party in gross or otherwise as the court considers just and reasonable, after considering the ability of either party to pay and the character and situation of the parties, and all the other circumstances of the case.
Thus, a trial court’s decision to award spousal support is discretionary and should reflect “what is ‘just and reasonable under the circumstances of the case.’ ” Myland,
In this case, the trial court, relying on Heller I, determined that the value of a business may be used for the purpose of either property distribution or spousal support, but not both. For the reasons discussed, the trial court erred by applying a bright-line test and failing to consider the specific facts and circumstances of this case. Accordingly, we direct the trial court to redetermine spousal support on remand, including whether the equities in this case warrant utilizing the value of QPhotonics for purposes of both property division and spousal support.
Defendant also argues that the trial court’s spousal support award of $1,510 a month for four years was insufficient. Specifically, she contends that that amount was inappropriate considering that the parties were married for 2IV2 years, their income disparity was significant, she was responsible for supporting the parties’ adult son, and plaintiff was at fault for the breakdown of the marriage. In deciding whether to award spousal support, the trial court should consider several factors, including
“(1) the past relations and conduct of the parties, (2) the length of the marriage, (3) the abilities of the parties to work, (4) the source and amount of property awarded to the parties, (5) the parties’ ages, (6) the abilities of the parties to pay alimony, (7) the present situation of the parties, (8) the needs of the parties, (9) the parties’ health, (10) the prior standard of living of the parties and whether either is responsible for the support of others, (11) contributions of the parties to the joint estate, (12) a party’s fault in causing the divorce, (13) the effect of cohabitation on a party’s financial status, and (14) general principles of equity.” [Myland,290 Mich App at 695 , quoting Olson v Olson,256 Mich App 619 , 631;671 NW2d 64 (2003).]
“The trial court should make specific factual findings regarding the factors that are relevant to the particular case.” Korth v Korth,
The record supports the trial court’s factual findings regarding the spousal support factors. In particular, no evidence indicated that the parties’ adult
In addition, the trial court’s determination that the parties were equally at fault for the breakdown of the marriage was not clearly erroneous. The trial .court correctly noted that the fact that defendant obtained a personal protection order against plaintiff did not “automatically import a finding of domestic violence.” In fact, the trial court acknowledged that the first domestic violence charge against plaintiff was dismissed and plaintiff was acquitted of the second charge. Defendant also argues that plaintiff repeatedly moved the family from state to state and out of the country. As the trial court noted, however, even if defendant was not in favor of the moves, she nevertheless participated in them and remained in the marriage. The majority of defendant’s argument amounts to frustration that the trial court viewed and weighed the evidence differently than she did. That does not, however, make the court’s determinations erroneous. Because the record supports the trial court’s factual determination regarding fault, it was not clearly erroneous.
Defendant further argues that the trial court erred by imputing to her an income of $40,000 for the purpose of determining spousal support. There is no question that defendant has the education and skills to find employment. It is equally clear from the record, however, that she has a minimal employment history, with almost no work in the field of her degree. The trial court relied on the testimony of Robert Ancell, an expert witness offered by plaintiff, in determining the amount of income to impute to defendant. Ancell testified that he researched higher education job postings in the United States and discovered 102 job postings in defendant’s field of political science. Ancell further testified that a Villanova University job posting was seeking someone with special expertise in Russian affairs. The trial court relied heavily on Ancell’s testimony and opined that the Villanova job “appeared to be almost made for” defendant. The Villanova job posting, however, did not indicate a salary, and none of the “available” jobs about which Ancell testified was located in Michigan. In fact, no evidence was presented of a specific job for which defendant was qualified that paid at least $40,000 a year. Moreover, Ancell testified that a personal interview with defendant would be necessary to determine whether she was a suitable match for a particular job. Defendant denied that she would be able to earn $40,000 right away and testified that she might have to work part time or as an adjunct professor making $10,000 to $15,000 a year before she would be able to find full-time employment.
Given this evidence, the trial court’s determination that defendant was capable of earning $40,000 annually was purely speculative. Accordingly, the trial court abused its discretion by imputing to defendant an income of $40,000 for the purpose of determining spousal support. See Carlson,
III. NONCOMPETE RESTRICTION
Defendant next argues that the trial court erred by prohibiting her from competing with QPhotonics for a period of three years. The judgment of divorce provided:
RESTRAINING ORDER ON DEFENDANT’S ACTIONS FOR 3 YEARS
The Court orders that Defendant, Irina V Loutts, shall [be] restrained from the following actions or conduct for three years from the date of the entry of this Judgment, under penalties of contempt of Court for any violations:
(1) Defendant shall not communicate with QPhotonics, LLC’s employees or hire any of QPhotonics, LLC’s employees;
(2) Defendant shall not engage in or obtain a website that will sell the same or similar products as QPhotonics, LLC.[;]
(3) Defendant shall not communicate with QPhotonics, LLC’s Suppliers or Customers;
(4) Defendant shall not in anyway [sic] compete with QPhotonics, LLC. in regards to the following products / items:
Laser diodes; Superluminescent diodes; light emitting diodes; semiconductor optical amplifiers; Photodiodes; Laser Diode Controllers; Temperature controls for laser diodes; Laser diode mounts, wafers and / or chips.
Such Restraining Order shall be in all International Markets and not limited to the U.S.A. market.
Defendant argues that this prohibition contravenes the general public policy against the restraint of trade and is overbroad.
A court possesses inherent authority to enforce its own directives. A divorce case is equitable in nature, and a court of equity molds its relief according to the character of the case; once a court of equity acquires jurisdiction, it will do what is necessary to accord complete equity and to conclude the controversy. [Draggoo v Draggoo,223 Mich App 415 , 428;566 NW2d 642 (1997) (quotation marks and citations omitted).]
“The goal in distributing marital assets in a divorce proceeding is to reach an equitable distribution of property in light of all the circumstances.” Gates,
Under these facts, we would uphold the noncompete restriction on the sole basis that both parties requested it. It is unfair to harbor error and use it as an appellate parachute. Again because both parties made the request, to be awarded the same company and issue a noncompete restriction against the other spouse, we
Affirmed in part, reversed in part, and remanded for further proceedings. We do not retain jurisdiction. Neither party having prevailed in full, we decline to award costs pursuant to MCR 7.219.
Notes
Although the trial court addressed the parties’ requests for attorney-fees and sanctions premised on the other party’s alleged wrongful conduct, the court did not address defendant’s request for attorney and expert fees pursuant to MCR 3.206(C)(2)(a).
As discussed later in this opinion, the trial court abused its discretion by imputing to defendant a yearly income of $40,000.
This figure is consistent with the testimony of plaintiffs expert, Gary Rogow, who testified that $130,000 is the fair market value of plaintiffs compensation.
Although the McCallister Court recited the correct language, it erroneously cited MCL 522.23 instead of MCL 552.23. McCallister,
In addition, we note that the trial court’s reliance on Heller was misplaced. In a subsequent appeal in Heller, the appellate court stated that its determination that a double-dip was inequitable was based on the facts of that case alone and was not a determination that double-dipping is never permissible:
In the first appeal, there was no language in our decision to suggest that this court intended to promulgate a flat prohibition against double dipping applicable to every income-producing asset; rather, this court addressed the “double dip” issue only as it applies to the facts of this case. [Heller v Heller, 2010-0hio-6124, ¶ 8 (Ohio App, 2010) (Heller ID-]
Moreover, the Heller I court’s determination that double-dipping was inappropriate was based in part on the defendant’s argument that the double-dip resulted in a violation of an Ohio statute requiring that the division of marital property he “equal” or that the court make specific findings of fact supporting an unequal division of property. Heller 1,
We note that although the trial court awarded defendant spousal support retroactive to the court’s earlier temporary support order, defendant does not challenge the retroactivity of the award.
Concurrence Opinion
(concurring). I concur in the majority opinion affirming in part, reversing in part, and remanding this case for further proceedings. I write separately to explain why the noncompete restriction was necessary for an equitable property distribution in the circumstances of this case.
The provision in the judgment of divorce prohibiting defendant from competing with QEhotonics, LLC, was part and parcel of the trial court’s awarding defendant one-half of the value of the company. The restriction was equitable because without it defendant could have received her share of the value of QEhotonics and thereafter formed a company to compete with QEhotonics, thereby adversely affecting the value of plaintiffs property distribution. In fact, the record shows that the noncompete restriction was necessary. Defendant testified that while she had no plans to start a business that competed with QEhotonics, she did plan to start a “complementary” business that uses certain diodes or other products that QEhotonics sells. Defendant further testified that she had already traveled to Russia to meet with two suppliers regarding her business plan. The trial court appropriately determined that “the line between what is a competing business versus a complementary business is blurred at best[,]” and that, accordingly, “plaintiff is entitled to some form of protection from a business competing with QPhotonics . . . The trial court expressed concern that defendant could receive her one-half share of the value of QPhotonics and then create a competing business that would reduce the value of the company and dilute plaintiffs property distribution. Moreover, the record shows that defendant had the ability to compete directly with QPhotonics. Defendant’s father was an expert in the area of fiber optics and two of his former students are also experts in the field and work at Wayne State University. Defendant also testified that she has two friends who are physicists and work for the University of Michigan, one of whom had volunteered to assist defendant. Therefore, considering the facts of this case, the noncompete restriction was fair and just and was necessary for an equitable distribution of property.
This case does not present a scenario involving like professionals engaged in a service-oriented business. For example, if two doctors married, formed a medical practice specializing in one area of medicine, and then divorced, a noncompete restriction prohibiting one of the doctors from competing with the other would deprive that person of his or her ability to earn a living. That is not the situation presented in this case where plaintiff formed QPhotonics and operated the business. Unlike plaintiff, defendant was not educated in physics and worked for the business only in the capacity of an accountant or bookkeeper. Notwithstanding defendant’s lack of education and training in physics, she nevertheless had the ability to compete directly with QPhotonics, as previously discussed, considering that her father and acquaintances worked in the field and were able to assist her. Moreover, defendant indicated her intent to form her own business in the industry. Thus, the facts of this case presented a situation where a noncompete restriction did not deprive defendant of her ability to earn a
Further, the noncompete restriction was reasonable. In an analogous situation, MCL 445.774a(l) “explicitly permits reasonable noncompetition agreements between employers and employees.” Bristol Window & Door, Inc v Hoogenstyn,
An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited. [Emphasis added.]
“Thus, a restrictive covenant must protect an employer’s reasonable competitive business interests, but its protection in terms of duration, geographical scope, and the type of employment or line of business must be reasonable.” St Clair Med, PC v Borgiel,
Here, the duration of the restriction is reasonable. The restriction was implemented on the date that the trial court entered the judgment of divorce and will be in effect for three years. Thus, it will expire on March 9, 2013. In Follmer, Rudzewicz & Co, PC v Kosco, 420 Mich 394, 398 n 1;
The geographical area of the restriction is also reasonable. QPhotonics is an Internet business that conducts the majority of its business in the global market through its website and delivers products worldwide. Thus, the restriction appropriately prohibits defendant from competing with QPhotonics in the global market. See Superior Consulting Co, Inc v Walling,
Further, the noncompete restriction is not unreasonable with respect to the type of employment or line of business. The restriction is not overbroad. It neither prevents defendant from working with all lasers in any manner nor does it prevent her from starting a complimentary business. The trial court did not decide what a complementary business, as opposed to a competing business, would entail and left that issue to be decided at a later time, if necessary. In addition, the prohibition against speaking to or hiring QPhotonics employees is limited because, other than plaintiff, there are only three QPhotonics employees, a bookkeeper and two test engineers. The prohibition against communicating with QPhotonics’s suppliers and customers is also reasonable. Moreover, the restriction is limited to specific laser items and components, and plaintiff testified that he had no objection to defendant’s