Legal Update
February 2023
In 1748, Benjamin Franklin famously said, “Time is money.” That concept provides the framework for the Florida Court of Appeals decision in Iarussi v. Iarussi. As often happens in marital dissolutions, the parties resolved many of their issues by agreement, but, when it came to the money, they needed the court’s assistance in dealing with the marital value of a privately owned business and claims for spousal support. One particular issue discussed in this article is whether the trial court erred awarding prejudgment interest on the value of a business the husband managed and was awarded in the dissolution proceeding.
In 1748, Benjamin Franklin famously said, “Time is money.” That concept provides the framework for the Florida Court of Appeals decision in Iarussi v. Iarussi, 2022 Fla. App. LEXIS 6850 (Fla. Dist. Ct. App. 2022). As often happens in marital dissolutions, the parties resolved many of their issues by agreement, but, when it came to the money, they needed the court’s assistance in dealing with the marital value of a privately owned business and claims for spousal support.
Background
Before the marriage, Husband founded LobbyTools, a company that gathers and distributes information about legislation and regulation in Florida to interested parties like lobbyists, attorneys, businesses, and trade groups. While there, he met and married Wife. Both Husband and Wife worked for LobbyTools, holding executive positions and enjoying a lavish lifestyle. Husband had significant stock holdings in LobbyTools before the marriage, and the couple continued to accumulate additional stock during the marriage. When the parties separated, the company terminated Wife’s employment, ending her salary. Both parties, however, have significant resources, presumably, separate from LobbyTools.
On April 13, 2018, a petition for dissolution was filed. Between then and a final hearing in January 2020, the parties resolved the majority of the issues in the divorce. The remaining issues before the trial court were: the value of LobbyTools (and thus the value of the marital asset), Wife’s claims for retroactive and prospective alimony and Wife’s claim for attorney’s fees and costs of litigation.
In the 2020 hearing, the parties presented expert testimony regarding the value of LobbyTools that, as can sometimes be the case, were significantly different.[1] Husband also proffered an investment expert who testified that Wife’s potential investment earnings on the funds she would receive through equitable distribution would significantly surpass the salary she no longer received from LobbyTools.
In lieu of closing arguments, the trial court had the parties submit proposed final orders. A year later, the trial court issued a final order substantially adopting Wife’s proposed order verbatim. In it, the trial court awarded adopted Wife’s expert’s valuation analysis and, since Husband was retaining the business, ordered Husband to pay Wife a $1,709,141 equalization payment. In addition, the trial court awarded Wife prejudgment interest on that equalization payment from April 13, 2018, the filing of the action, through January 15, 2021, the date of the judgment.
The trial court also awarded Wife alimony based solely on Wife’s “need” and Husband’s ability to pay, rejecting Husband’s expert’s testimony on Wife’s potential investment income. Prospective alimony was set at approximately $5,000 per month for six years and a lump sum for “retroactive alimony” for the same 33-month period.
On appeal, in addition to questioning the trial court’s use of the opposing expert’s value of LobbyTools, Husband challenged the trial court’s award of prejudgment interest on the business value and the award of retroactive and prospective alimony because, among other arguments, the trial court failed to consider Wife’s investment income.
Court’s Findings
Prejudgment Interest on Equitable Distribution
The appellate court reversed the award of prejudgment interest. Initially, it looked to the Florida divorce statute:[2]
Distribution of marital assets can take different forms, including a cash payment to be paid in full or in installments. If installment payments are ordered, the court may require security and a reasonable rate of interest or may otherwise recognize the time value of the money to be paid in the judgment or order. The statute does not authorize prejudgment, or retroactive, interest.
While a few Florida courts have read prejudgment interest into the statute in framing equitable distribution orders, only one court[3] had analyzed the issue in depth. That case looked to an Alaska decision finding that its statute did not prohibit prejudgment interest and, therefore, a judge should have discretion to award it if one partner in a marriage had access to money that the other partner was entitled to. The Catalfumo court likened a prejudgment interest award in divorce cases to an unjust enrichment claim.
The Iarussi court rejected that analysis. Looking to a Florida Supreme Court ruling that “neither the merit of the defense nor the certainty of the amount of loss affects the award of prejudgment interest. Rather, the loss itself is a wrongful deprivation by the defendant of the plaintiff’s property.”[4] In contrast, the appeals court ruled:
Dissolution of marriage cases, by their nature, have no winners or losers, no losses or gains, because the distribution of marital assets is simply the separation of existing interests. Both Former Husband and Former Wife had an equal interest, possessory or otherwise, in all of the marital LobbyTools shares. It did not matter, for these purposes under the law, whose name they were in.
Failure to Consider Investment Income
The appeals court also reversed and remanded the trial court’s determination of alimony. The trial court determined that Husband’s investment expert was not credible and “did not accept his analysis on the expected rate-of-return for [Wife’s] investments.” Determinations of credibility are within the sound discretion of the fact finder, which in divorce cases is the trial court. The trial court judge provided several reasons for her finding that the investment expert lacked credibility including, his inexperience, his failure to adequately answer certain questions, and his choices relating to his analysis. Disregarding investment income altogether, however, was an abuse of discretion.
The law requires a court, when calculating alimony, to consider all sources of income available to either party, including income available to either party through investments of any asset held by that party. It is well-settled that a court should impute income that could reasonably be earned on a former spouse’s liquid assets.[5]
The court remanded instructing the trial court to include investment income in the alimony analysis.
In a concurring opinion, Judge Long went even further. He contends “that retroactive alimony is a fiction of the courts and is not supported by any provision of Florida law.” According to Judge Long, the Florida statute under which the trial court decided the case provides only for alimony after the dissolution of the marriage. While a party may seek (and a court may award) alimony pendente lite (a Latin phrase meaning while the matter is pending), commonly referred to as “APL.”
The case does not mention an award of APL, and presumably, Wife did not seek one during the 33-month pendency of the case. Thus, according to Judge Long, the trial court had no authority whatsoever to award “retroactive” alimony.
Conclusion
Time is certainly money; in this case approximately 33 months’ worth. In the end, Husband was relieved of an obligation to pay prejudgment interest, likely amounting to hundreds of thousands of dollars (a substantial part of which would have been the result of the trial court’s failure to issue a prompt ruling at the conclusion of the trial). At the same time, despite Judge Long’s concurring analysis, Husband will potentially be liable for 33 months of retroactive alimony although the amount of the retroactive alimony may be reduced in light of the appellate court’s directive to consider investment income.
[1] In the underlying action, Husband sought to disqualify Wife’s valuation expert, which the trial court denied. Husband reasserted that issue on appeal. Since Husband’s opposition “focused on the credibility of the expert’s testimony and not whether it was based on ‘sufficient facts or data’ or was ‘the product of reliable principles and methods,’” the appellate court simply rejected that issue.
[2] Iarussi at *6, internal quotations and citations to the statute omitted.
[3] Catalfumo v. Catalfumo, 704 So. 2d 1095 (Fla. 4th DCA 1997).
[4] Argonaut Ins. Co. v. May Plumbing Co., 474 So. 2d 212, 215 (Fla. 1985).
[5] Iarussi at *11, internal quotations and citations omitted.
Michael J. Molder, JD, CPA, CFE, CVA, MAFF, applies 30 years of experience as a Certified Public Accountant and litigator to help investigate and analyze cases with complex financial and economic implications. He has acted as both counsel and accounting expert in pending and threatened litigation as well as participating in internal investigations of financial misconduct. As a litigator, Mr. Molder helped co-counsel understand complex financial and accounting issues in dozens of cases. In 2006, Mr. Molder returned to public accounting applying his unique skills to forensic engagements. He has also performed valuations of business interests in a wide variety of industries.
Mr. Molder has served as valuation expert for both plaintiffs and defendants in commercial litigation matters and owner and non-owner spouses in matrimonial dissolutions. He has participated in the valuations of businesses in a wide variety of industries, including: food service, wholesale and retail distribution, literary development and production, healthcare, manufacturing, and real estate development.
Mr. Molder has also investigated and valued damages in a wide variety of litigation contexts ranging from breach of contract claims to personal injury cases, and from employment disputes to civil fraud. He has consulted on many matters which have not involved the issuance of a report for litigation or resulted in deposition or trial testimony. Accordingly, the identity of these matters is protected by attorney client privilege.
Mr. Molder has also lectured widely on a variety of accounting and litigation related topics including business valuation, financial investigations in divorce proceedings, accountant ethics, financial statement manipulation and “earnings management.”
Mr. Molder can be contacted at (610) 208-3169 or by e-mail to Molder@lawandaccounting.com.
