IN THE COURT OF COMMON PLEAS OF LEBANON COUNTY

PENNSYLVANIA

 

CIVL ACTION – LAW

 

WESLEY R. DAVIS                          :  NO. 2006-20176

                                                          :

1. v.                                      :

: 

CYNTHIA A. DAVIS                          :  

 

APPEARANCES:

Susan Kadel, Esquire                     For Wesley R. Davis

 

Pamela A. Weiss, Esquire              For Cynthia A. Davis

WEISS, WEISS & WEISS

 

 

OPINION BY CHARLES, J., December 2, 2011

 

Cynthia A. Davis (hereafter “CYNTHIA”) currently receives $6,000.00 per month in alimony, $2,350.00 in child support and an additional $1,956.00 per month in Social Security Disability payments for a grand total of $10,306.00 per month in income. Via a post-divorce Petition for Review of Alimony, CYNTHIA seeks to receive an increase in alimony from her ex-husband, Wesley R. Davis (hereafter “WESLEY”). In support of her request, CYNTHIA points out that WESLEY’s income has increased by roughly $31,000.00 per year since the date on which her alimony was formulated.  She seeks a portion of this increased income.  In response, WESLEY argues that CYNTHIA has “enough”.

For most residents of Lebanon County, an annual income of $120,000.00 would be viewed as “enough”.  However, we cannot ignore the standard of living that WESLEY’s dental practice can and has provided to this family unit.  Likewise, we cannot ignore CYNTHIA’s medical expense needs.  When all is said and done, we conclude that an increase in alimony is appropriate.  Our reasons for this decision will be set forth herein.

 

I.        PROCEDURAL HISTORY

A Divorce Complaint was filed by WESLEY on February 2, 2006.  On August 15, 2006, CYNTHIA filed an Answer together with a Counterclaim requesting alimony and alimony pendente lite.  A Special Master was appointed on July 3, 2008.  The Master received testimony and evidence over the course of four days. He ultimately issued his 42 page Report and Recommendations on July 20, 2009.

WESLEY filed Exceptions to the decision of the Special Master. On December 2, 2009, we rejected the business appraisal evaluations proffered by both parties and appointed independent expert Gregory A. Crumling to perform a valuation of WESLEY’s business.  On April 15, 2010, Mr. Crumling rendered an opinion. On May 20, 2010, we issued an Order accepting Mr. Crumling’s valuation as credible.

On August 23, 2010, we issued a 42 page opinion to address a multitude of exceptions filed by the parties. Our August 23, 2010 decision was appealed by WESLEY to the Pennsylvania Superior Court. On June 14, 2011, the Superior Court issued a 13 page opinion.  The Superior Court affirmed most of our decision but remanded the case to us with instructions to modify one aspect of our decision. We did so via a Court Order dated July 15, 2011.

After the above-referenced case was remanded to us by the Pennsylvania Superior Court, CYNTHIA’s attorney submitted a request for an increase in alimony based upon an allegation of changed circumstances. Within our July 15, 2011 Court Order, we stated:

The amount of HUSBAND’s alimony was recommended by the Special Master as of July 20, 2009 based upon earnings information relating to 2008 and preceding years. While we affirmed the Special Master’s recommendation, we did not possess earnings information that post-dated the Special Master’s Report of July 20, 2009.  In light of WIFE’s allegation of a “changed circumstance”, and in light of the fact that we have no documentation or information before us with respect to HUSBAND’s life insurance, we will schedule a hearing…

 

Leave is granted for either party to file a Motion for Modification of Alimony…

 

(July 15, 2011 Court Order at ¶¶ G and 2).

On September 19, 2011, CYNTHIA filed a Motion to Increase Alimony.  We scheduled a hearing for October 5, 2011.  Following the hearing, we solicited briefs from both sides. Those briefs were received by us by November 15, 2011.  The issue raised by CYNTHIA’s request for increase of alimony is now before us.

 

II.       ANALYSIS OF WESLEY’S INCOME

To place this dispute within its proper context, it is necessary to review WESLEY’s income in 2008 when the Special Master rendered his decision.  It is also necessary to undertake an analysis of the income information presented to us at the October 5, 2011 court hearing.  Our analysis of each is as follows.

A.      WESLEY’S INCOME AS OF 2008

As of 2009 when the Special Master analyzed the parties’ financial situation, the most recent tax information available related to tax year 2008.  The Special Master documented that WESLEY had gross taxable income in 2008 of $529,548.00. The Special Master added back depreciation of $13,122.00 and arrived at a total gross income figure of $542,670.00. The Special Master then deducted taxes of $161,133.00 and determined that WESLEY possessed a net yearly income of $381,537.00, or $31,794.75 per month (Special Master’s Report at pg. 36).

B.      WESLEY’S CURRENT INCOME

The most recent income information available to us as of October 5, 2011 was WESLEY’s 2010 Federal Income Tax Return. That income tax return revealed that WESLEY received gross receipts from his business in 2010 of $1,139,505.00.  After deduction of allowable business expenses, WESLEY’s tax return revealed a total net profit figure of $564,751.00.

WESLEY’s accountant, Gayle Bollinger, testified that she analyzed WESLEY’s 2010 tax return.  Ms. Bollinger’s analysis led her to conclude that WESLEY possessed yearly net disposable income of $400,272.00, which equated to monthly disposable net income of $33,356.00.

On cross-examination, Ms. Bollinger acknowledged that she subtracted $28,000.00 from WESLEY’s annual net income. She did so because WESLEY paid this amount to reduce principal on a business loan that he incurred to improve his dental practice.  When WESLEY testified, he stated that he took out an $80,000.00 business loan from M&T Bank in 2008 and used that loan to renovate his office.

We will adopt Ms. Bollinger’s analysis with one exception. We will not subtract the entire $28,000.00 debt payment that Ms. Bollinger suggested. WESLEY testified that the loan he incurred in 2008 was a seven year loan. While we understand that loan amortization “front-loads” interest and “back-loads” principal payments, we cannot understand why a full 35% of the principal balance owed would be paid by any debtor in the third year of a seven year loan payoff.  We conclude that WESLEY made additional principal payments towards his business loan that were not required during 2010.  Regardless of whether WESLEY did this for business reasons (i.e., to pay off the loan early) or for personal reasons (i.e., to reduce his income to avoid support obligation payments), we view WESLEY’s $28,000.00 principal payment in 2010 as artificially high.

We do not quarrel with Ms. Bollinger’s methodology that includes subtraction of business loan principal payments. However, we will not adopt Ms. Bollinger’s deduction of $28,000.00.  At the risk of seeming arbitrary, we conclude that $15,000.00 in principal payments during tax year 2010 would represent a reasonable figure. Therefore, we will deduct $15,000.00 from WESLEY’s annual disposable net income instead of the $28,000.00 recommended by Gayle Bollinger. Essentially, we will add back an additional $13,000.00 to Gayle Bollinger’s determination of  WESLEY’s disposable net income. This results in an annual disposal net income for WESLEY of $413,272.00. Transformed into a monthly amount, WESLEY received monthly net disposable income of $34,439.00 in 2010.  This represents a monthly increase in net income from 2008 of roughly $2,600.00.

 

III.      CYNTHIA’S INCOME AND NEEDS

At all times pertinent to our discussion, CYNTHIA has had custody of the parties’ daughter Gwenyth. Both in 2008 and at the present time, CYNTHIA resided with Gwenyth in the parties’ marital residence located within Lebanon County. In addition, CYNTHIA has suffered and continues to suffer from numerous medical conditions that have prevented her from working and from performing routine repair and maintenance of her home.  If anything, CYNTHIA’s medical situation has deteriorated even more since 2008, as she now uses a walker to ambulate.

As compared to 2008, CYNTHIA’s situation is only slightly different. Like we did with WESLEY, we will separately analyze CYNTHIA’s financial situation in 2008 and compare it with CYNTHIA’s financial situation at present.

A.      FINANCIAL SITUATION IN 2008

In 2008, CYNTHIA received $22,188.00 in Social Security Disability benefits for herself.[1] In addition, CYNTHIA received $2,182.75 per month in child support.  To supplement the above amounts, the Special Master recommended that CYNTHIA receive $6,000.00 per month in alimony.  Based upon the above, CYNTHIA’s total income following the Special Master’s recommendation was as follows:

            Source of Income                                    Monthly Amount

1.	Social Security   Disability	1,849.00
2.	Child Support	2,182.75
3.	Alimony	6,000.00
	TOTAL:	$10,031.75

 

B.      CURRENT INCOME

CYNTHIA’s income has remained relatively static since 2008.  She has received a slight increase in child support, and Social Security Disability but nothing we would consider significant. According to testimony at the October 5, 2011 hearing, CYNTHIA’s income was as follows:

            Source of Income                                                 Monthly Amount

1.	Social Security   Disability	$ 1,956.00
2.	Child Support	2,350.00
3.	Alimony	6,000.00
	TOTAL:	$10,306.00

 

IV.     OTHER FACTORS

Both parties have presented information and argument that each says we should consider when assessing alimony. In outline form, the additional factors that we have considered include the following:

(1)     The parties stipulated that WESLEY will have to pay $1,998.69 during 2011 for life insurance that will be sufficient to protect CYNTHIA in the event of WESLEY’s premature demise.

(2)     Without question, CYNTHIA will require medical insurance coverage for the remainder of her life. Until the divorce was finalized, WESLEY paid for CYNTHIA’s insurance through his business. The cost to continue health insurance coverage for CYNTHIA under COBRA following the divorce will be $984.00 per month (Exh. 5).  This insurance will not completely cover CYNTHIA’s prescription drug needs.

(3)     WESLEY currently lives with his paramour and her two children.  Since the Special Master’s Report, WESLEY purchased a $1,000,000.00 home and furnished it for $50,000.00.  CYNTHIA continues to reside in the marital homestead. There is no mortgage on the marital house.  However, the house is in need of various repairs and the maintenance costs for the house are considerable.

(4)     We do not have complete information with respect to the current assets possessed by each party.  However, we do know from the divorce litigation that both WESLEY and CYNTHIA are millionaires. By virtue of the divorce decision that was affirmed in large part by the Pennsylvania Superior Court, CYNTHIA was entitled to receive a lump sum payment from WESLEY totaling almost $700,000.00.  In addition, CYNTHIA possessed almost $1,000,000.00 in other assets. Similarly, WESLEY’s total estate is measured in seven figures.

(5)     At the October 5, 2011 hearing, WESLEY accused CYNTHIA of having a spending addiction.  He pointed out that CYNTHIA spent $34,000.00 in one year through a home shopping network.  WESLEY argues that he should not be forced to subsidize CYNTHIA’s “excessive consumption”.

Based upon everything presented at the October 5, 2011 hearing, we agree that CYNTHIA suffers from a spending compulsion that has led her to acquire more clothing and other items than she actually needs. On cross-examination, CYNTHIA acknowledged that when she received $125,000.00 as an advance equitable distribution payment from WESLEY, she immediately gave $65,000.00 of this amount to her mother for safekeeping “so that I would not spend it”.  This testimony was illuminating.  While we certainly appreciate CYNTHIA’s self-recognition of her own spending habits, we concur with WESLEY’s assessment that it is time for CYNTHIA to become more frugal.

(6)     When the Special Master recommended $6,000.00 in alimony and when we adopted that recommendation as our own conclusion, each of us believed that CYNTHIA would be receiving more money in equitable distribution than she will end up receiving. The Special Master believed that CYNTHIA would receive $1,002,457.00.  In our opinion, we believed that CYNTHIA would receive $776,260.00.  As a result of the Superior Court’s decision, CYNTHIA will actually receive $694,098.00.  We view the diminution in amounts received by CYNTHIA under equitable distribution to be a factor that we must now consider with respect to awarding ongoing alimony.

 

V.      ANALYSIS

Based upon everything presented to us, we reach the following factual conclusions:

(1)     WESLEY’s income has increased since the parties were before the Special Master by roughly $2,600.00 per month.

(2)     With the advent of the divorce, CYNTHIA’s expenses, especially those related to health insurance and prescriptions, have increased.

(3)     CYNTHIA suffers from a spending compulsion that causes her to spend money recklessly for items she does not actually need.

(4)     CYNTHIA will receive roughly $80,000.00 less in equitable distribution than what we believed she would receive when the $6,000.00 per month alimony award was originally entered.

(5)     The parties agreed at the outset of this dispute that Gwenyth’s entitlement to receive $890.00 per month in Social Security Disability payments should be placed in a college fund for Gwenyth’s use.  As a result, we will not consider in any way the $890.00 per month that CYNTHIA receives for Gwenyth in Social Security Disability funds.

When we meld the above factual conclusions together, we conclude that WESLEY should be required to pay additional alimony to CYNTHIA. Since 2008, WESLEY has enjoyed a healthy increase in his own income that renders him capable of paying additional alimony without hardship or even significant self-sacrifice.  Moreover, CYNTHIA needs additional income to pay health-related expenses that she did not have back in 2008.

With the above being said, we have struggled to decide how CYNTHIA’s spending habits should be considered. On the one hand, we understand that CYNTHIA played a significant role in the establishment and expansion of WESLEY’s dental practice and she should therefore be able to enjoy some of the fruits from that practice.  We also understand that millionaires have the ability to acquire luxury items that are beyond the grasp of most Americans.  Because of this, we are loathe to engage in line-by-line second-guessing of either party’s spending habits.  Still, there is a point in time where understandable self-indulgence morphs into recklessness. We must reluctantly conclude that CYNTHIA has crossed this line, at least as it relates to her purchases through QVC.

Our goal is to arrive at an alimony figure that is fairly reflective of WESLEY’s increased income and which affords CYNTHIA with additional income to pay legitimate expenses without enabling those that are truly extravagant. Attaining all of the above goals is admittedly difficult, but not impossible.

WESLEY’s income has increased by $2,600.00 per month. CYNTHIA’s medical insurance expense will increase by up to $950.00 per month. In addition, the amount CYNTHIA received via equitable distribution was decreased by Pennsylvania’s Superior Court by roughly $80,000.00.  At the same time, the cost of living in America has increased by roughly 7.5% since 2008.  In addition, CYNTHIA does have maintenance expenses related to the marital house that did not exist in 2008.

As we meld all of the above together, we conclude that an increase in WESLEY’s alimony to $7,266.55 is appropriate.  Of this alimony amount, WESLEY will be required to pay $7,100.00 per month directly to CYNTHIA. An additional $166.55 in alimony will be paid by WESLEY to his life insurance provider in order to pay for life insurance needed to secure CYNTHIA’s future alimony.[2]

The award of alimony as set forth above is not confiscatory.  In fact, this increased alimony still enables WESLEY to retain roughly half of his increased earnings from 2008.  On the other hand, this increased alimony will afford CYNTHIA with additional funds that she will need to pay medical insurance coverage, prescriptions, home repairs, etc.  In short, we determine that monthly alimony of $7,266.55 represents an appropriate amount giving due consideration to all of the factors set forth in the Divorce Code and the parties’ current circumstances.

With all of the above being said, we wish to communicate several more observations to the parties.  They are:

(1)     We are well aware that there is an interplay between alimony and child support. The alimony award we enter today is based upon the premise that WESLEY’s child support obligation will remain under $2,500.00 per month. We recognize that if alimony were to be discounted, WESLEY would be required to pay a considerably higher child support amount. From a taxation standpoint, it is in everyone’s best interest that WESLEY’s monthly payments to CYNTHIA be allocated heavily toward alimony instead of child support.  Should CYNTHIA in the future seek and obtain increased child support, such an award would certain affect our determination of what would be fair in terms of alimony.

(2)     Until such time as Gwenyth graduates and attends college, we do not anticipate again increasing WESLEY’s alimony absent truly emergency circumstances. CYNTHIA should realize that WESLEY’s dental practice is not a never ending well from which she can continually draw more and more financial resources. Stated differently, we expect CYNTHIA to learn how to live within her not insubstantial means.

(3)     We will agree to review WESLEY’s alimony obligation when Gwenyth graduates from high school. At that point, the child support situation will change, as will the parties’ respective expenses.

(4)     A premise of our decision today is that CYNTHIA will be required to pay for her own medical insurance coverage and medical expenses. We are aware that the medical insurance described in Exhibit 5 would require CYNTHIA to pay a significant percentage of her increased alimony toward medical insurance. We are also aware that other health insurance options exist that would likely be less expensive.  By this order, we do not intend to require that CYNTHIA use any specific company or purchase any specific policy.  We have provided CYNTHIA with additional money in part because we know that health insurance for a woman of her condition will not be easily or cheaply obtained. Nevertheless, it is our expectation that CYNTHIA will be responsible to procure her own insurance policy. To the extent that CYNTHIA wishes to obtain so-called COBRA health insurance from WESLEY’s policy, we will direct that WESLEY agree to work with CYNTHIA in this regard.  However, the responsibility to pay for health insurance will now belong to CYNTHIA.

An Order will be entered to reflect the above decisions.