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REPORTED IN THE COURT OF SPECIAL APPEALS

OF MARYLAND No. 2598 September Term 2006

KEITH A. LEE v. LORI L. ANDOCHICK

Salmon, Moylan , Charle s E., Jr., Ret. Specially Assigned, Thiem e, Raym ond G ., Jr., Ret. Specially Assigned,

JJ.

Opinion by Salmon, J.

Filed: October 3, 2008

REPORTED IN THE COURT OF SPECIAL APPEALS

OF MARYLAND No. 2598 September Term 2006

KEITH A. LEE v. LORI L. ANDOCHICK

Salmon, Moylan, Ret. Specially Assigned, Thiem e, Ret. Specially Assigned, JJ.

Opinion by Salmon, J.

Filed:

Keith A . Lee, appe llant, has a pro jected salary for 2 006 of $ 1,760,282 .00 annua lly and, after taxes, a net income of $998,000.00 . Appellee-cross-appellant, D r. Lori Andochick, a dentist, grosses $267,000.00 per year. Her after-tax income (without alimony) is approximately $203,30 0.00 per year. 1 After a trial in the Circuit Court fo r Frederick Coun ty, the court granted Dr. Andoc hick an aw ard of 1) in definite alim ony in the am ount of $ 10,000.00 per mon th starting January 1, 2007; 2) child supp ort in the amount of $ 15,000.00 per m onth; 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, transportation, lunch, fees, and cost of extracurricular activities, which amounts to about $2,200.00 per month. Under ordinary circum stances, requiring Mr. Le e 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 o n that de bt. 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

The estimate of Dr. Andochick's net income, without alimony, is based on the testimony provided by Jeffery Capone, an expert called by Dr. Andochick. His calculation assumed that Dr. An dochick w ould receive an award of alimony in the amount of $20,000.00 per month. O ur estimate o f tax liability concerns taxes due on an income of $267,000.00, but oth erwise uses all o f Mr. C apone 's other a ssump tions.

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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 o n January 12, 2007. Tw o 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 Manag ement" ("Brow n Cap ital"), a subchapter S corporation headquartered in Baltimore, Maryland. Mr. Lee was hired by B rown Capital in 19 91 to create a division tha t would invest in small com panies, on b ehalf of c lients of Bro wn Ca pital. When he was h ired in 1991, Mr. Lee was offered a choice as to how he would be compensated. The first option was to ha ve an "ind ustry c omp etitiv e 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 c over his travel expe nses. 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 "entrep reneurial" option, which 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, how ever,

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 stoc kholder of Brow n Capital and its majordomo. A pr omissory note, evidencin g this debt, req uired M r. Lee to ma ke quarterly payments to Mr. Brown of $17,365.43 through January 1, 2006, when the entire balance was to com e 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 annu al installments of $43 1,480.0 0. 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. L ee's stoc k in Bro wn C apital w as wo rth, as of the date of the d ivorce, $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 stoc k in Bro wn C apital w as $3,1 91,050 .00 as o f the da te of the divorc e. Currently Mr. Lee ow ns 16% of the stock in Brow n Capital. H is wages since 1999

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have been: 2006: $1,760,282[projected]; 2005: $2,336,631; 2004: $3,466,681; 2003: $2,526,512; 2002: $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 approxim ately 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 [Brow n Capital] has been less successful tha n it had bee n previou sly. He attributes th e trend to a combination of factors: under performance of managed assets as compare d to benchmarks i.e., Standard and Poo rs Index, a lo ss of clients and concomitant reduction in assets under manage ment. 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 u nit 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.

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Dr. Andochick finished dental school in December 1990. She was immediately hired by a small dental practice outside of Charlottesville, Virginia. After h er 1993 marriage, D r. Andochick regularly commuted from the home she and Mr. Lee shared in Frederick, Maryland to Charlottesville, V irginia. She w ould leave on Mo nday morn ing and dr ive to Charlottesville and stay with friends in that town un til Thursday. She would the n 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 wee k and ear ns $2 67,0 00.0 0 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 stan dard of livin g in the later pa rt 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 Bermud a 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 dome stic help; [Dr. Andochick] has had a t least one in-h ome assista nt daily to assist w ith househo ld maintenance and the transporting of children. They own four motor vehicles of substantial value. II.

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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 home w as comp leted in M arch 199 8 on prop erty 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 th e house a nd replacin g the brick w ith limestone . The revise d building plans also called for building a theater, a new garage, replacing the existing roof with one made of slate , and bu ilding a g ym big en ough to include a baske tball cou rt. Construction began in July of 2003 and continued until the time the parties separated

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in May of 2004. After the parties separated, Dr. Andochick signed, as did Mr. Lee, docume nts necessary to obtain a $1,000,000.00 line of cred it with Me rcantile Safe D eposit and Trust Co mpany as a b ridge loan u ntil a $5,000,000.00 permanent loan could be secured to finan ce the c ost of c onstruc tion. Sub sequ ently, Dr. Andochick refused to execute the necessary do cuments to obtain the $5,000,000.00 loan. Due to Dr. Andochick's refusal, construction stopped on the residen ce. Even though 1.65 million dollars has been spent for the enlargement and "improve ment" to the property, the marital home currently remains unfinished. Approx imately 19-20,00 0 square f eet of spac e is under roof but most of it has no heating or air-conditioning. Floors are m ade of co ncrete or plyw ood, and m ost of the ex terior of the house is cove red in T yvec con struction 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

There are two other loans in Mr. Lee's name alone that rela te in whole or in part to the uncompleted house expansion. The first is a loan payable to Mercantile Bank, dated November 9, 2004, in the amount of $450,000.00, which has a principal balance of $225,000.00. Mr. Lee's payment on the Mercantile Loan includes quarterly interest payments and six semi-annual principal payments, five of which are $75,000.00 and the last of which is $76,086.99 that was due on January 1, 2008. The second debt is a Harbor Bank Line of Credit w ith $2,300,0 00.00 ou tstanding de bt, of which $1,412,90 5.00 is attributable to the hou se. The Harbor Bank line of credit matured on January 12, 2006, and was overdue (contin ued...) 6

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Mr. Lee con tinues to live in the marital hom e even tho ugh it only has a few hab itable rooms. The value of the land and house is $1,40 0,000.0 0. But, because the debt associated with the marital ho me far ex ceeds its app raised 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 am ount of $2,500 .00 per m onth. III. 7802 Fingerboard Road About four months p rior 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 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, appr oximately on e acre in size, is the property now known as 7802 Fingerboard Road. In conjunctio n 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 fr om sev eral othe r heirs of his late g reat-gra ndfath er. In exchan ge for the q uitclaim

(...continued) as of th e date o f trial. M r. Lee p ays mon thly interes t of $14 ,854.00 on the lin e of cre dit. 7

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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 expende d for the qu itclaim 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 M r. Lee c urrently p ays mortg age pa yments o n those loans o f $2,47 2.00 pe r month . Additional facts will be set forth in order to answer the questions presented. IV. Analy sis 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 amou nt of $10 ,000.00 pe r month. H is argumen t is based on five separate contentions, viz: 1) the trial court erred in finding th at Mr. Le e could af ford to pay ind efinite alimo ny in the monthly amount of $10,0000.00; 2) Dr. Andochick failed to meet her burden of proving

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entitlement to indefinite alimony because she did not show that unless an award o f indefinite alimony was granted her standard of living, when compared with that of Mr. Lee, would be unconsc ionably disparate; 3) e ven if, hypoth etically, Dr. Andochick's evidence was sufficient to allow a finder of fact to conclude that her post-divorce standard of living would be unconsc ionably disparate w ith that of Mr. Lee, the trial judge never found tha t the standard of living would be unconscionably disparate; 4) an award of indefinite alimony was not warranted in light of the f act that the trial ju dge 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 mo netary award and the sale of jointly own ed prope rty. Prior to conclud ing that an a ward 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 R epl. Vol.),

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