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HomeMy WebLinkAbout1999-1259 Civil DONNA J. PERCARPIO, a/kla DONNA J. KELLY IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA V. TIMOTHY P. PERCARPIO 99-1259 CIVIL TERM IN RE: PETITION TO ENFORCE PROPERTY SETTLEMENT AGREEMENT OPINION AND ORDER OF COURT Bayley, J., November 7,2005:-- Donna J. Kelly, formerly Donna J. Percarpio, and Timothy P. Percarpio, were married on September 17, 1994, and divorced by a degree entered on June 23, 1999.1 They entered into a Property Settlement Agreement dated March 26, 1999. Kelly has filed a petition to enforce the Property Settlement Agreement upon which a hearing was conducted on September 1, 2005.2 At the time of the entry of the Agreement, husband was, as he still is, a dentist and partner in Percarpio, Keane & Associates. That entity, then and now, has a tax deferred pension plan known as the Percarpio, Keane & Associates Profit-Sharing Plan. As of September 31, 1998, the plan was fully vested with a value of approximately $461,000. Paragraph 3 of the Property Settlement Agreement provides: 1 This was the third marriage between these spouses. They were first married on June 2, 1962 and divorced on September 6, 1974. They were married again on June 19, 1976 and divorced on February 3, 1993. 2 For ease of reference we will still refer to the parties as husband and wife. 99-1259 CIVIL TERM With regard to Husband's interest in Percarpio, Keane & Associates Profit-Sharing Plan, or any successor to or replacement of that Plan, or any other retirement plan, tax-deferred plan, or other account or asset into which Husband subsequently transfers funds from his account within the Percarpio, Keane & Associates Profit-Sharing Plan (hereinafter all referred to as the "Plan"), the parties hereby agree as follows: A. Husband shall contribute, or cause Percarpio, Keane & Associates, P.C., or its corporate successor or any other professional practice by which he is employed, to make annual contributions to Husband's account within the plan having a value of not less than Fifty-Four Thousand ($54,000.00) Dollars during each calendar year, commencing with calendar year 1999, and continuing through calendar year 2008. Husband shall further cause the administrators of the Plan to prudently and properly invest such contributions, and the funds already in the account, in an effort to increase the total net value of the account as much as possible without undue risk. B. In 31 January 2009, Husband shall retire from his employment with Percarpio, Keane & Associates, or its corporate successor and shall, at such time, be eligible to start withdrawing benefits and receiving payments from the said Plan. Prior to Husband making any such withdrawals, Husband shall transfer to an account within the Plan, or into a tax-deferred account outside the Plan, in Wife's name and under Wife's sole control, one-half of all the benefits, assets, and sums within his account within the Plan on the date of his retirement or the date he first starts withdrawing or receiving payments from the Plan, whichever first occurs (and the parties mutually represent that they anticipate that date will be sometime during the month of January, 2009). The sums transferred into the account within Wife's name shall be Wife's sole and separate property, free of any claim by Husband except as is set forth in subparagraph F below. The sums retained in Husband's account within the Plan, after the transfer to Wife's separate account, shall be and remain the sole and separate property of Husband free of any claim by Wife except as is set forth in sub-paragraph F hereinbelow. C. The parties agree that Husband shall have the right to retire prior to January of 2009 if the total value of his -2- 99-1259 CIVIL TERM account within the Plan, prior to the date of any such retirement, is $1,500,000.00 or more. In that event, Husband shall, prior to making any withdrawals or receiving any payments from the said Plan, make the transfer into Wife's separate account as required by sub-paragraph B hereof. The parties further agree that Husband may retire prior to January of 2009 and prior to the balance in his account within the Plan attaining a value of $1,500,000.00, with the prior written consent of Wife and upon the mutual agreement of the parties as to the amount to be transferred into Wife's sole name as required by Paragraph B hereof. D. Husband shall maintain Wife as the sole primary beneficiary of his account within the Plan so that, in the event that Husband dies prior to his receiving all benefits from the Plan and exhausting payments due him from the Plan, Wife shall receive the full value of Husband's account within the Plan as a result of such beneficiary designation. Husband further agrees that he shall designate the parties' issue, per stirpes, as the secondary beneficiaries to receive such benefits in the event that Wife does not survive Husband's death. E. Husband shall not make any withdrawal from his account within the Plan prior to his retirement, which the parties contemplate will be sometime during the month of January, 2009, and shall not do anything to diminish or reduce the balance within his account within the Plan or to otherwise reduce the funds therein. F. After the division and distribution in accordance with sub- paragraph B hereof, the parties shall each maintain the other as the sole primary beneficiary, and shall maintain their issue, per stirpes, as the sole secondary beneficiaries, of their account within the Plan, or any other account or asset into which funds are transferred from that account thereafter. (Emphasis added.) After the divorce, husband has funded his Percarpio, Keane & Associates Profit- Sharing Plan as follows: 1999, $30,000; 2000, $30,000; 2001, $35,000; 2002, $40,000; 2003, $42,000; and 2004, $44,000. Except $1,000 in 2002, tax-deferred contributions -3- 99-1259 CIVIL TERM represent the maximum amount allowed in that year under federal tax laws.3 At the time husband entered into the Property Settlement Agreement, he and wife believed that he could contribute $54,000 a year tax deferred into the Percarpio, Keane & Associates Profit-Sharing Plan, which is something he could not do under Federal tax law. Wife seeks a reformation of the Property Settlement Agreement requiring husband to provide the full investment of $54,000 a year required of him to fund his retirement through 2008. Citing Luber v. Luber, 418 Pa. Super. 542 (1992), husband maintains that he should be discharged from the obligation to fund a retirement plan for ultimate division with wife above the maximum amount he can contribute under Federal tax laws to the Percarpio, Keane & Associates Profit-Sharing Plan. In Luber, the Superior Court stated: Legal impossibility or impracticability is defined in S 261 of the Restatement (Second) of Contracts. See Craig Coal Mining Co. v. Romani, 355 Pa.Super. 296, 513 A.2d 437 (1986), appeal granted, 514 Pa. 624, 522 A.2d 50 (1987). This section states: ~ 261. Discharge by Supervening Impracticability Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate to the contrary. *** 3 In 2002, when the maximum was $41,000, only $40,000 was contributed because the Plan administrator failed to notify husband within an applicable time period that the maximum was $41,000. -4- 99-1259 CIVIL TERM Comment b to S 261 indicates that in order for a discharge to occur under this theory there must be the occurrence of a supervening event, the nonoccurrence of which was a basic assumption on which both parties based their contractual agreement. In the present case, no supervening event rendered performance under the Property Settlement Agreement impossible. Rather, a mutual mistake of fact at the time the Agreement was entered, which fact was an essential inducement for the Agreement, created the impossibility of husband funding his Percarpio, Keane & Associates Profit-Sharing Plan as agreed. In Gocek v. Gocek, 417 Pa. Super. 406 (1992), the Superior Court of Pennsylvania set forth the precepts regarding property settlement agreements and their modification. First, a property settlement agreement between husband and wife will be enforced by the courts in accordance with the same rules of law applicable to ascertaining the validity of contracts generally. Kleintop v. Kleintop, 291 Pa.Super. 491, 436 A.2d 223, 225 (1981). Second, "the misconception which avoids a contract is necessarily a mutual one, and a fact which entered into the contemplation of both parties as a condition of their assent". Ehrenzeller v. Chubb, 171 Pa.Super. 460, 90 A.2d 286, 287 (1952). And, in Vrabel v. Scholler, 369 Pa. 235, 85 A.2d 858, 860 (1952), the general rule was again stated thusly: "'A contract [made under] a mutual mistake as to an essential fact which formed the inducement to it, may be rescinded on discovery of the mistake, if the parties [can be] placed in their former position with reference to the subject-matter.'" (Citation omitted). Lastly, to obtain reformation of a contract because of mutual mistake, the moving party is required to show the existence of the mutual mistake by evidence that is clear, precise and convincing. Bugen v. New York Life Insurance Co., 408 Pa. 472, 184 A.2d 499, 500 (1962). In Gocek, the Court stated that when there is a mutual mistake of fact, a -5- 99-1259 CIVIL TERM property settlement agreement may be reformed if the court is able to place the litigants in their former positions. In the case sub judice, the parties contracted that husband, based on his investment of $54,000 a year into his pension plan, could retire before January of 2009 if the total value of his account was $1,500,000 or more which would be divided with his wife. If the $54,000 a year investment does not generate $1,500,000 by January, 2009, husband can still retire and the amount in the account at that time is divided with wife. While husband has placed the maximum amount he can each year into his personal plan, his inability to invest the full $54,000 per year as contemplated will obviously decrease the amount of money to ultimately be divided between the parties. Husband argues that reforming the Property Settlement Agreement will provide wife greater benefits than intended. To the contrary, reforming the Agreement will provide wife, as nearly as possible, the same benefits as intended, thus restoring them to their former positions. When his contribution to his retirement plan was due in 1999, husband learned that he could not invest the full $54,000. He accordingly made another investment, albeit with after tax dollars, in a Merrill Lynch account. That investment has since been transferred to a Morgan Stanley account. Each year husband has sought to cover the difference in this account between $54,000 and what he invested up to the maximum amount in his retirement plan. The value of the Morgan Stanley account as of June 30,2005, is 116,147.77. At the same time husband makes his investment each year in his Percarpio, Keane & Associates Profit-Sharing Plan, we -6- 99-1259 CIVIL TERM will require that he place into his Morgan Stanley account the difference between that investment and $54,000. With one exception, we will order that the Morgan Stanley account be subject to the same terms as set forth in the Property Settlement Agreement as are applicable to the Percarpio, Keane & Associates Profit-Sharing Plan. It appears that after the Percarpio, Keane & Associates Profit-Sharing Plan is divided there will be a liability for Federal taxes to the spouse making withdrawals to their respective account based on that person's tax bracket. In contrast, husband's contributions to the Morgan Stanley account have been and will continue to be with after tax dollars. Therefore, at the time the Morgan Stanley account is divided between husband and wife along with the Percarpio, Keane & Associates Profit-Sharing Plan, husband shall receive a credit before the division for one-half of the total amount of Federal tax he paid on his contributions each year into the account and its predecessor at Merrill Lynch, and for one-half of the total amount of any Federal taxes he may have paid in any year for gains in the account. AND NOW, this ORDER OF COURT day of November, 2005, IT IS ORDERED: (1) The motion of Donna J. Kelly to reform a Property Settlement Agreement, IS GRANTED. (2) The Property Settlement Agreement entered into between Donna J. Kelly and Timothy P. Percarpio dated March 26, 1999, IS REFORMED AS FOLLOWS: (a) Timothy P. Percarpio's investment account in Morgan Stanley, -7- 99-1259 CIVIL TERM formerly Merrill Lynch, with it current value, is made subject to the same terms and conditions as set forth in Paragraph 3, A through F, of the Property Settlement Agreement dated March 26, 1999, with respect to his Percarpio, Keane & Associates Profit-Sharing Plan, except that the amount of his future annual contributions in the Morgan Stanley account shall be the difference between the maximum amount he annually contributes as allowed by Federal law into the Percarpio, Keane & Associates Profit-Sharing Plan, and $54,000. (b) When the Percarpio, Keane & Associates Profit-Sharing Plan is divided between Timothy P. Percarpio and Donna J. Kelly pursuant to the terms of the Property Settlement Agreement, the Morgan Stanley account shall be similarly divided, except that before the division Timothy P. Percarpio shall receive a credit for one-half of the total amount of Federal tax he paid on his contributions each year into the account and its predecessor at Merrill Lynch, and for one-half of the total amount of any Federal taxes he may have paid in any year for gains in the account. By the Court, Edgar B. Bayley, J. Keith O. Brenneman, Esquire For Donna J. Percarpio a/kla Donna J. Kelly Susan M. Kadel, Esquire -8- 99-1259 CIVIL TERM For Timothy P. Percarpio :sal -9-