What Does a Sullivan & Cromwell Partner Make?
 NY Judges Can't Agree

By Anthony Lin
New York Law Journal
New York Lawyer
March 19, 2008

Whether a Sullivan & Cromwell partner-turned-investment-banker earns $330,000 a year, twice that amount or 10 times as much has sharply divided the Manhattan appeals court reviewing the maintenance and child-support arrangements of his 2005 divorce.

A 3-2 majority of the Appellate Division, First Department, last week ruled that Allan M. Chapin had a history of under-reporting his income and that obliging him to pay roughly $146,000 a year in maintenance and child support to his ex-wife, Janet M. Johnson, was not excessive.

But the two dissenting justices called the finding on Mr. Chapin's income "manifestly wrong." They also criticized as a "remarriage penalty" the majority's award to Ms. Johnson of a $641,000 credit for the payments her husband made during their marriage to satisfy his divorce obligations to his first wife.

Mr. Chapin was a partner at Sullivan & Cromwell from 1976 to 1999, when he joined investment bank Lazard Frères. In 2001, he joined a boutique investment bank called Compass Advisors as a partner.

He married Ms. Johnson in 1991. She was also a lawyer and, at the time, was working as a vice president at the Walt Disney Co. earning $220,000 a year. She quit her job to raise their son a few years later. She filed for divorce from Mr. Chapin in 2001 after he began an affair.

Mr. Chapin's income during their marriage was more than $2 million a year, but he claimed his pay fell at Compass to $200,000, with an additional $130,000 coming from his service on various corporate boards.

In Johnson v. Chapin, 350749/01, an appellate majority of Justices Peter Tom (See Profile), Angela Mazzarelli (See Profile) and John Buckley (See Profile) ruled Mr. Chapin was "incredible" on the subject of his income and that, though the final maintenance and support awards were based on his having an income of $600,000, credible evidence had been advanced that he was earning $3 million a year. They also said there was evidence he was spending $63,000 a month on himself and his girlfriend.

But dissenting Justices David Friedman (See Profile) and James McGuire (See Profile) said the majority's finding was based on insufficient evidence of hidden income. They noted that Mr. Chapin had been asked to leave his high-paying position at Lazard and that Compass had experienced losses in its first years of operation. The high monthly expenditures, which the judges said were contested, could also have come out of pre-existing assets rather than income.

The majority and dissent differed sharply in their reading of the testimony of Compass' chief financial officer, Lorraine Costelloe, who said in 2004 that the firm's principals had not received quarterly draws but that revenue increased substantially between 2001 and 2003. The majority said this was evidence that Mr. Chapin would soon earn large sums from his position at Compass, while the dissent said the revenue increase needed to be balanced against the firm's rising costs.

The dissent also said that, in awarding maintenance to Ms. Johnson, the majority had too quickly ruled out the possibility that she could return to work as a lawyer or executive. She is now pursuing a career as a photographer and the majority said she needed time to establish herself in that field.

Justices Friedman and McGuire also took issue with the majority's decision to award Ms. Johnson, in addition to her own settlement, an amount equal to half the divorce payments Mr. Chapin made during their marriage to his first wife, which totaled almost $1.3 million. The majority compared this to his use of marital property to pay off his old school loans or credit card balances and said it was "the lot of any individual who enters into a marriage with outstanding debt."

But the dissenting judges said it was bad public policy to force a high-earning husband to essentially pay an additional 50 percent on a divorce settlement with one wife to pay another. They said such a penalty would encourage spouses with financial obligations from a prior divorce to bail out earlier from second marriages out of fear of the financial consequences of a second divorce.

The dissent also said Ms. Johnson was aware of Mr. Chapin's obligations to his first wife and she entered into the marriage because of its "compensating benefits." The judges said the majority was ignoring these benefits in its decision.

The majority did award Mr. Chapin slightly over $1 million for excess maintenance payments during the period before the divorce became final, as well as mortgage and other payments on the couple's marital home, a large Fifth Avenue co-op worth over $10 million. The divorce settlement gave Ms. Johnson around $5 million from the distribution of their various marital assets.

The couple also had a country home in Columbia County, which Mr. Chapin had owned before his marriage to Ms. Johnson. The court reduced her award on this property from 50 percent of its appreciation to 25 percent, noting that its increase in value was in large part due to "passive" market forces.

Mr. Chapin was represented before the First Department by Leonard G. Florescue of Blank Rome, though the lawyer said yesterday he was no longer involved in the case. Ms. Johnson was represented by Allan E. Mayefsky of Sheresky Aronson & Mayefsky.

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