United States District Court, D. Massachusetts
MEMORANDUM AND ORDER AMENDING THE JUDGMENT
RICHARD G. STEARNS UNITED STATES DISTRICT JUDGE.
The court entered a judgment in this convoluted tax case on October 23, 2015. The judgment was based on thirty-nine pages of findings of fact (FoF) and rulings of law filed by the court on August 17, 2015. The delay in entering the judgment was caused by a dispute between the parties over the content of the Government’s Proposed Form of Judgment. In resolving the dispute, the court made clear that it had not adopted the nominee and lien tracing theories that the Government had advanced as alternative theories justifying the seizure of the Baker’s jointly-owned marital property in satisfaction of Scott Baker’s tax debt. J. ¶ 7. The October 23, 2015 judgment also noted that the disposition of escrowed funds (the IMA funds) that had accumulated from an unexpected bankruptcy recovery remained unresolved. (The IMA funds had their origin in an improvident investment made by Scott Baker in 2003 and 2004. See FoF ¶¶ 20-21, 25). The court indicated in the judgment that it would “separately adjudicate the matter unless the parties are able to come to an agreement on an appropriate division of the escrowed funds.” J. ¶ 6. The parties having not reached such an agreement, the court will now keep its word and adjudicate this remaining issue and issue a final judgment.
By the time of trial, the Bakers (although still living together) were formally divorced. In 2oo8, as part of an uncontested divorce proceeding, the Bakers entered into a Separation Agreement purporting to divide their marital assets. While the court made no ruling on the validity of the divorce itself, it found that the Separation Agreement fraudulently transferred substantial assets to defendant Robyn Baker for little or no consideration in an effort to defeat the collection efforts of the Internal Revenue Service (IRS) on taxes due and owing from Scott Baker. After a trial, the court ordered certain real property to be sold and that Scott Baker’s one-half interest in the proceeds of the sales be paid over to the IRS. The court also ordered that Scott Baker’s interest in the IMA funds (that had been transferred to Robyn Baker as the designated Trustee of the Baker Trust) also be forfeited to the IRS. J. ¶ 6.
As explained in the court’s August 2015 findings, in November of 2012, Robyn Baker received a payout of $202, 562 from the IMA Trustee. FoF ¶ 86. She then invested the entire $202, 562 in Design Decisions, a home purchase and remodeling business owned by Leslie Smith, a personal friend. Id. ¶ 87. Both of the Bakers benefitted from the investment - Scott Baker was employed by Design Decisions to do the remodeling work, while for Robyn Baker, the investment proved very profitable. Sometime thereafter, the IMA Trustee made a second payout of $84, 000 to Robyn Baker, which she spent, apparently to pay the couple’s escalating legal fees. Id. ¶ 89.
Subsequent to the entry of the judgment, the court learned that the value of the funds being held in escrow was much higher than had been anticipated given the profitability of Robyn Baker’s investment in Design Decisions. The funds in escrow now total $599, 078.77.
Although the parties do not agree on the ultimate disposition of the funds, they do agree that further litigation of the case will only result, as far as Robyn Baker is concerned, in a dissipation of the funds that remain and from the Government’s point-of-view, a further accumulation of transactional costs. The parties have suggested various mechanisms or doctrines under which the court might proceed - equitable recoupment, common-law setoff, a resuscitated lien tracing theory, constructive trust, and so on, but the simplest solution is the one advanced by the Government, and as I gather from Robyn Baker’s pleadings, also acceptable to her. See Robyn Baker’s Claim Dkt. #100 at 7 (consenting to the court’s jurisdiction for purposes of an equitable division of the escrowed funds).
The court rules that under the original Complaint, as tried, the court has jurisdiction over the IMA payout funds and any proceeds directly traceable to the investment of those funds. These proceeds include the additional IMA payout and the profits paid over in escrow by Design Decisions. The court further sees no reason to depart from the 50/50 equitable formula that it consistently applied in dividing the real property and the IMA assets (as then known to the court). Consequently, the court will amend the existing judgment to specify the division of the escrow funds as follows. Scott Baker’s half portion - that is, 50% of the sum of the escrowed funds, $599, 078.77, and of the $84, 000 that was never ...