Posted on July 30, 2009 by Apple Sulit-Peralejo

The Good, the Bad and the Ugly: Locking in Support Obligations

At the time of divorce proceedings, many of my clients ask if they can “lock” the other party to whatever support amount is rendered. If the person asking is going to be paying support, they are asking because they do not want to have to pay more in the future. If the person asking is going to be receiving the support, they are asking because they intend to rely upon the amount indefinitely. My response in most circumstances is that it can be done but it should only be done with great caution and only done by way of agreement. For example, while a litigant’s intent may be to “lock” the support amount because they are anticipating earning more in the future and do not wish to pay more in the future, once locked and the litigant is faced with unanticipated detrimental financial circumstances, they may be unable to obtain a decrease of their support obligation. In other words, it goes both ways - being bound to a specific number regardless of changed circumstances can be very beneficial in some circumstances and in other circumstances very disastrous.

N.J.S.A. 2A:34-23 recognizes the equitable power of the Courts of the State of New Jersey to modify alimony and support orders at any time. Specifically, N.J.S.A. 2A:34-23 states:

 

Pending any matrimonial action brought in this State or elsewhere, or after judgment of divorce or maintenance, whether obtained in this State or elsewhere, the Court may make such order as to the alimony or maintenance of the parties . . . as the circumstances of the parties and the nature of the case shall render fit, reasonable and just, and require reasonable security for the due observance of such orders. . . . Orders so made may be revised and altered by the court from time to time as circumstances may require. 

 

Based upon the mandates of the statute, “alimony and support orders define only the present obligations of the former spouses.” Lepis v. Lepis, 83 N.J. 139, 146 (1980). Alimony and support obligations are always subject to judicial review and modification upon a showing of a change in circumstances. Id.    A type of “‘changed circumstance” that warrants modification of a support order is an increase or decrease in the supporting spouse’s income.” Innes v. Innes, 117 N.J. 496, 504 (1990). However, what happens when the parties agree at the time of the divorce that the support provisions cannot be modified?

 

The Appellate Division decision discussed whether or not a non-modifiable clause (also called an “anti-Lepis” clause) is enforceable in the decision of Morris v. Morris, 263 N.J. Super. 237 (App.Div. 1993). The Morris Court did find that an anti-Lepis clause could be found unenforceable in some circumstances, although the particular anti-Lepis clause in Morriswas upheld. In Morris, the defendant husband sought a reduction in alimony payments despite an anti-Lepis clause in the alimony agreement stating that the agreement was not modifiable for any reason except for the husband's physical disability. The husband based his request for reduction on a claim that the his annual income was $49,000 while his annual alimony payment was $35,000. The wife argued that husband kept all of the assets pursuant to the parties agreement and in exchanged for non-modifiable alimony, she agreed to a support amount of much less than the amount needed to sustain the marital standard of living. In holding that the husband was not entitled to a reduction in alimony payments, the court addressed a conflict between two chancery court decisions. In Smith v. Smith, 261 N.J. Super. 198, 199-200 (Ch. Div. 1992), the court determined that “an ‘anti- Lepis’ clause, which seeks to preclude the exercise of [the] Court's equitable responsibility to review and, if warranted, to modify support obligations in response to changed circumstances, is contrary to the public policy of this State as reflected in its Legislative Acts and its judicial decisions.” In Finckin v. Finckin, 240 N.J. Super. 204, 206 (Ch. Div. 1990), the court concluded that public policy did not prohibit the use of an anti- Lepis clause.
 

In an attempt to reconcile the two decisions, the Morris court stated the following:

 We must give an equivocal answer to the question of whether an anti- Lepis clause is enforceable. It is both yes and no. Smith is correct when it states that the parties cannot bargain away the court's equitable powers. Finckin is also correct when it states that the parties can establish their own standards, and that these standards, where not unwarranted under the circumstances, will be enforced by the court irrespective of the need-based guidelines of Lepis, which are applied when there are no such standards. If circumstances have made the parties' standards unreasonable, they can in extreme cases be modified. In less extreme cases, as here, the payments can be accrued with enforcement conditioned upon the payment of reasonable periodic payments. In short, the court should endeavor to carry out the agreement of the parties on a reasonable basis. (Emphasis supplied.) Morris, 263 N.J. Super. at 245-46.

 

Although the court held that the anti-Lepis clause rendered a determination of the Morris wife’s needs irrelevant since the alimony was not negotiated on the basis of her needs, the following example of an “extraordinary case” was provided in a footnote by the Appellate Division: “[T]he wife's needs might be relevant if, for example, there is little economic need on the part of the wife and the husband's countervailing needs warrant his being permitted to retain a higher percentage of his income. (Examples that come to mind are a sick child from a second marriage, an impending loss of his business, or the like).” Id. at 245 n. 5 (emphasis added). Finally, the court held that “defendant's failure to pay can result in his incarceration only if such failure is willful, given his then-existing means.” Id.

 

Interestingly, there are not to many decisions that deal with an anti-Lepis clause. I surmise this to be the case because very few people would agree to be locked into a number that they are required to pay or entitled to receive regardless any change in circumstances. Of course there are situations in which it makes sense to agree to non-modifiable support; however, all facts should be considered with an attorney and the litigant should be prepared to take a significant risk. If on the other hand, your agreement already contains a non-modifiability or anti-Lepis clause and you have encountered significant changed circumstances, it is imperative that at the least you consult an attorney to determine if your circumstances are such that a Court could find the clause to be unreasonable to warrant a modification.

 

 
Tags: , , , , , , , , , , , , , , , , , , , ,
Posted on June 17, 2009 by Robert A. Epstein

ANTI-LEPIS CLAUSES - SAY WHAT YOU MEAN AND MEAN WHAT YOU SAY

One issue often looming over the preparation of a Property Settlement Agreement is whether or not the parties agree to waive statutory rights to seek a modification of support.  Otherwise known as an "anti-Lepis" clause, such language seeks to essentially overcome the courts' "equitable power . . . to modify alimony and support orders at any time," under N.J.S.A. 2A:34-23 and the New Jersey Supreme Court's seminal decision in Lepis v. Lepis, 83 N.J. 139, 145 (1980).  Drafting such an enforceable anti-Lepis clause is not as easy as it sounds, as found by the Appellate Division in Stefanacci v. Stefanacci.  

The facts of the case are relatively straightforward, as it was the language of the Property Settlement Agreement at issue that formed the basis of the dispute.  After a 20-year marriage, the parties filed for divorce.  The parties ultimately resolved the matter, memorialized in an oral settlement stated on the record.  Included in the oral stipulation was Joseph's agreement to pay Marcia limited duration alimony for 13.5 years or until Marcia's cohabitation with another person unrelated by blood or marriage for 120 days; Marcia's remarriage; Joseph's death; or Marcia's death.  Provision was also made for the commencement of payments and Marcia's ability to seek child support should alimony cease and the children are unemancipated.

The parties subsequently memorialized the terms in a Property Settlement Agreement, which also addressed alimony in detail.  In one paragraph of the alimony section, the PSA specifically stated that Marcia "waiv[ed] any ability to attempt to modify or extend the . . . term before any [c]ourt of competent jurisdiction."  In the following paragraph, however, was another section entitled, "Waiver of Alimony" which stated:

Beyond the aforesaid alimony provided for in Article II, Paragraph 1, it is specifically understood . . . that both the [plaintiff] and [defendant] irrevocably waive any and all right and claim for alimony and support from the other party, past, present and future. Each party acknowledges that they are adequately provided for and capable of providing for their own support and maintenance, comfort and welfare. Each party recognizes that their income or asset structure may change from time to time even substantially and recognize that such change may have a detrimental effect upon their ability to provide for themselves. In full awareness that such potential change of circumstances may occur, the parties specifically agree that this agreement and especially, but not limited to their respective waivers of alimony, shall continue in full force and effect and shall not be altered or modified by either party or any judicial process notwithstanding that the parties may hereafter experience hardship. The parties have envisioned such change of circumstances and have agreed upon a distribution of their property and assets to contemplate such changes and provide for them. This Agreement shall have firm stability and shall not be subject to modification by reason of any change of circumstances encountered by either or both of the parties.

In 2007, Joseph filed an application to reduce his alimony obligation based on a purported change in his financial circumstances - a $150,000 reduction in his income which he claimed rendered him unable to pay $143,000 in annual alimony and other expenses for the children required by the parties' settlement.  The trial court denied Joseph's application, claiming that the "Waiver of Alimony" section constituted an "anti-Lepis" clause precluding alimony modifications. 

On appeal, the Appellate Division initially noted the well established contract principle that the PSA is to be enforced to the extent it is fair and equitable, consistent with the parties' intent.  Analyzing the limited duration alimony at issue, the Appellate Division then noted that such support, in following N.J.S.A. 2A:34-23(c), may be modified "when either party experiences a substantial change in financial circumstances."

Noting that parties may waive statutory rights to seek modification through use of what is commonly known as an "anti-Lepis" clause, the Appellate Division quoted from its earlier decision in Morris v. Morris, 263 N.J. Super. 237 (App. Div. 1993) for the proposition that such a clause must be entered by the parties "with full knowledge of all present and reasonably foreseeable future circumstances" and, more explicitly must:

bargain for a fixed payment or establish the criteria for payment to the dependent spouse, irrespective of circumstances that in the usual case would give rise to Lepis modifications of their agreement. Lepis established an approach that courts must take when faced with a request for modification of child support or alimony. Where the parties have agreed on the amount of support or alimony, Lepis permits later modification to the extent that changed circumstances render the agreed terms no longer "fair and equitable."

To recapitulate, we must give an equivocal answer to the question of whether an anti-Lepis clause is enforceable. It is both yes and no . . . . If circumstances have made the parties' standards unreasonable, they can in extreme cases be modified. In less extreme cases, as here, the payments can be accrued with enforcement conditioned upon the payment of reasonable periodic payments. In short, the court should endeavor to carry out the agreement on a reasonable basis.

Applying these principles to Joseph and Marcia's PSA, the Appellate Division initially concluded that terms within the agreement regarding support, alimony and equitable distribution were interrelated - i.e., Marcia could seek child support in the event that alimony payments terminate.  It then noted that while the PSA prevented Marcia from seeking any increase in alimony, it was silent as to Joseph's ability to seek modification. 

The Appellate Division then analyzed the "Waiver of Alimony" section quoted above, noting that its language referencing the parties' mutual waiver of other alimony claims "past, present and future" waived claims "in addition to" or "outside of" the alimony award detailed in the earlier portion of the PSA.  Thus, the Appellate Division held that the trial court's reliance on the last sentence of this paragraph - "This Agreement shall have firm stability and shall not be subject to modification by reason of any change of circumstances encountered by either or both of the parties," did not apply to and, thus did not impact, the alimony terms found earlier in the agreement.  Rather, the Court concluded that it only related to the other alimony claims "past, present and future."

Moreover, the Appellate Division also held that the PSA neither specifically indicated that Joseph's alimony obligation was non-modifiable should he experience changed financial circumstances nor did it expressly waive modification rights granted in Lepis.

Accordingly, the Appellate Division, for three separate reasons, remanded for a plenary hearing to determine whether the PSA actually included an anti-Lepis clause precluding modification of the amount of alimony :  (1) It found that the oral settlement placed on the record contained no provision prohibiting an alimony modification and the final hearing expressed no indication that the parties were contemplating an anti-Lepis clause; (2) the record was unclear as to consideration provided for the modification waivers sought within the language of the PSA detailed above since any such modification required the parties' knowledge as to what they bargained for and the bargain's intended consequences; and (3) additional evidence was required to determine the parties' intended meaning of the modification language. 
Tags: , , , , ,