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.

 

 
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Posted on April 22, 2009 by Apple Sulit-Peralejo

PAINTING A GRIM FINANCIAL PICTURE...IS IT ENOUGH TO OBTAIN A DECREASE OR TERMINATION OF SUPPORT?

New Jersey has upheld the long standing principle that permanent alimony awards are subject to review, modification and possibly termination based upon changed circumstances.  (Lepis v. Lepis, 83 N.J. 139 (1980).  However, it is not enough to paint a bleak picture of a payor's financial circumstances in order to succeed in a downward modification or termination of alimony.  The applicant must also show the Court that the financial difficulties being encountered are not temporary and/or subject to contingent circumstances.  Innes v. Innes, 117 N.J. 496 (1990).

In the recent unreported Appellate Division decision of Norych v. Norych (A-2633-07T1 decided April 16, 2009), while the payor applicant provided the court with very grim descriptions of his personal financial situation and the financial affairs of his law firm, the applicant miserably failed to substantiate his professed circumstances.

In the Norych matter, the parties were divorced in 1992 and at the time of the divorce, the ex-wife received a permanent alimony award of $1,000 per month partly based on ex-husband's law firm income of $70,000 per year and ex-wife's income as a teacher of $25,000 per year.  Ten years later, the alimony increased to $1,100 per month.  In October 2007, ex-husband filed a Motion seeking to terminate his alimony obligation based upon  what he characterized as two devastating and shocking events. 

 

Ex-husband informed the trial court that his law partner who ran the firm's New York office had committed suicide in 2006 and that upon his death, ex-husband learned that the deceased partner had stolen client trust funds, embezzled, wrongfully dissipated business assets and forged ex-husband's name on various contractual obligations. Ex-husband further claimed that a bank had issued a demand letter in the amount of $149,000 and that a former client filed a lawsuit to recover $450,000 that the deceased partner had stolen.  Moreover, ex-husband advised that the law firm's professional liability carrier disclaimed coverage and ex-husband was forced to file a lawsuit against the insurance carrier to assert the firm's rights.  Although the embezzlement seemed tragic, at the time that ex-husband had applied for a termination of alimony, ex-husband failed to provide the Court with the bank's demand letter and failed to provide the Court with court filed documents showing that the former client had sued the law firm to recover $450,000 of stolen money.  Additionally, the court noted that significantly, ex-husband made no claim that any single creditor had successfully obtained a judgment against the law firm as a result of the embezzlement.

The second devastating event claimed by ex-husband to substantiate his request for a termination of alimony related to the head bookkeeper's alleged mishandling of attorney trust funds in ex-husband's Florida office.  Ex-husband claimed that after the suicide of his New York partner, ex-husband undertook an audit of the Florida office's financial records.  Ex-husband claimed that the audit revealed that his bookkeeper had over a period of time transferred trust funds into the firm's operating accounts and that as a result, unbeknown to ex-husband, the firm had been operating at considerable losses having over $4.5 million in contingent liabilities.  Ex-husband indicated that as a result of the bookkeeper's conduct, the Florida office lost most of its clients, that no law firm was willing to hire him as a result of all the controversy surrounding his law firm, that his net taxable income dropped from $300,000 to $132,420 and that ex-husband was forced to forgo a draw from the law firm commencing in October 2006.  Moreover, ex-husband's Florida partner certified to the Court that the Florida office had been operating at a loss or at break-even.  Ex-husband claimed that to keep him afloat, he borrowed money from family and borrowed monies from his life insurance policy and his 401k account.  Notably, ex-husband's then current wife was employed as a legal secretary, paralegal and office administrator by the law firm earning $75,000 per year.  Except ex-husband's statements regarding the financial circumstances of the law firm, ex-husband failed to provide the Court with the audit that allegedly showed the misconduct of the bookkeeper, failed to provide the Court with certified financial statements showing that the law firm was subject to over $4.5 million in contingent liabilities and failed to provide the Court with any documentation showing his liquidation of his life insurance cash surrender value and his 401k account.

Ex-husband also argued that ex-wife no longer needed alimony because her income had increased from $25,000 to $70,000 per year.

The trial court denied ex-husband's application finding there was no changed circumstances to warrant a modification.  The trial court found that although ex-husband was having difficulties his liabilities at that point were still substantially contingent. Moreover, the trial court pointed out that ex-husband had expenses of over $200,000 per year and that ex-husband claimed he was surviving on his current wife's income of $70,000.  Suspiciously, the trial court noted that "it doesn't add up".  

On appeal, the Appellate Division affirmed the trial court's findings and rejected ex-husband's arguments finding that ex-husband did not meet his burden of showing changed circumstances.  The Appellate Division cited Lepis noting that the party seeking a modification has the burden of proof and that a request for modification based upon expected circumstances that have yet to occur should be rejected.  In making its determination, the Appellate Court looked beyond ex-husband's gloomy characterization of the law firm's state of affairs and focused on what ex-husband failed to provide.  The record did not contain any objective evidence supporting his description of a failed law firm.  Moreover, the Court noted that the liabilities resulting from the deceased partner's embezzlement and the bookkeeper's mishandling of accounts had not yet come into existence.  In other words, while there was a potential of judgments, losses and damages to be paid by the law firm, such liabilities were not yet present.  Finally, the Appellate Division found that while ex-husband claimed that he was unable to secure a job at any other law firm, ex-husband made no showing that he even attempted to do so.  The Appellate Court found that when the payor makes no effort to replace alleged lost income, he has failed to meet the burden establishing he has undergone changed circumstances.  Citing Aronson v. Aronson, 245 N.J. Super. 354 (App.Div. 1991.)

Notably, in light of the current state of the economy, I expect that modification requests such as that in Norych will be more prevalent.  I further suspect that among those applications there will be a good handful of litigants who will paint very bleak financial pictures but have no evidence to substantiate their claims.  Those cases are defendable.  For example, I successfully defended against a payor's application to modify alimony and child support based upon the payor's insistence that after he was laid-off by his company he was unable to obtain employment with comparable income.  The payor in my case was a regional executive for a plumbing manufacturer earning a significant amount of money.  After getting laid-off, the payor decided to live off of his severance and when it ran out, he filed an application to modify support. He claimed that he had actively sent his resumes to numerous companies and was not offered a position.  After some investigation, we learned and I advised the Court that every position for which the payor applied were positions that he was either overqualified for or did not have experience which clearly decreased his chances in securing employment.  The Court shot down his application noting that his conscious decision to avoid obtaining employment comparable to that which he had could not meet the standard for changed circumstances warranting review of support.

Undoubtedly, their will also be cases in which there are truly changed circumstances warranting review.  As evident in Norych, it is imperative that the applicant not only paint the picture for the Court but the applicant must also back up the description with objective evidence.  In the Norych case, the outcome for the ex-husband could have been entirely different had he presented certified financial statements, documentation of his liquidation of assets to maintain his expenses, documentation showing his attempts at seeking employment with other law firms, copies of court filings showing that the law firm had been sued, etc. assuming that such documents did in fact exist.  It is not too far fetched to assume that there are modification cases lingering in the courthouses of New Jersey where the litigant should have received a modification but did not due to a poor presentation of evidence.  For example, I have been consulted on a case in which the payor, prior to consulting me,  filed a modification of support after sustaining significant injuries in a horrific automobile accident and was denied review of his support obligations.  When he filed his application, he provided a thorough description of his injuries and indicated that he was unable to work.  The application was denied for failure to show changed circumstances- - no physician report was provided to the Court indicating that he was unable to work and that his injuries were permanent.  Notably, he did present to the Court some of his medical records showing the extensive medical treatment that he had received and was continuing to receive with the incorrect assumption being that the Court would automatically take the next step and find that he was unable to work.  

In short, just describing the severity of a litigant's current financial circumstances will not be enough.  If you are defending against a modification application, look for the objective substantiating proof and if there is none it must be made clear for the Court that no changed circumstances exist.  On the other hand, if you are in desperate need of a modification based upon your current financial circumstances, don't assume that the Court will take your word for it--no matter how obvious you believe your situation to be--better to take the time gathering documentary evidence than rushing to Court on what may (or may not be) obvious change circumstances.
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