INTERESTING NEW ALIMONY REDUCTION CASE

We have blogged many times about cases dealing with motions for reductions of child support and alimony.  Obviously, that has been a hot topic given the economic downturn that our country has experienced over the last year or so.  Another interesting unreported (non-precedential) case was released on November 2, 2009.

That case was Miele v. Miele.  In this case, the parties divorced in 2005.  In their Agreement, the husband's support was based upon anticipated gross income of $165,000 per year.  The reason for this was because he involuntarily changed employment in 2005.   In 2004 he earned more than $331,000.  Because of these circumstances, the parties agreement required them to exchange W-2 and 1099 forms for 2006, 2007 2008.

The husband's post divorce income did not approach even the $165,000 level.  As a result, he made a motion to reduce his alimony in 2007 which was denied.   He filed another motion in 2008 which also was denied.  This time, he appealed. 

The Appellate Division reversed.  The Appellate Court found that the parties agreement recognized that there was an involuntary reduction in income and that the $165,000 number was a projection of future income that did not come to fruition.  Given that the husband had shown two, if not three straight years of income that was substantially below the anticipated gross income, he was entitled to, at the very least, entitled to a hearing. 

This case is instructive because I would anticipate that many current divorces will be faced with a similar situation of someone who lost their job and their new income is speculative.  The parties should attempt to include protections in the agreement that take into account that the income could go back to historical levels, as well as what should happen if it does not. 

CALCULATING CHILD SUPPORT OBLIGATIONS

I have heard on more than one occasion from a client that their spouse or ex-spouse isn't earning nearly as much income as he/she may be capable of earning.  This statement is often made in the face of an alimony or child support calculation.  What happens if this is in fact true?

During the divorce process one of the more common ways to determine how much income a spouse can earn is to have them evaluated by an employability expert.  Now if you look up "employability expert" as a qualified profession or a course of study available in a college course book, I doubt that you would find it in there.  Like many other things, employability experts arose out of a need in the legal profession to have an individual with the proper experience, knowledge and background meet with an individual and assess their skill set to determine what kind of employment they may be eligible to obtain. Viola- a new niche profession is born!

So what about after a divorce is finalized and an ex-spouse is either unemployed (because of the economy, the job market or they simply refuse to work) or is underemployed (earning less than they had previously earned either by choice or no fault of their own) and a support obligation exists?  What does the court then rely upon when addressing the recalculation of a support award?

The Appellate Division, in the recent unpublished decision of Bakalian v. Bakalian, A-4773-07T1, decided October 21, 2009, revisited this issue.  In this case, the ex-husband appealed, in part, from the trial court's Order that imputed income to him as well as objecting to the way in which the trial judge reached the imputed income number.

Imputed income- what's this?  In simplest terms- imputed income is income that is ascribed to an individual as the amount of money they could be earning, if they either chose to work or chose to find employment similar to their past employment and/or earnings. 

In Bakalian, where the parties were both employed in the medical field but where child support had to be recalculated because the parties' son decided to live with husband, however hehad given up his chiropractic practice after the death of the parties' 16 year old daughter because he "could not get out of bed in the morning", had to deal with the legal issues stemming from his divorce, and he had raise the parties' other child, a 17 year old son.

The trial judge used the New Jersey Department of Labor statistics (NJDOL) in coming up with a comparable salary for husband if he had in fact been working and imputed that number to him when recalculating the child support obligation.

The Appellate Court affirmed the trial judge's imputation of income and methodology used to determine the amount imputed. First, the Court noted that a trial judge's decision to impute income won't be changed unless the underlying facts to do so are either contrary or unsupported by the available evidence. 

That said, the Court went on to hold that whenever a parent remains unemployed or underemployed without a good reason, imputing income allows for a fair and just determination of child support.  In doing so, the potential earning capacity should be taken into consideration in the support calculation.  The first part of this analysis requires a determination by the trial judge that the parent has good reason to be voluntarily unemployed.  To make that decision, the judge needs to consider the employment status and earning capacity of that parent if the family had stayed together, as well as the reasons for the voluntary unemployment or underemployment.

As for the methodology used to determine the imputed income, the New Jersey Rules of Court provide guidance for this process, once a court decides that a party does not have good cause for being unemployed.  These three options are listed in descending order of priority:

1).  Impute income based on potential employment and earning capacity using the parent's work history, occupational qualifications, educational background, and prevailing job opportunities in the region.  The court may impute income based on the parent's former income at that person's usual or former occupation or the average earnings for that occupation as reported by the NJDOL;

2).  If potential earnings can't be determined, impute based on the parent's most recent wage or benefit record; or

3).  If a NJDOL wage or benefit record is not available, impute income based on the full-time employment (40 hours) at the NJ minimum wage ($7.15 per hour).

As you can see, courts don't simply guess a number when making these determinations.  If you are going through a divorce or have an ex-spouse who you believe is voluntary unemployed or underemployed and support (either spousal or child) is an issue in your case, take the above considerations to heart.

 

CHILD CARE EXPENSES AS CHILD SUPPORT?

It is not uncommon for divorcing parties or parties who may have never married but share a child in common to face the issue of the costs of childcare.  In a time and economic climate where more often than not, both parents must work to support a household, payment of child care costs is an issue that must be addressed.

When calculating the Child Support Guidelines, which is the method NJ courts use when determining how much child support one party will pay to another for a child or children, part of the consideration allowed is a credit for child care costs paid.  It is not necessary that the cost of child care be included in the Guidelines calculation, as sometimes there are situations where parties will negotiate payment of this expense outside of the Guidelines calculation.

However, when it is included in the Guidelines calculation, it is reflected in its own line item on the calculation sheet and will increase the amount of the support calculation.

With that said, the Appellate Division in a recent unpublished decision addressed the issue of whether the expense for child care costs is considered child support and thus not subject to retroactive modification pursuant to NJSA 2A:17-56.23a.  To read the entire decision, click here.

NJSA 2A:17-56.23a states in part: "No payment or installment of an order for child support, or those portions of an order which are allocated for child support....shall be retroactively modified by the court except with respect to the period during which there is a pending application for modification, but only from the date the notice of motion was mailed either directly or through the appropriate agent.

In English, the statute basically tells litigants that if you file an application to reduce child support for whatever reason, the court can only grant the reduction for the time period as far back as when the application was served on the other party.  The retroactivity will only go as far back as the notice was given of the application.

In the recent unpublished decision referenced above, the father filed an application to reduce his child support payments, which included a credit for child care, based upon the fact that the child was no longer in day care.  As of September 1, 2007, the child had started a regular school program.  Father, however, did not file his application for reduction until June 2008 and requested that the modification be retroactive to September 2007, when the child began school and not when he filed his application.  On appeal, father argued that the day care expenses are not governed under NJSA 2A:1756.23a because they are not "child support".

Both the trial court and the Appellate Division rejected this argument.  The court held that day care expenses are comparable to college expenses but are even more clearly part of the child support obligation.  "Their payment is necessary to allow the parent with primary residential custody to earn income that will determine her financial obligation to support the child."  Cushman v. Losasso, A-0692-08T3, Decided September 24, 2009. 

If you are considering filing an application to reduce or terminate a child support award, be wary that you will only be allowed retroactive relief from the time your application is filed.

COURT FINDS THAT THREE YEAR REVIEW OF CHILD SUPPORT NO LONGER VALID

In a reported (precedential) trial court decision, Martin v. Martin, released on July 31, 2009, Judge Haas, in Burlington County ruled that there no longer is an automatic review of child support every three years.  Rather, for child support to be reviewed, the mere passage of time is not enough, and there has to be a showing of a change of circumstances.

The Court went on to point out that the three year review relates back to a prior version of a particular statute and has essentially been replaced by a Cost of Living Increase (COLA) every two years. 

While this is an interesting opinion and makes logical sense, since it is a trial court opinion, other trial court judges are not required to follow it.  Moreover, there is precedential decisional law that states that passage of time can be a change of circumstances as to child support because it is well known that as children get older, certain expenses increase.

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.

 

 

RETROACTIVE MODIFICATION OF CHILD SUPPORT ALLOWED IN LIMITED CIRCUMSTANCES

An opinion issued by Judge McGann in Monmouth County in December 2008 was released for publication in June 8, 2009.   In the case of Centanni v. Centanni, the Court held again that child support could be modified retroactively in limited circumstances.

In this tragic case, one of the parties' children died in a car accident in October 2007.  The father did not file a motion to modify his child support per the parties' 2004 Property Settlement Agreement until January 2008. 

While typically the law is that child support cannot be retroactively modified, there are limited circumstances where it is possible.  However, prior to this case, there were no reported decisions dealing with the death of a child.  Judge McGann held that:

Upon the tragic death of the parties’ daughter, the duty to pay support for her ceased. Nothing within the four corners of the statute evinces an intent on the part of the legislature to bar retroactive modification upon such an occurrence. Moreover, there are other equities at work here. To bar retroactive modification would be to punish financially an obligor who has thoughtfully, and in good faith, allowed an appropriate period of grieving and healing to take place before seeking redress in court. Consequently, a bar on retroactive modifications would encourage an inopportunely-timed filing while families are still in the midst of coping with the tragedy.

Given the previous reported decisions allowing retroactive modification in certain circumstances, for instance, upon emancipation, one has to wonder why the mother fought the retroactive termination of support. Certainly, the legal fees that she expended were going to substantially cut into if not exceed the support at issue. 

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.

WHAT TO DO WHEN YOU LOSE YOUR JOB

Though we have blogged about this issue in the past, as it is particularly topical given the article in today's NJ Biz that New Jersey area (including the New York Metropolitan area) job losses are outpacing the national addresses. 

As noted on prior job posts. the standard for modifying support is that there has to be a substantial and continuing change of circumstances.  Moreover, in order to get relief, you must document your job search efforts to show the court that you have made a good faith effort to find a new job.

When a client loses their job, the following things should be done:

  1. Retain all documentation from the employer showing that the job loss was involuntary.  If there is a severance agreement and any other documentation, that should be maintained as well as the final paycheck showing the severance received (if paid in a lump sum).
  2. Keep a detailed log of all efforts made to find new employment with as much information as possible (who you contacted, when you contacted them, what they said, etc.)  If the communications were in writing, keep copies of all emails, resume's, cover letters, rejection letters, if you applied for a job on lie (i.e. Monster.com), confirmation that you applied for work.
  3. If the problem is industry wide, any newspaper, trade or other articles or documentation showing that the industry has contracted or is having problems.

The question arises regarding what you do when offered a job that is not consistent with your prior earnings.  If you have been out or work for a short time, this creates a tough decision about whether to take this job or wait.  If you do take this job, my suggestion early after losing a job, my suggestion would be to continue your job search if at all possible.

If you have been out or work for some time and you have made a good faith job search, while possible, I find it hard to believe that a court would penalize someone for taking work - especially in this economy.

What happens if you take a job in another field?  There is a reported decision that found that someone who was in computers and then took a job in massage therapy was not entitled to relief.  I think that whether relief will be granted in this case will be based upon, how long you were out of work, and the good faith nature of the job search. 

I think people who could have a harder time are those who, after losing a job, have decided to start their own business, in a related field or perhaps in some other field.  The choice to become en entrepreneur will present difficult problems for a court, especially when the income is nominal, as is often the case in a start up business.  In these cases, the good faith nature of the job search may come in to play, however, I suspect that a court will impute income to that person.  If the imputation is consistent with prior employment, which very well may be the case, because what other information will a Court have, that is probably not fair if we are dealing with a job loss caused by the current catastrophic economy.  If not that number, what is fair.

In these cases, lawyers and judges are going to have to be more creative.  I think that the concept of income averaging, as previously blogged about, may very well be unfair given these trying times.  Perhaps the remedy is for parties to "ride along" together, sharing income information yearly, if support is going to be reduced (or set a a level based upon income lower that was earned historically).  Traditionally, court's were reluctant to Order the yearly exchange of income information post divorce.  However, given the current times, that may be the most fair way to deal with support where income is reduced. When the income gets back to prior levels, or perhaps as it increases, maybe there can be reviews and self-executing increases.  There are many ways to to this, and these are only examples. 

Family law issues involve complex choices and decisions, and alimony and child support in these trying times is no exception. For more information regarding this issue  or guidance on other family law issues, contact an attorney in Fox Rothschild's an attorney in Fox’s Family Law Practice or visit us on the web at www.foxrothschild.com

POST DIVORCE MODIFICATIONS TO AGREEMENTS

When most parties enter into what is commonly referred to as a Property Settlement or Marital Settlement Agreement, they do so with the intention that this is a comprehensive agreement, resolving all the issues and a document that will govern their dealings with an ex-spouse going forward.

Oftentimes people are shocked to learn that some provisions in those agreements can be subject to modifications by a court.  Such is the case of the recent unpublished appellate division matter of Anello v. Anello, Decided March 23, 2009, A-2405-07T3. 

These parties were married in 1982 and divorced in 2002 by way of a dual final judgment of divorce incorporating the terms of their Property Settlement Agreement. ("PSA")  Two children were born of this marriage.  In the PSA entered into by the parties, the husband was entitled to alimony, to which there was a specific and detailed waiver of this right.  Husband waived the right to receive permanent alimony and gave wife a greater share of equitable distribution in exchange for a total and permanent waiver of a child support obligation for both children.  Husband did agree to contribute to college expenses and non-recurring extraordinary events for the children.  Husband's waiver of permanent alimony was expressly conditioned upon his non-payment of child support.

Some four years after the agreement was entered into, husband filed a motion seeking custody of the son, child support, alimony and counsel fees.  The parties entered into a Consent Order resolving this motion, which reserved the issues of child support and alimony pending discovery.

Approximately 7 months later, husband filed another motion seeking child support for the son. This motion was granted, however the trial judge also ordered husband to pay child support for daughter, who remained with wife. About one month later, husband filed a motion seeking alimony. He argued that his obligation to now pay child support for daughter was a change in circumstances that entitled him to alimony per the terms of the agreement. This motion was denied as the trial judge found there was no change in the financial circumstances of the parties demonstrating a need for alimony to be paid.

One month thereafter, husband filed a motion for reconsideration and sought permanent alimony, termination of his obligation to pay child support for daughter, custody of daughter, discovery and for wife to file a CIS. This motion was also denied.

From there, husband filed his appeal arguing that the trial judge overlooked his entitlement to permanent alimony; did not properly read the PSA; failed to find that the change in custody of the son was a change in circumstances; improperly altered the terms of the PSA; and decided the matter without a plenary hearing.

In its opinion, the Appellate Court noted that trial judges are given deference to the issue of alimony, if those findings are supported by substantial credible evidence in the record as a whole. The Court also found that the parties could not waive the children's right to support, thus making that portion of the PSA unenforceable. Therefore, there was no error in the trial court's denial of husband's application to terminate child support for daughter.

As to the issue of alimony, the Court found that the PSA clearly and unambiguously provided that husband waived his right to alimony in exchange for non payment of child support. Thus, his obligation to pay child support for daughter constitutes a change of circumstances making enforcement of the alimony waiver unjust and inequitable. The Court found sufficient evidence of changed circumstances and ordered discovery and a plenary hearing to determine the amount of the alimony award.

EDITOR'S NOTE:  This case re-affirms the basis tenet that agreements regarding support are modifiable  based upon changes of circumstances.  Moreover, agreements are integrated and when two provisions are clearly related to each other and one is modified, it may be possible and/or necessary to modify the other provision too.  ERIC S. SOLOTOFF

MODIFICATION BASED ON THE ECONOMY - IS HELP ON THE WAY?

Given the current economy, a major issue being discussed by family law attorneys and judges is how to handle the issue of support modification where due to the current economy, someones income is eliminated or greatly decreased.  The standard for modification of support is that there has to be a showing of a substantial and continuing change of circumstances.  One of the major issues being discussed is how long does one have to be out of work before making an application to the Court. 

The second issue is even if the change is temporary - whatever that now means - should there still not be some temporary relief because if the existing Order or Agreement is not fair.  A general proposition of law is that Agreements can only be enforced to the extent that they are fair.

Earlier this week, the Appellate Division decided the case of Baker v. Baker which leads me to believe that help may be on the way. To view the case, click here.

In Baker, the parties were divorced in 1998.  At the time, the husband worked was a Managing Director at Pershing Trading Company and earning nearly $800,000 per year, the great
bulk of which came in the form of an annual bonus.  The parties agreed that he would pay alimony in the amount of $10,000 per month.

In May 2005, defendant lost his position at Pershing. He attributed this loss to the fact that Bank of New York had taken over Pershing and his position was eliminated. The husband received a bonus in May 2007 of $700,000 (as opposed to the year-end bonuses defendant had received in the past) and a severance pay of $175,000, supporting the husband's claim that
his separation from Pershing was involuntary.

The husband eventually obtained a new position at Olson Global Markets, at which he was to receive a salary of $120,000 (equivalent to what he had earned as a salary at Pershing) and
receive bonuses that would place his earnings at the same level he had previously enjoyed. However, he asserted that Olson was not profitable, that he had not received any bonuses, and that he had not even received a salary for the years 2006, 2007, and 2008. Indeed the husband claimed that the situation at Olson was such that he was obliged to advance $138,000 to it from July 2007 to January 2008.

Based upon this apparent reduction in his earnings, the husband filed a motion in March 2008 seeking a reduction in his monthly alimony obligation. After hearing oral argument, the trial court denied defendant's application. It did so without conducting a plenary hearing.  The trial court analogized the case to a reported decision called Storey v. Storey where the husband changed careers, going from a computer technician to a massage therapist.
 

The Appellate Division reversed  noting that while the proofs presented by the husband at the motion did not warrant a reduction in and of them self, they certainly warranted a hearing.  The reason was that it was clear that the husband did not voluntarily leave his job and further, remained in the same industry.

The matter was remanded for a plenary hearing on whether a reduction was warranted. 

I suspect that there will be many cases like this.  For instance, I suspect that many people will be forced to take lower paying jobs in the same or similar industry.  They may even try to go into other industries when their job search proves fruitless.  Parties are going to have to be creative and have to be reasonable.  Otherwise, they risk a lot of litigation.

 

 

 

SUPPORT MODIFICATION - ANOTHER DAY ANOTHER DECISION

On February 13, 2009, the Appellate Division issued an interesting unreported decision in the case of Chopoorian v. Chopoorian dealing with a topic that we have blogged about frequently as of late - modification of support obligations. To review the full text of the opinion, click here.

The parties were divorced in 2005.  During the marriage, the husband operated a highly  successful advertising business which provided him with an annual income of over $900,000 in 2003. The parties also owned several valuable pieces of real estate.  The divorce agreement required the husband to pay $187,500 per year in permanent alimony and $50,000 per year in child support.  Of note, the Agreement stated:

Husband’s earned income as defined herein may increase to $650,000 gross per year (before taxes) before Wife is entitled to file a Motion to modify/increase alimony
based on an increase in Husband’s earned income. Husband’s earned income must decline to $400,000 gross per year (before taxes) or below before he is entitled to file a Motion to modify/decrease alimony based on a decrease in earned income.

The husband was also supposed to pay the wife $1.3 million over time for her share of the business interests.

In late 2006, the wife filed an enforcement motion because the husband stopped making payments.  The husband cross moved seeking a temporary suspension of paying his alimony and equitable distribution obligations and for a reduction in his child support obligation.

The trial judge questioned the validity of the husband's motion given the lifestyle that he claimed on his Case Information Statement and the fact one month after ceasing his alimony payments, the husband entered into a $465,000 mortgage.  In addition, for 2005, the year of the agreement, despite the aforementioned language in the agreement, the husband claimed a negative income on his tax returns.  Notwithstanding, the judge suspended the husband's equitable distribution obligations for six months and temporarily reduced his alimony obligation by fifty percent for six months. He indicated in his oral decision that if, after six months, defendant continued to contend that his economic situation had not improved, the court
would be inclined to hold an evidentiary hearing.

Approximately three months before the court was to reconsider the husband's ability to pay, he filed another motion seeking a second six-month reduction to his support obligations.  The motion was denied. 

The Appellate Division determined that it notably missing from husband's proofs in support of his
motion is any certified statement from an accountant concerning the finances of his business.  All that were provided were self created documents and his tax returns which were suspect.  The Court noted:

In short, it is not possible to draw meaningful conclusions based on defendant's submissions, without a detailed report from an accountant explaining the earnings and losses of the business and what income as well as other financial benefits defendant obtained from the business. As we indicated in Larbig, supra:


[I]t is the self-employed obligor who is in a better position to present an unrealistic
picture of his or her actual income than a W-2 earner. In light of this self-evident
fact, it would seem, as a general proposition, that what constitutes a temporary change in income should be viewed more expansively when urged by a selfemployed obligor. [Larbig, supra, 384 N.J. Super. at 23.]

The record also raises questions about defendant's personal finances as well as those of his business.

In this case, the proofs were just inadequate.  One may assume that there were substantial personal expenses paid by the business.  The refusal to get an accountant is telling.

The bottom line to those that are self-employed, if your income is down, you will need to open your books and records and get an accountant to certify to his or her review to be credible to a court.

 

 

HEARING FOR SERIAL FILER OF SUPPORT MODIFICATION MOTIONS - ANOTHER RESULT

Last week, I published a blog post entitled "No Hearing Required for Serial Modification Motions." To view that post, click here.  However, released on February 9th was the unreported decision in the case of Cordero v. Mora with a different result. To view the full text of the case, click here.

This case involves the former Major League baseball player, Will Cordero, who was seeking, once again, to reduce his child support obligation for the child of his first marriage.  He played with the Boston Red Sox, Cleveland Indians, Pittsburgh Pirates, Montreal Expos, Florida Marlins and Washington Nationals in the major league for fourteen years. He made a substantial amount
of money during his career. In some seasons he made as much as $6,000,000.  He now claims to be out of baseball, having last played in the Major Leagues in 2005.  He participated in spring training in 2007 with the Mets in their minor league camp but was cut.

Over the years, Mr. Cordero has filed many application to reduce his support. In 2005 resulted in a reduction of child support from $1300 to $800 weekly. The  following year, he sought and obtained another reduction based on a substantial salary reduction.  from $800 to $500 weekly. On appeal,
he argued he should have received a greater reduction.  In June 2007, that argument was rejected by the Appellate DIvision.  However, just prior thereto, the ex-wife filed an enforcement motion and Mr. Cordero filed another motion seeking a reduction.  The judge granted the motion to enforce the existing order. In addition, the judge ordered him to pay $11,999 in arrears within thirty days and denied his motion for a further reduction. The judge noted that plaintiff provided limited and spotty financial information. Based on the information before the court, the judge concluded that plaintiff had the ability to pay the arrears. He also found that plaintiff produced extremely limited information about his efforts to obtain employment and incomplete information about assets that may generate unearned income or can be liquidated to meet his on-going child support obligation. The judge was particularly concerned that plaintiff had not provided an accounting of the millions of dollars he had earned during his professional baseball career.

 

 

Notwithstanding all of the above, the Appellate Division reversed finding that Mr. Cordero was entitled to a hearing because he no longer had his earned income as a professional baseball player.  The Court held:

Any consideration of a request to reduce a child support award cannot focus solely on the amount of income earned in the past. The judge must also consider the type of work performed by the obligor that produced the income. This is particularly
true when the obligor is a professional athlete. At the height of a career, a professional athlete may earn vast sums of money. The ability to earn such an income is almost always transitory. Here, there is no question that plaintiff has not played professional baseball since 2005, when he was cut by the Washington Nationals. He obtained a minor league contract with the New York Mets organization but did not make the team. While a court may impute income, Caplan v. Caplan, 182 N.J. 250, 268- 69 (2005), a judge cannot assume that the obligor will continue
to earn income at the same level as an active professional athlete unless the athlete has other exceptional attributes. There is nothing in this record to suggest that is the case. Admittedly, current income is not the sole focus of an analysis of a request to reduce child support. The judge must consider the moving party's ability to earn income in the future. Such an inquiry must consider the education and other
abilities demonstrated by the moving party. N.J.S.A. 2A:34-23. The judge must also consider the assets of the moving party and the ability of those assets to produce income to meet the moving party's obligations.

The Court, however, reiterated that Mr. Cordero has the burden of proof  to demonstrate that he is entitled to a further reduction of his child support obligation. He was required to fully disclose his financial condition, including the value of his major league baseball and the the terms and conditions of this pension,.  He also was required to disclose the obligations he has assumed in the course of the dissolution of his 2 subsequent marriages.

However, can the case in this post and the one in last week's post be reconciled.  In both cases, the disclosures were lacking.  The difference here is that, unlike the self employed lawyer who can manipulate his income, Mr. Cordero's status as a major league ball player was easy to discern and the loss of income from that pursuit virtually impossible to dispute. 

NO HEARING REQUIRED FOR SERIAL MODIFICATION MOTIONS

On February 2, 2009, the Appellate Division released a reported (precedential) decision that affirmed a decision of the trial court denying the former husband's motion for a downward modification of his alimony and child support obligations.  The Appellate Division found that the trial judge properly exercised his discretion particularly when viewed against his findings from a multi-day plenary hearing (trial) that occurred less than one year prior. To see the full text of this case, click here.

The parties were divorced in 2003 and entered a Property Settlement Agreement (PSA) where he agreed to pay $1,000 per week in alimony and $350 per week in child support for the parties' 3 children.  In addition, based upon the joint accountant's finding of the five year average of the husband's income, he agreed that support was based upon $185,000 for him. 

In 2005, the husband moved for a reduction in his support obligation claiming a downturn in his law practice.  The plenary hearing on this motion was held over several days in December 2006.  After the hearing, the judge denied the husband's motion finding that during the time that the husband's income had supposedly decreased, he obtained a new $58,000 Lexus and bought a home for $785,000 with a $600,000 mortgage.  The judge also found that based upon the evidence at trial and his CIS, that the husband's income was more in the $140,000 range and not $100,000.  The judge also rejected the husband's claim that he was indebted to the Internal Revenue Service in the amount of $55,000 because Gregory failed to provide any documentation to
support that assertion.

 

In addition, the judge found no proof to support the husband's claims about his practice's "deteriorating case load." He held that the husband's testimony, which was the only evidence provided  "unconvincing" and his testimony that  he was unable to support the marital
standard of living was "incredulous."   Further, while  unpersuaded that his level of income had substantially deteriorated, the judge also referred to the Appellate Division decision in Larbig v. Larbig,  and held he was "not convinced" that the husband's alleged decline in business "is of [a]
permanent nature which inhibits his ability to sustain himself as well as child support and alimony payments" in the amount set forth in the PSA.

Nine months after the January 2007 Order denying the first motion, the husband filed a second motion for essentially the same relief.  On this occasion, the motion was denied after oral argument without a plenary hearing.  The Court found that since the original motion was filed in 2004, the husband took on greater obligations that were reasonable if his income were actually dwindling.  The husband appealed.

The husband argued that the trial judge was in error because he was committed to his prior findings.  The Appellate Division agreed that this was no doubt true but not error and as such, the case should not be assigned to another judge.  The Court further held:

As we have already indicated, the judge was not required to wipe the slate clean and consider a similar contention regarding Gregory's earnings less than one year after the prior order as if the earlier hearing had never occurred. To the contrary, the judge was required to consider not whether there was a substantial change since the 2003 PSA but whether there was a substantial change since he rendered his fact findings in December 2006. Admittedly, a sworn assertion that the obligor's income had fallen to $50,000 strongly suggests a substantial change in circumstances -- if that is all that is considered.   The judge correctly observed, however, that the focus must also be on the length of time that had elapsed since the last milepost in these post-judgment proceedings. In Larbig, for example, we affirmed a trial judge's determination that a motion for a reduction in support filed "a mere twenty months after the parties' execution of the PSA," 384 N.J. Super. at 22, alleged only a temporary change. See also Lepis, supra, 83 N.J. at 151 ("Courts have consistently rejected requests for modification based on circumstances which are only temporary . . . .").

The Court further found that given that this motion was filed 9 months after the last one, the husband had not demonstrated a change of circumstances.

Not surprisingly, there was skepticism regarding the husband's income which was enhanced because he was self employed and thus could manipulate his income.  In fact, the Appellate Division stated:

As we also observed in Larbig, "what constitutes a temporary change in income should be viewed more expansively when urged by a self-employed obligor," as here, who is "in a better position to present an unrealistic picture of his or her
actual income than a W-2 earner." 384 N.J. Super. at 23. The judge recognized this in denying Gregory's motion; indeed, the judge's decision on Gregory's first Lepis motion reflects a determination that Gregory's actual income was greater than what
was urged.

This case demonstrates a problem that is often seen in the cases, post-judgment, to wit, repeated motions for the same relief without providing competent evidence, and then re-filing the motion over and over without really providing more.  The Court correctly determined that it need not expend the wife's money in counsel fees or the Court's resources to have another trial less than one year later. 

Appellate Division Provides Primer on "Changed Circumstances" in Denying Motion to Reduce Support Based on Spouse's Ability to Pay

While state courts in matrimonial actions are often asked by an ex-spouse to modify an existing child support obligation under Lepis v. Lepis, 83 N.J. 139 (1980), based on the existence of "changed circumstances" and an inability to pay the ordered support, it is not often that a decision so thoroughly recaps situations in which courts have previously found such changed circumstances.  The Appellate Division recently accomplished detailed same in Ferraro v. Ferraro, wherein the facts of the case themselves are noteworthy unto themselves and detailed below.

The parties were married in 1987, had two children and were subsequently divorced almost 11 years later.  The Property Settlement Agreement required the husband to pay $7,000 in monthly child support, as well as certain health insurance and medical expenses for the wife and children.  Notably, the husband owned and operated his own business that developed parcels of real estate via residential and commercial projects, from which his income from 1998 to 2002 was approximately $22 million. 

In 2005, the Family Part reviewed the support order and, despite the fact that the husband was charged with income tax evasion in 2005 and his income that year was drastically lower than previous years - $194,055 in 2005 compared to $1.9 million in 2004 - the Family Part granted the wife's motion to increase the monthly support award to $9,000.

While the husband served time in prison for tax evasion, he continued to pay support, but retained an accounting firm to prepare a comprehensive report of his financial situation to be used as part of a subsequent application to modify his support obligation, which was filed in October 2007 and sought a modification retroactive to November 1, 2006.  The trial court denied the husband's motion, noting that despite any possible income decline, he still had a net worth of almost $3 million and, thus, had the ability to pay the ordered support under Lepis

On appeal, the Appellate Division first addressed what situations New Jersey courts have previously deemed "changed circumstances" under the first part of the Lepis test for a support modification.  These included as follows:

1.  An increase in the cost of living;

2.  An increase or decrease in the supporting spouse's income;

3.  Illness, disability or infirmity arising after the original judgment;

4.  The dependent spouse's loss of a house or apartment;

5.  The dependent spouse's cohabitation with another;

6.  Subsequent employment by the dependent spouse; and

7.  Changes in federal income tax law.

The Appellate Division explained that once changed circumstances are established, the analysis focuses on the parent's ability to pay when a decrease in support is sought, based on the parent's income and his respective assets.  In the case before it, the Appellate Division concluded that the husband's proofs prevented a determination regarding his ability to pay and, as such, his application was properly denied without a plenary hearing.  Specifically, while the accounting report contained sufficient proof of the husband's diminished income based on factors including, but not limited to, his criminal conviction, a worsening economy, his large tax debt, and increased expenses due to rising mortgage interest rates, he failed to provide sufficient proofs of his inability to pay. 

The Appellate Division detailed how the husband failed to explain his employment efforts and current business enterprises, provide documentation of his inability to further liquidate assets, address the alleged dissipation of the $22 million in income he received from 1998 to 2002, note profits realized from real estate sales, and address the status of his currently held assets.  The Court noted that the net profit from the parcels sold would more than have satisfied his support obligations for the year without looking to any other sources of income and that he failed to mention that he also owned other additional acreage that had been approved for the construction of waterfront town homes.  As such, the Appellate Division concluded that the husband could still pay the ordered support based on his almost $3 million net worth. 

This case detailed the standard that an ex-spouse must fulfill in seeking a downward modification in support, while tying in an interesting factual scenario where the changed circumstances were achieved in part by the husband's criminal conviction for tax evasion, which prevented him from carrying on his business. 

New Jersey Focus Turns to Parents Behind on Their Child Support Obligations

A recent article published in the June 17, 2008 edition of the New Jersey Star-Ledger entitled State roundup results in 1,600 arrests, detailed State efforts to capture not only violent fugitives, sexual predators, and alleged gangsters and crooked businessmen, but also parents who are months behind on their child support obligations. 

Considering how violent fugitives, gangsters and sexual predators generally consist of the worst of the worst when it comes to the criminal population, the inclusion of parents delinquent in their child support not so subtlety underscores the importance to which the State attaches to a parent’s obligations to their children. While one arrest detailed in the article involved a real estate investor accused of defrauding 43 buyers and 15 banks out of $4.6 million, another arrest discussed involved a man arrested for falling two months behind on his child support payments – a total of $3,000.

The article informs readers that, on a statewide level, $12.6 million is owed in child support and that the State will make a concerted effort twice per year to round up delinquent parents behind on their payments. The penalty for such delinquency can even include jail time until outstanding payments are made.

Parents behind on their child support payments can generally be placed into two groups: those who do not pay because they do not want to or do not care; and (2) those who simply cannot afford to do so for a variety of reasons. While it is easy to say that those parents who fall into the former category get what they deserve, the same cannot be said about the latter. 

With the economy spiraling towards a downturn, many parents are losing their jobs and finding it difficult to not only pay for child support, but also to make their own ends meet. That does not mean, however, that a parent can avoid their obligation.  

One option for the delinquent parent is to try to amicably work out a revised payment plan or support level with his ex-spouse. While this method is no guarantee that the ex-spouse will simply agree to a reduction or revised payment plan, it is an option that could potentially avoid legal expenses and costs associated with filing a court motion for a support reduction.  Of course, any resolution should be in writing and preferably reduced to a Consent Order.

A parent who cannot afford their support obligation can also file a motion in court for a reduction in support based on a substantial and continuing change in circumstances. This, however, is not easy to establish.  While evidence of recent involuntary unemployment could aid in seeking a support reduction, courts will not grant a reduction where the unemployment was voluntarily incurred or the delinquent parent relies on a prediction that his income will decline due to market forces. In addition, the parent that lost his job must show a good faith effort to seek new employment.  A person in this predicament should keep excellent records of their job search as evidence of their good faith. 

Recently, this office was able to preclude a support reduction sought by an ex-spouse who, while not delinquent in his payments, had habitually sought to reduce his payment obligations. While he was able to show that his income had slightly decreased, he was still earning annually in excess of $1 million. Recognizing this defect in his motion papers, the parent also tried to assert that market volatility would further cause his income to decline. Having previously been rebuked for attempting to employ such a strategy, this spouse was not only denied a support reduction, but was also ordered to pay our client’s legal fees and costs. 

The lesson to learn here is simple – your child’s well-being is at stake, so make your child support payments in a timely manner. If you fail to do so, it will not only be your ex-spouse who comes after you, but possibly law enforcement as well. The penalty may even include jail time until the outstanding payments are made. If it simply becomes infeasible for you to make your payments, talk to your ex-spouse about a reduction or revised payment plan. If that does not work, file a motion for a support reduction. Be aware, however, that you will need to establish a substantial and continuous change in circumstances.