Posted on March 11, 2010 by Eric S. Solotoff

MADOFF MESS HITS DIVORCE COURT - PODCAST

In February 2009, I posted a blog entry entitled "The Madoff Mess Hits the DIvorce Court."  In this case, in June 2006, the parties agreed to evenly split the $5.4 million in an account they had with Madoff Securities. As a result, the husband gave the wife $2.7 million in cash, and retained the account. As a result of the Madoff Ponzi scheme that has essentially rendered the account worthless, the husband filed suit seeking the $2.7 million that he paid the wife. The husband (a prominent attorney with a large NY law firm) alleged that because the account turned out to be valueless, the spirit of the agreement was broken. The wife's position was that the husband withdrew probably $3 million to pay the wife, so the asset did exist at the time of the settlement agreement. In December 2009, I blogged on the decision  which was in the wife's favor, essentially because the husband could have redeemed the account for the agreed upon value from the time of the divorce up to the Madoff collapse. 

Based upon this blog entry, I was interviewed about this case by Mark S. Gottlieb, CPA for a podcast on his website.  Mark is a forensic accountant and business valuation expert with offices in Great Neck, New York, Stamford, Connecticut and Roseland, New Jersey.

To listen to the podcast, click here.

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Posted on February 17, 2010 by Eric S. Solotoff

EQUITABLE DISTRIBUTION OF THE MARITAL HOME - MANY WAYS TO SKIN THE CAT

In September of 2008, I posted a blog entry on The Value of Real Estate - Problems in this Ever Changing Market.  In that post, given the decline in the real estate market, it was posited that retaining the marital home may not be the best financial strategy.  Unfortunately, little has changed in the real estate market since that time to change conclusions of that post.

That said, in many cases, the marital home remains the single largest asset to divide in divorce.  Moreover, with the continuing troubles in the economy, it may represent the only way for either or both of the parties to wind up with liquid funds after the divorce.  Now if the home is going to be sold, or one party is going to buy out the other, then there usually is little dispute other than logistics of sales price, how soon to reduce the price, how to handle repairs until sale, etc. 

The problem arises if one party wants to defer distribution to allow the child(ren) to finish high school, etc.  There is a question of fairness to the other spouse whose equitable distribution is tied up as may be their ability to buy a house of their own both (1) because they don't have the money for a down payment until they get their share of the house or (2) they are still on the mortgage of the marital home.  Further, due to the decline in the real estate market, parties are now also agreeing to defer the distribution for some period of time in hopes that the market will rebound, as opposed to selling now.

There is not a lot to do about the second problem noted above if there is gong to be a deferred distribution.  However, as to the first problem, there are a few ways to handle it. 

Specifically, in the event of a deferred distribution, the parties can take out a home equity line which would be paid to the spouse not residing in the house as an advance against their equitable distribution.  Either that party can be solely responsible for the payments on this loan until the house is sold.  Alternatively, an additional amount an be borrowed to service the loan for which the parties can divide equally or some other equitable way.

In the case of a buyout, perhaps a party cannot get a mortgage to refinance the outstanding balance plus also pay the other party for their share of the equity.  They may wish to offset the share of the equity against other assets.  Some people might find this acceptable but others may still oppose this because while they may be getting more in retirement assets (but these usually should not be dollar for dollar offsets because retirement assets are tax deferred and thus, need to be grossed up), they still may not be getting liquid funds which they desperately need to buy their own home.  In this case, perhaps the buyout of the home can be accomplished by a partial cash out from the home plus an offset of other assets.

Another cautionary note - if the offset is going to be against investment assets, attention should be paid to make sure that embedded capital gains in the investment assets are considered so that the value each party receives is approximately economically equivalent.

In any event, resolution of the issue, while challenging, should not ordinarily be insurmountable.  It just may require some creativity and cooperation.
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Posted on February 4, 2010 by Eric S. Solotoff

APPELLATE DIVISION CREATES NEW PROCEDURE LIMITING JUDGE'S ABILITY TO RESTRICT A LITIGANT'S ACCESS TO THE FAMILY COURT

On February 3, 2010, the Appellate Division issued a reported (precedential) opinion in the case of Parish v. Parish.  This case is near and dear to me because I represent Mr. Parish and we made new law. 

In this post-judgment litigation we filed a motion seeking enforcement of the parties' divorce agreement because the ex-wife interfered with his parenting time with the children and to fix a parenting schedule for the next several months. The schedule was supposed to be arrived at with the assistance of a parenting coordinator but the issuance of a domestic violence temporary restraining order against Mr. Parish's ex-wife delayed that process. After the restraining order was dismissed, the parties went to the parent coordinator who made recommendations prior to the return date of the motion. Mr. Parish agreed with them - he ex-wife would not state if she agreed or not, waiting to see what the court would do.

The trial court denied Mr. Parish's motion as moot, ordered the parties back to the parent coordinator to deal with the issues in the motion and required that the parties attend settlement conferences before filing any future motions, even enforcement motions.

We appealed arguing that (1) the trial court unconstitutionally impaired Mr. Parish's access to the Court and (2) the court improperly abdicated its responsibility to a parent coordinator who cannot, by Supreme Court directive, address enforcement issues in any event.

The Appellate Division agreed in a 2-1 decision. In doing so, they crafted new requirements before a family part litigant's access to the Court can be restricted.

In doing so, the Appellate Division instituted a new procedural rule.  The relevant portion of the opinion is as follows:

We also emphasize that judicial review of enforcement motions, no matter how time consuming, is essential to discerning which motions pose problems mandating immediate attention and which describe matters that are trivial. If a court finds a motion is based on unsubstantiated allegations; is frivolous, repetitive, or intended to harass the former spouse; is the result of abusive litigation tactics; or is designed to interfere with court operations, the judge has the power to craft appropriate sanctions to curb such manipulations. When the imposition of sanctions fails, injunctive relief may be warranted.

In those limited instances where appropriate, an injunction should be issued only after the judge:
1. makes a finding that past pleadings were frivolous or designed for an abusive purpose;
2. fully scrutinizes the newly filed pleadings and determines them to be repetitive and within the scope of the prescribed vexatious matters; and
3. has unsuccessfully attempted to abate the abuse by employing sanctions such as those provided by Rule 1:10-3 or Rule 5:3-7.

Additionally, any restraint entered must be circumscribed, not global, and narrowly focus on the issues shown to warrant restraint.

The Court also made clear that parent coordinators cannot address enforcement issues nor can they modify parenting plans. Further, a trial court must make decisions on motions and cannot abdicate that responsibility to third parties or experts.

Because there was a spirited dissent in this case, there is an automatic right to appeal the matter to the Supreme Court if the other side chooses to do so. 

in any event, we are proud of our efforts and the results obtained in this case.  Robert Epstein assisted in this matter as well.
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Posted on January 19, 2010 by Eric S. Solotoff

WHICH ASSETS ARE EXEMPT FROM EQUITABLE DISTRIBUTION

Whether an asset is exempt is a common issue that arises in divorce case.  The general rule is that an asset acquired prior to the marriage which is not commingled is exempt from equitable distribution.  In addition, an asset that is received via inheritance and/or third party gift is also exempt as long as it is not commingled.  Commingling is essentially putting an asset into joint names or depositing it into a joint account.  Changing something from someones own name into joint names is deemed as making a gift to the marriage.

Also, the law is clear that the person who seeks to have an asset deemed exempt has the burden of proving that the asset is exempt.

Because an engagement ring is a premarital gift, albeit a conditional gift, from one spouse to to the other, it is exempt from equitable distribution.  If the ring is replaced and/or enhanced during the marriage, while the original stone, if it exists, remains exempt, the new ring is not exempt.  In fact, any gifts between spouses during the marriage are not exempt and are subject to equitable distribution on divorce.  As such, some times we are required to have jewelry, furs, and other expensive presents appraised to determine their value for equitable distribution purposes.  Sometimes this task is made a little easier because parties have appraisals for insurance purposes which is why we often ask for the homeowners insurance policy riders.

The premarital portion of retirement assets, i.e. IRAs, 401ks, pensions, are typically exempt. For defined contributions plans (ie. the accounts with cash balances), the trouble may be finding or obtaining the documents to establish the premarital values.  That said, even though the premarital values are often commingled with contributions made during the marriage, the premarital portions are typically exempt.  Contrast that with a regular premarital bank account where deposits are made during the marriage using marital income.  Many would argue that this account has lost it's exempt status.  Is that fair?  What is the real difference?  Perhaps the difference is that though money will usually go in and out of a bank account, there usually is not the same type of two way activity as to retirement accounts.

Similarly, marital homes owned by one party and never put into joint names often do not receive the treatment that the law would require.  Specifically, there is case law that says that only the principal pay down of the mortgage during the marriage plus the active appreciation (i.e. if the value of the home has been enhanced by capital improvements) is subject to equitable distribution.  That said, I have seen people argue judges state that because it is the marital home, somehow there should be some greater distribution, even if it is not 50-50. 

Note that aside from the retirement assets scenario described above, there is another exception to the commingling rule.  That is, there is a reported decision that says that when someone has temporarily parked an otherwise exempt asset in a joint account only to move it out to an individual account shortly thereafter, the asset will remain exempt.  I had a case where there husband lost his brother at an early age and he received the proceeds of his brother's life insurance.  Because he was so distraught about the loss, his wife took the insurance check and opened a new, joint account with it.  No other money ever went into or out of the account.  After a trial, the court found that the account was the husband's exempt property despite being in joint names for about 2 years or so.

To other notes on exemption.  First, even though an exempt asset was converted to a joint asset, that does not mean that it has to be divided equally.  New Jersey remains an equitable distribution state and assets that a party brought into the marriage and source of acquisition of the assets are two factors that must be considered. Second, the better practice to protect premarital assets is to have a prenuptial agreement.  Prenups can be used to preserve premarital assets, even if they are commingled, if the agreement says so.
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Posted on December 28, 2009 by Eric S. Solotoff

ATTEMPT TO OPEN EQUITABLE DISTRIBUTION OF MADOFF ACCOUNT DENIED

In February, I wrote a blog entitled Madoff Mess Hits Divorce Court..  In this case, in June 2006, the parties agreed to evenly split the $5.4 million in an account they had with Madoff Securities. As a result, the husband gave the wife $2.7 million in cash, and retained the account. As a result of the Madoff Ponzi scheme that has essentially rendered the account worthless, the husband has filed suit seeking the $2.7 million that he paid the wife. The husband (a prominent attorney with a large NY law firm) alleged that because the account turned out to be valueless, the spirit of the agreement was broken.  The wife's position was the husband withdrew probably $3 million to pay the wife, so the asset did exist at the time of the settlement agreement.

The decision was reported last week and the husband lost.  Acting New York State Supreme Court acting Justice Saralee Evans decided that the husband is stuck with his decision to keep the account instead of withdrawing his money before the December 2008 collapse of Bernard L. Madoff Investment Securities LLC.  The Justice noted that while the husband claimed the Madoff account held no assets, he did not allege it had no value.  Key to the decision was that in 2006 and "the several years after that plaintiff maintained this investment," the account "could have been redeemed for cash, presumably significantly in excess of its 2004 value." In addition, the Justice held that "An investor's ability to redeem an account for value, was the assumption on which the parties relied in dividing their property and in doing so they made no mistake."

The public policy of the finality of settlements was upheld.  Whether is is ultimately fair since the asset may not have really existed is another story.  It is different than retaining a stock account and then the market goes up or down because in that instance, there really was an asset as opposed to a fictional asset.  It is also different than holding on to a home whose value has decreased, as I have blogged on before.  

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Posted on November 17, 2009 by Eric S. Solotoff

ALIMONY TERMINATES AT REMARRIAGE, DOESN'T IT?

Alimony terminates at remarriage, doesn't it?  At least that is what we have learned.  In fact, there is even a statute, N.J.S.A. 2A:34-25, that says permanent or limited duration alimony terminates upon death or remarriage of the recipient.  This is not the case for reimbursement or rehabilitative alimony, per the statute, absent an agreement to the contrary or good cause. 

Fast forward to November 17, 2009, the date of the release of the unreported (non-precedential) Appellate Division opinion in the case of Kelly v. Arato.

In this case, the parties were married in 1985 and divorced in 2004.  Their agreement called for $100 per month of alimony and $3100 per month in child support.  The wife remarried 6 months after the divorce and the husband immediately stopped paying alimony.  Four years later, when the husband's attorney wrote to address college for the children, the wife raised the issue of the non-payment of alimony.  After cross motion, the trial judge denied the husband's motion to terminate alimony as well as the wife's motion for payment of alimony arrears.  Both parties appealed.

The problem in the matter appears to be in the drafting of the parties' Property Settlement Agreement (PSA).  Per the PSA, alimony would continue "for the natural lives of the parties,
unless terminated by any one or more of the following" and then lists two events: repudiation or modification of the PSA by the written "mutual consent of the parties"; and defendant's death.

The wife argued that because remarriage is not included as an event that would terminate alimony the parties agreed it would continue. The husband argued that the parties did not have to expressly provide for what the Legislature commands and that the PSA's silence on that point reveals an
intention that the right to termination set forth in N.J.S.A. 2A:34-25 would apply.

The Appellate Division held:

In most instances, we would find little merit in the contention that the complete absence of any mention of remarriage in a PSA would permit a finding that the payor spouse waived the right set forth in N.J.S.A. 2A:34-25 to have alimony cease upon the supported spouse's remarriage. By way of comparison, Ehrenworth dealt with the enforceability of a PSA that stated the husband's alimony obligation would continue to be paid "regardless of whether or not the [w]ife remarries." 187 N.J. Super. at 345. Here, the PSA makes no mention of remarriage, but it does have a provision that may be plausibly read as excluding any other terminating event than those listed.  By the same token, the PSA's silence on the subject of remarriage also renders plausible the contention that defendant waived the rights set forth in N.J.S.A. 2A:34-25. In short, the language of the PSA neither conclusively establishes nor conclusively negates plaintiff's remarriage as an event that would terminate alimony. As a result, the judge was mistaken insofar as she held that, as a matter of law, the PSA required a continuation of alimony in this circumstance. The dispute cannot be resolved by resort to the four corners of the PSA. It requires a consideration of the parties' actual intentions at the time of formation.

As such, the matter was remanded for a hearing. 

There are a few things of interest to me.  If there really was an alimony obligation, why did the wife wait 4 years to say somthing about it. On the other hand, given the fact that the alimony was $1,200 per year and the child support was $37,200 per year - a rather odd support allocation - as well as how quickly the wife remarried, one could surmise that the remarriage was contemplated and the support negoatiated accordingly.

The bottom line is that this seemingly could have been avoided had the PSA been clear about the intention - whatever it is. 

One last comment - 4 years of aimony arrears total $4,800.  This litigation had to cost several times that amount with more litgation to come.  This seems to fail a cost benefit analysis on both sides. 
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Posted on November 3, 2009 by Eric S. Solotoff

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. 

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