NJ Family Legal Blog : New Jersey Divorce and Family Lawyer & Attorney : Fox Rothschild Law Firm : Domestic Violence, Prenuptial Agreements, Child Custody

Litigants who get caught lying about their income in their filed submissions to the Court subject themselves not only to denial of their request for relief from the Family Part Judge but they also open the door for problems with the IRS, the State of New Jersey Division of Taxation, the Prosecutor’s office and the Social Security Administration. 

In the recent unpublished Appellate Division decision of Lucci v. Lucci, Defendant ex-husband filed an application in 2008 to permanently terminate his alimony obligation on the basis that his income significantly decreased. Notably, between the time of the divorce in 2000 and the time of the application, Ex-Husband had been successful in reducing his alimony obligation on two separate occasions. First, by consent in 2004, he was able to reduce alimony from $300 to $150 per week. Then, by consent in 2005, he was able to suspend his alimony because he was “unemployed”.  In 2008, he was seeking to permanently terminate his alimony obligation.

Ex-husband stated in sworn Certifications filed with the Court in the 2005 and the 2008 proceedings that he was laid-off of work, went through periods of unemployment and was finally able to obtain employment with much lower compensation. The Ex-Husband also certified that during his periods of unemployment, he received unemployment benefits. 

In opposition to the application, Ex-Wife presented the Court with a sworn Certification from a Company that was never disclosed by Ex-Husband.  The Company stated that it had employed Ex-Husband including the period during which Ex-Husband received unemployment benefits, that Ex-Husband misrepresented his employment status to the Court, and that he had earned income in an amount comparable to that which he earned when the Order of support subject to the Motion was filed. The Company further advised the Court that Ex-Husband provided two conflicting Social Security numbers to the Company. Finally, the Company advised that the income reported on Ex-Husband’s tax returns did not include his income from the Company.

Ex-Husband’s attorney did not know about Ex-Husband’s employment with the Company.

Not only did the Court deny Ex-Husband’s request to terminate alimony but the Court also wrote a letter to the IRS, State Division of Taxation, the Sussex County Prosecutor and the Social Security Administration.   Moreover, the Court granted Ex-Wife’s request to reinstate alimony at $300 per week effective in 2004 and granted her counsel fees. Despite the fact that Ex-husband was reported to the authorities for what the Court perceived to be intentionally wrongful conduct, the Ex-Husband had the gall to appeal the decision to the Appellate Division.

The Appellate Division affirmed the trial Court’s decision with the exception of the effective date of the reinstatement of alimony. The Appellate Division noted that while it was clear from Ex-Husband’s filed submissions to the Court in 2005 that he had provided misleading information, it was unclear whether he provided misleading information in 2004. If Ex-Husband did not provide misleading information in 2004, the Appellate Division noted that the effective date of the reinstatement should be in 2005 when Ex-Husband was required to pay $150 per week in alimony. The Appellate Division directed the trial court to determine the issue after further Court proceedings.

The moral of the story is if you get caught lying in submissions to the Court for which you certified under oath that your statements were true, be prepared to not only pay the consequences to the other litigant but you may also have to pay a hefty price to authorities. 

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Mark Ashton, a partner in our Exton (Chester County), Pennsylvania office and the editor of our Pennsylvania Family Law Blog, wrote an interesting post entitled "The Owner Know Thy Business" on that blog.

To read the complete post, click here.
 

EDITORS NOTE:  Mark's post leads to a discussion of several interesting issues that are frequently encountered in matrimonial cases.  It is not unusual in cases where one or both parties are self employed that there is either unreported income and/or personal expenses being paid through he business.  In those cases, the tax returns are obviously unreliable for support purposes and you have to get the business books and records, credit card records and other documents to determine the business owner's actual income/cash flow.  I say cash flow because that person is not paying taxes on the expenses being paid through he business and the expenses are not added to that person's income.  In some cases, though there are some personal expenses that are paid through the business, that is neither unusual nor problematic from an income tax perspective.  A perfect example is the deduction of automobile expenses.  While this is acceptable, within limits, per the IRS, those expenses have to be added back to income per the Child Support Guidelines.  In fact, all personal expenses are supposed to be added back.  I have been involved in other cases where the husband was declaring just enough income to pay the mortgage, taxes and utilities on the parties' $2 million dollar house and there was no other declared income apparent to pay their other expenses which amounted to a few hundred thousand per year.  In that case, we had to use a forensic accountant to reconstruct the income through the parties' budget because, there were, surprise, sparse records. 

An interesting question, and unanswered question,  is how these non-taxed expenses should be treated for support purposes.  If some declares $100,000 in taxable income and has another $100,000 in non-taxable perks, what is the income number for support purposes.  $200,000 doesn't seem right because only half is taxed.  A normal, taxpaying citizen may have to earn $240,000 or more to have the same net after tax spending power.

A bigger issue to address which deserves its own separate blog entry is what to do when the case has these issues because of a NJ case called Sheridan v. Sheridan.  The rule as per Sheridan is that when a judge hears evidence of unreported income, they are duty bound to refer the matter to the IRS.  As Mark suggests, filing amended tax returns makes the most sense when confronted with this issue - as long as it doesn't happen too late - as was the case in the example in Mark's post.                        -Eric Solotoff

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