There has been much news coverage about how China’s divorce filings spiked after their periods of quarantine and lock down ended including in articles and Bloomberg,   the Daily Mail and many other publications.  In fact, in response to our own stay at home orders/working from home/shut down of the courts in large part, in a bit of gallows humor, I have joked that this is the divorce lawyer’s silver lining of corona virus.  As I previously blogged, whether or not the pandemic leads to new divorces, it will likely lead to many motions to modify and/or enforce support orders.

Perhaps this phenomenon has something to do with the old expression “familiarity breeds contempt, the first recorded use of which was in Chaucer’s Tale of Melibee (c. 1386).   Obviously, it is more than that.  We are in unprecedented (that word again) times containing real fears of illness and death;  real sorrow from the loss of acquaintances, friends and family; real fears of economic pain that will no doubt hit everyone in one way or another, while cooped up in a home for day after day, week after week;  and the stress of having to home school your children and try to work from home at the same time.  In a time where even getting groceries now requires wearing a mask and one of the most valuable commodities is toilet paper (though some might say alcohol), despite the bad attempts at humor, there is no downplaying the real stress the people are under.

But sadly, marital discord and divorce are not the only side effects of the pandemic.  Domestic violence is too and I have seen numerous articles about this including an April 6, 2019 New York Times article by Amanda Taub entitled A New Covid-19 Crisis: Domestic Abuse Rises Worldwide.    Like a sledgehammer, her article starts:

Add another public health crisis to the toll of the new coronavirus: Mounting data suggests that domestic abuse is acting like an opportunistic infection, flourishing in the conditions created by the pandemic.

An article by Scott Neuman on NPR entitled, Global Lockdowns Resulting in ‘Horrifying Surge’ in Domestic Violence, U.N. Warns, states:

United Nations Secretary-General António Guterres, citing a sharp rise in domestic violence amid global coronavirus lockdowns, called on governments around the world to make addressing the issue a key part of their response to the pandemic.

Aside from the abuse, because people are with their abuser hour after hour, day after day, the ability to seek help or even confide in friends in family members is all that much more difficult. That said, victims should protect themselves and call the police if necessary to seek a restraining order.  There are also resources such as the New Jersey Domestic Violence Hotline (1 (800) 572-SAFE (7233)) available 24/7 and many others.  If a Temporary Restraining Order is granted, the Order can contain other provisions for temporary financial relief, parenting time, etc.  While there was and is a fear that false or flimsy domestic violence complaints could be made to get a leg up in a divorce proceeding where the parties remain in the same home, especially where final hearings were pushed off indefinitely, courts are starting to set up for virtual domestic violence hearings via Zoom.  Also, anecdotally, I have heard that court’s have been hearing emergency applications to, at the very least, address parenting time for a parent put out of a home on a Temporary Restraining Order.

In any event, even though these times are difficult, no one has to accept real domestic violence and resources exist to protect true victims in cases where domestic violence is occuring.

Eric S. Solotoff, Partner, Fox Rothschild LLPEric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric is resident in Fox Rothschild’s Morristown, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973) 994-7501, or esolotoff@foxrothschild.com.

An all too familiar, if not overused, term to describe all thing Covid 19/Corona virus is “unprecedented.”  In an attempt to avoid politics, whether any of this was foreseeable or not, there is no dispute of the absolute financial devastation that the world wide pandemic as created.  The stock market has cratered, many people are out of work, businesses are closed and some may never re-open, etc.  Legislation has been passed to help businesses and citizens alike, but no one knows at this point what the damage will ultimately be.  (And for more information on Corona Virus Resources, our firm has a information packed resource page.  One of the resources is an article written by Jessica Diamond of our group entitled “Family Support Obligations and the Covid-19 Economic Crisis. “

It seems clear that the courts are going to soon be flooded with modification motions by people who have been laid off and/or lost their jobs and/or enforcement motions by people not receiving the full amount (or any) support because their ex has had a reduction and/or elimination of income.  How the courts treat this “unprecedented” catastrophe remains to be seen.  Hopefully, for these people that are affected in this way, this will be short term set-back and that, when the economy re-starts and and life as we knew it resumes, they will go back to work, if not be busier than ever making up for lost time.  That all remains to be seen.  It will be interesting to see if Courts share the pain between both parties are just fervently enforce orders because a litigant may be able to show a substantial but not a continuing change of circumstances.

But what about people who receive alimony and child support in the form of a base amount and then additional support based upon a proportion of income?  This is a not uncommon scenario for someone who is on Wall Street or otherwise has variable income based upon company performance, stock prices, values of deferred compensation, etc.  In many of these cases, the bonuses and/or deferred compensation for the prior year pays out in February or March of the following year.  One would expect that, given the market highs in 2019 and early 2020, people using these types of formulas, in many cases, were very happy to receive their share of the additional support in early 2020.

But what about 2021?  If things continue as they have been and the economy does not fully recover, it is not inconceivable that bonuses in 2021 for 2020, will be less.  What about doctors and dentists that have not been able to work because of the shut down orders?  What about lawyers who cannot litigate because courts for all intents and purposes are closed (not actually closed but not open for trials, etc.)?  Whether or not they pay support based upon a formula, their income picture for 2020 may look markedly different than their 2019 income.  Business owners that had to close their business and/or whose businesses involved  hospitality, conventions, travel, will likely have much different financial statements in 2020 than in 2019.   And what of things like college and unreimbursed expenses divided in proportion to income.  Will there be a need to adjust percentages based upon the financial crisis created by the corona virus

In any event, the pain regarding the financial impact of the corona virus will likely be felt in 2020, 2021 and beyond.  How people negotiate their divorces will likely also be impacted too.  Will people negotiate and litigate based upon economic reality or be opportunistic if the law associated with the “old normal” benefits them?  Will the business owner in a so-so marriage decide to get out now while their income and value of their business may be lower?  This all remains to be seen, but our Family Law Practice Group at Fox Rothschild can assist navigate this “new normal” (another overused phrase.)

Eric S. Solotoff, Partner, Fox Rothschild LLPEric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric is resident in Fox Rothschild’s Morristown, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973) 994-7501, or esolotoff@foxrothschild.com.

 

It is not unusual for deferred compensation (eg. stock options, restricted shares, RSU, REUs, and a whole host of others) to  be addressed in marital settlement agreements, either as assets divided in equitable distribution, for purposes of computing income for support, or both.  Often the language is complicated and in some agreements it is incomprehensible.  A proper goal and something that you often see is the attempt to avoid the double dip – that is, if deferred compensation is divided in equitable distribution, that same deferred compensation should not be used in the calculation of the payor’s income for support purposes in cases where there is some type of support formula based upon income.  Given that deferred compensation often vests over three or four years, when using a formula, it would not be unusual if the support is lower in the first 3-4 years because it will take the old deferred comp that was divided that long to pay out, and that long for newer, post-divorce deferred comp to start paying out.

But as I said, sometimes the Agreements are not clear and that can lead to both confusion, and future litigation over exactly what was intended at the time of the Agreement.  A perfect example of this is the case of Molloy v. Molloy , a unreported (non-precedential) Appellate Division decision released on February 7, 2020.  In this case, the parties divorced after a 26 year marriage.  In their Marital Settlement Agreement (MSA), plaintiff agreed to pay a base alimony of $66,667 per year, and an additional lump sum alimony of 33.3% of the gross pretax amount of “compensation for
lump sum alimony purposes[, ]” . . . defined as any salary above $220,000 gross per year and any incentive award, stock, restricted stock award, stock option award, bonus, commission, or other compensation that would be characterized as W-2 or 1099 income paid to [plaintiff] by his employer(s).  In addition, with regard to equitable distribution of deferred compensation, the MSA provided the defendant 200 of an 1122 award of RSUs from plaintiff’s employer, with the plaintiff retaining the rest.  Yet another paragraph of the MSA contained typical boilerplate language, as follows:

Except as provided in this [a]greement, each party may dispose of his or her property in any way. Each party waives and relinquishes any and all rights he or she may
now have or hereafter acquire under the present or future law of any jurisdiction to share in the property or the estate of the other as a result of the marital
relationship.

As one would expect, in 2018, the parties disputed whether the additional lump-sum alimony plaintiff calculated and paid to defendant was accurate for 2015 through 2017.  When the parties could not resolve their dispute amongst themselves, defendant filed a motion for enforcement claiming she was underpaid.  she included the 1122 RSUs in her calculation of plaintiff’s gross 2015 earnings and calculated his income to be $429,609.69.  Also not surprisingly, Plaintiff’s calculations differed as  he subtracted the total value of the 1122 RSUs,  The motion judge sided with the defendant, including all of the 1122 RSUs in the formula and the plaintiff appealed.

The Appellate Division rejected plaintiff’s argument the lump sum alimony calculation required the motion judge to include defendant’s share of the RSUs noting that the MSA clearly stated that  [i]ncreases in [defendant’s] earned income shall reduce [plaintiff’s] alimony obligation.” Therefore, the Appellate Division held that the liquidation of defendant’s share of the RSUs constituted a realization of unearned income and did not affect alimony.  The Appellate Division also rejected plaintiff’s argument the MSA created an “impermissible double-dipping” pursuant to Innes v. Innes because the RSUs were not a retirement benefit but earned income (though I believe that this misses the point of Innes).

Notwithstanding, the Appellate Division was constrained to  remand the matter for a plenary hearing because the parties’ common intent respecting the treatment of the 1122 RSU tranche is not
readily discernable. The Court noted that:

Indeed, it is possible to read the additional lump sum alimony language consistent with defendant’s argument the parties intended to include plaintiff’s share of the 1122 tranche in the calculation of the additional lump sum alimony. However, when the provision is read in conjunction with the parties’ mutual express waiver of any interest in the other’s equitable distribution, plaintiff’s argument the 1122 tranche was not a part of the lump sum alimony calculation is equally plausible. Moreover, the “[e]xcept as provided in this [a]greement”
language contained in the waiver paragraph did not resolve whether plaintiff’s share of the RSUs were excluded from the alimony calculation because the parties had opposite explanations regarding the reason for the disproportionate distribution of the RSUs in question. The motion judge’s findings did not resolve these issues. Therefore, a plenary hearing was necessary to determine the parties’ common intention regarding the 1122 RSUs.

The point again is that when you are dividing deferred compensation and/or using a formula for alimony and/or child support that is based upon a percentage of income, the language of the agreement must reflect that parties’ intent.  In fact, the language is critical.  For instance, in the 2004 reported decision Heller-Loren v. Apuzzio, the parties’ MSA included a provision that the child support would be enhanced by 11.6% of the father’s gross income over $180,000.  Seems clear enough, right?  However,  Property Settlement Agreement specifically defined gross earned income as “all gross wages, commissions, salaries, bonuses and income from bonuses.”   Elsewhere in the Agreement stock options are mentioned but the specific phrase “stock options” does not appear within the definition “income[.]”   In that case, despite clearly being part of the father’s earned income, the stock options were excluded by the trial court and Appellate Division because they were not included in the definition of gross income.  It seems like a simple “including but not limited to” and/or some reference to all income from employment in whatever form could have resolved the issue but because the definition was specific, the stock option income was excluded, to the detriment of the children.

The bottom line is that care must be taken in the agreement to flesh out the intent when dealing with deferred compensation so you don’t run into a situation where there is a double dip – i.e. the same asset is being both divided and used in the support calculation.  Otherwise, the parties may buy themselves the costs of litigation that exceed the amount in dispute.

Eric S. Solotoff, Partner, Fox Rothschild LLPEric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric is resident in Fox Rothschild’s Morristown, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973) 994-7501, or esolotoff@foxrothschild.com.

 

I received an email earlier this week containing guidelines for parents who are sharing custody and parenting time of their children during the Coronavirus Pandemic which was prepared by the American Academy of Matrimonial Lawyers (AAML) and the Association of Family and Conciliation Courts (AFCC).   It is reproduced, in full, below.  Obviously, we are all experiencing a “new normal”, at least for the next several weeks, if not longer.  Their guidelines certainly provide good for for thought on how to minimize, to the extent possible, added stress on children of divorce.  Stay safe.

1. BE HEALTHY
Comply with all CDC and local and state guidelines and model good behavior for your children with intensive hand washing, wiping down surfaces and other objects that are frequently touched, and maintaining social distancing. This also means BE INFORMED. Stay in touch with the most reliable media sources and avoid the rumor mill on social media.

2. BE MINDFUL
Be honest about the seriousness of the pandemic but maintain a calm attitude and convey to your children your belief that everything will return to normal in time. Avoid making careless comments in front of the children and exposing them to endless media coverage intended for adults. Don’t leave the news on 24/7, for instance. But, at the same time, encourage your children to ask questions and express their concerns and answer them truthfully at a level that is age-appropriate.

3. BE COMPLIANT with court orders and custody agreements.
As much as possible, try to avoid reinventing the wheel despite the unusual circumstances. The custody agreement or court order exists to prevent endless haggling over the details of timesharing. In some jurisdictions, there are even standing orders mandating that, if schools are closed, custody agreements should remain in force as though school were still in session.

4. BE CREATIVE
At the same time, it would be foolish to expect that nothing will change when people are being advised not to fly and vacation attractions such as amusement parks, museums, and entertainment venues are closing all over the US and the world. In addition, some parents will have to work extra hours to help deal with the crisis and other parents may be out of work or working reduced hours for a time. Plans will inevitably have to change. Encourage closeness with the parent who is not going to see the child through shared books, movies, games and FaceTime or Skype.

5. BE TRANSPARENT
Provide honest information to your co-parent about any suspected or confirmed exposure to the virus, and try to agree on what steps each of you will take to protect the child from exposure. Certainly, both parents should be informed at once if the child is exhibiting any possible symptoms of the virus.

6. BE GENEROUS
Try to provide makeup time to the parent who missed out, if at all possible. Family law judges expect reasonable accommodations when they can be made and will take seriously concerns raised in later filings about parents who are inflexible in highly unusual circumstances.

7. BE UNDERSTANDING
There is no doubt that the pandemic will pose an economic hardship and lead to lost earnings for many, many parents, both those who are paying child support and those who are receiving child support. The parent who is paying should try to provide something, even if it can’t be the full amount. The parent who is receiving payments should try to be accommodating under these challenging and temporary circumstances.

Adversity can become an opportunity for parents to come together and focus on what is best for the child. For many children, the strange days of the pandemic will leave vivid memories. It’s important for every child to know and remember that both parents did everything they could to explain what was happening and to keep their child safe.

____________________________________________

 

Eric S. Solotoff, Partner, Fox Rothschild LLPEric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric is resident in Fox Rothschild’s Morristown, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973) 994-7501, or esolotoff@foxrothschild.com.

 

Yesterday, I blogged on the S.W. v. G.M. case in a post entitled More from the Appellate Division on Lifestyle, Foulas and the Concept of Income Equalization.  In that blog, I noted that the S.W. court also addressed the issue of life insurance to secure alimony.

It is not necessary to get into the facts of S.W. further to address this issue here, other than to point out that in an open durational alimony case, the trial  judge relied on N.J.S.A. 2A:34-23(j)(1), which states: “There shall be a rebuttable
presumption that alimony shall terminate upon the obligor spouse or partner
attaining full retirement age.” Accordingly, given the age of the husband/payor, the judge multiplied the alimony by five years, at which point husband
would reach the full social security age.  As the alimony was reversed again, so too was the life insurance obligation.

That said, Judge Mawla went further, reminding us of the purpose of life insurance to secure alimony, as follows:

A determination of the proper amount of life insurance coverage for a support obligation requires a consideration of many variables. Where a party is insurable and able to pay the necessary premiums, a life insurance death benefit should neither only meet a beneficiary’s bare needs, nor be a windfall. In the former case, unexpected changes in circumstances can leave a beneficiary with unmet needs, whereas the latter condition exposes a payor’s estate to obligations he or she never had during the marriage.

Judge Mawla then gave guidance as to how the amount should be calculated:

In the alimony context, “once the amount of the obligation is established, the present value (or more correctly, the continuing present value as the obligation decreases) should be determined.” (citation omitted)… The present-day value methodology is appropriate where there is a “known future quantity” of an obligation. Ibid. Where the alimony obligation is not readily  quantifiable because the duration of the obligation is unknown, a
trial judge may utilize an obligor’s life expectancy to determine the duration of the obligation if it is reasonable to do so.  (citation omitted)…

Additionally, a reduction in the amount of security as the obligation is satisfied is an appropriate means of assuring alimony is secured but not subject to a windfall. See Claffey v. Claffey, 360 N.J. Super. 240, 264-65 (App. Div. 2003) (stating “it is perfectly reasonable to provide for the periodic reduction or review of the amount of . . . required security to reflect the diminishing need for it as the parties age, or circumstances otherwise change.”); (citation omitted)… In some cases, where the obligation has the potential to extend beyond an assumed end date because of a change in circumstances, or where a presumption of termination has been rebutted, it may be appropriate to decrease the death benefit in smaller increments or not at all.

In alimony contexts, determining whether to use life expectancy or the presumptive retirement age, and a fixed or declining amount of security will depend on the circumstances of each case and is a matter of judicial discretion.

In S.W., the issue was reversed and remanded because there was no testimony, and only a disputed assertion regarding the husband’s potential retirement at the full  social security age. Moreover, the Appellate Division noted that because the alimony award is of an open duration and may not necessarily
terminate when plaintiff reaches the full social security age, the methodology
that the Appellate Division set forth, as noted above,  will provide the trial judge with enough flexibility to determine the extent and amount of life insurance needed.

While not much of this states anything new, what is of note is that in open durational alimony cases, calculation of the security should not necessarily end at retirement age, in recognition that alimony could continue thereafter.

Eric S. Solotoff, Partner, Fox Rothschild LLPEric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric is resident in Fox Rothschild’s Morristown, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973) 994-7501, or esolotoff@foxrothschild.com.

 

A few weeks ago, I authored a post on this blog entitled Debunking the Myth That the Percentage Used in the So-Called “Alimony Rule of Thumb” Should Go Down as the Payer’s Income Goes Up.   That post reiterated that the Court’s cannot use formulas, but that they are often used and that people have posited a theory that when incomes go up, the percentages should go down. Therein, I showed the ramifications of that theory and juxtaposed it against the part of the alimony statute that says, “…the standard of living established in the marriage or civil union and the likelihood that each party can maintain a reasonably comparable standard of living, with neither party having a greater entitlement to that standard of living than the other.”

Yesterday, in a reported (precedent setting) opinion in the case of S.W. v. G.M., the Appellate Division weighed in on the use of formulas (there are none), the theory of income equalization (the aforementioned portion of the statute doesn’t mean that), and required that marital lifestyle be quantified.  It also gave guidance on what should not be included in a recipient needs.  There was also an interesting discussion regarding life insurance to secure alimony which will be part of a separate post on this blog.

In this case, the parties divorced after a long term marriage.  The matter was tried to conclusion, previously appealed, and remanded back to the trial court to address the issue of alimony.  At the original trial, the court found that the five year average of the husband’s net after tax income was $1,313,000 – a finding that the Appellate Division accepted in the original appeal.  The Appellate Division also accepted the prior finding that the parties lived a wealthy lifestyle but did not save.  The Appellate Division reversed the prior alimony award of $450,000 per year because the trial judge never quantified the parties lifestyle, and thus, could not determine how the figure was derived.

On the remand, the trial judge increased the alimony to $477,504 per year net, based largely on her pendente lite budget, but again never quantified lifestyle.  Accordingly, the wife appealed again and the court reversed again.

In addressing the issue of lifestyle, the Judge Mawla reiterated the importance of quantifying the marital lifestyle, stating:

The importance of finding the marital lifestyle cannot be overstated. It is at once the fixed foundation upon which alimony is first calculated and the fulcrum by which it may be adjusted when there are changed circumstances in the years following the initial award. …

In Hughes, the parties spent more than they earned and relied on borrowing and parental support to meet the marital lifestyle. 311 N.J. Super. at 34. The trial judge discounted these additional funds and determined the lifestyle using only the family’s earned income, which the judge termed the “real” standard of living. Ibid. We held “[t]he judge . . . confused two concepts. The standard of living during the marriage is the way the couple actually lived, whether they resorted to borrowing and parental support, or if they limited themselves to their earned income.” Ibid.

In many cases, parties live above their means or spend their earnings and assets to meet expenses. In such instances, a finding of the marital lifestyle must consider what the parties spent during the marriage and not merely offer a nod to a bygone, unattainable lifestyle. In this case, the trial judge overlooked the lessons from Crews and Hughes and our instruction to find, numerically, the marital lifestyle. To the extent Crews and Hughes implicitly required that marital lifestyle be determined numerically, we now explicitly state a finding of marital lifestyle must be made by explaining the characteristics of the lifestyle and quantifying it.

In determining the marital lifestyle, trial courts were directed to consider the following:

In a contested case, a trial judge may calculate the marital lifestyle utilizing the testimony, the CISs required by Rule 5:5-2, expert analysis, if it is available, and other evidence in the record. The judge is free to accept or reject any portion of the marital lifestyle presented by a party or an expert, or calculate the lifestyle utilizing any combination of the presentations.

In this case, the Appellate Division noted that the trial court disregarded the marital budget altogether and instead supplemented the wife’s current budget with some expenses she once enjoyed during the marriage.  The Appellate Division found this methodology to be:

…problematic because it ignored the judge’s own findings that the marital lifestyle “subsumed” the entirety of plaintiff’s earnings. By application of this logic, if the judge determined the net yearly income was $1,520,268 or $126,689 per month, the alimony award allotted defendant disposable income of $36,7925 and plaintiff $89,897 per month without explanation. This was a misapplication of law because it ignored Crews and N.J.S.A. 2A:34-23(b)(4), which requires a judge consider “[t]he standard of living established in the marriage . . . and the likelihood that each party can maintain a reasonably comparable standard of living, with neither party having a greater entitlement to that standard of living than the other.”

As an interesting aside, it appears as though the Court is espousing the theory that the parties’ net income equaled their marital lifestyle.  I suspect that this will be  fertile ground for future litigation regarding the issue of lifestyle.

In rejecting the notion of either income equalization or the use of formulas to calculate alimony, Judge Mawla held:

To be clear, N.J.S.A. 2A:34-23(b)(4) does not signal the Legislature intended income equalization or a formulaic application in alimony cases, even where the parties spent the entirety of their income. Had the Legislature intended alimony be calculated through use of a formula, there would be no need for the statutory requirement that the trial court address all the statutory factors. The Legislature declined to adopt a formulaic approach to the calculation of alimony. See Assemb. 845, 216th Leg., 2014 Sess. (N.J. 2014) (declining to enact legislation computing the duration of alimony based upon a set percentage).

The Court then gave instruction regarding what should be considered, and more importantly, not considered, regarding the recipient’s need.  The court made clear that it should be the expenses related to that party, as opposed to expenses solely related to the other spouse of the children.  Specifically, the Court held:

The portion of the marital budget attributable to a party is likewise not subject to a formula. Contained in most marital budgets are expenses, which may not be associated with either the alimony payor or payee, including those associated with children who have since emancipated or whose expenses are met by an asset or a third-party source having no bearing on alimony. There are also circumstances where an expense is unrelated to either the payor or the payee but is met by that party on behalf of a child. And, as is the case here with defendant’s photography hobby, there are expenses which only one party incurred during the marriage. Therefore, after finding the marital lifestyle, a judge must attribute the expenses that pertain to the supported spouse. Only then may the judge consider the supported spouse’s ability to contribute to his or her own expenses and the amount of alimony necessary to meet the uncovered sum. Crews, 164 N.J. at 32-33.

This is interesting as it makes clear that you cannot bootstrap the expenses of the other party or the children to come to need.  On the other hand, there was no guidance as to how to deal with this added cash flow, at least with regard to child expenses that are no longer in existence.  I recently had a case where the parties while living in the same household, lived two completely difference lifestyles – one extravagant (the payer) and the other ultra conservative in terms of spending.  Had this case been decided at the time of the trial in that matter, my guess is that it would not have settled because the court may have had to fix the alimony based upon the wife’s actual expenses, as opposed to the husband’s spending- whether or not it seemed fair or squared with the part of the statute that said that neither party is entitled to a greater lifestyle than the other.

In any event, the S.W. case gives trial judges and practitioners more guidance as to how to deal with marital lifestyle.  It may also require more work of the forensic accountants who prepare lifestyle analyses as they try to parse out expenses of the payer and the children.

Eric S. Solotoff, Partner, Fox Rothschild LLPEric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric is resident in Fox Rothschild’s Morristown, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973) 994-7501, or esolotoff@foxrothschild.com.

In a recent decision, the appellate division has addressed the proper procedure for adjudicating a parent’s request to eliminate his obligation to pay child support and for college, when there is a question of whether the relationship with his child has been compromised.

In Zapata, v. Zapata, a father appealed the trial court orders denying his request to terminate his child support and his obligation to contribute to the college expenses of his daughter. The litigants had divorced in 2011 and had two children together. Their son became emancipated in 2014, at which time their daughter became a full-time college student at a private university.

When the parties divorced, they executed a property settlement agreement (PSA) which provided that their children’s college educations would first be funded by scholarships, available loans and savings allocated for college during the marriage. Thereafter, the parties agreed to contribute to college expenses in accordance with their ability to pay. Their PSA further addressed child support, which required the father to pay $246 per week for both children based upon the parents’ then-incomes.

The father filed a motion to terminate child support and his obligation to contribute to college in 2014. At that time, the parties’ son was deemed emancipated and the father and daughter were required to attend counseling. The trial court’s order further provided that the daughter’s failure to attend counseling would be deemed a waiver of her receipt of any continued college payments/support from her father. A total of five sessions were conducted and then counseling was terminated. The father claimed that the daughter terminated the sessions, whereas the daughter alleged that the sessions were jointly terminated by herself, her father and the counselor, who jointly felt they were no longer necessary.

Between 2014 and 2016, father and daughter had sporadic contact. In addition to the counseling sessions, the father had Christmas dinner with the daughter in 2015 and they exchanged text messages in 2016. He saw the daughter for her twentieth birthday but asked not to be invited to her birthday dinners again if he would be expected to pay. On her twenty-first birthday, the father emailed the daughter and signed it “your forgotten dad”. While the father characterized his relationship with his daughter as “strained” and accused her of refusing to communicate with him, the daughter characterized their relationship as “broken but not destroyed”.

Against this backdrop, the father filed a second motion to terminate his financial obligations in 2016. The mother cross-moved to enforce the child support obligation and compel the father to pay two-thirds of the daughter’s college costs, based upon her representation that the father earned double her income. In upholding the father’s support obligations, the trial court found that the father did not show a basis for altering the agreement reached in the PSA, or show that the daughter failed to comply with the 2014 order regarding counseling. The court further found that there was no change in circumstance warranting a modification of the support obligation. In doing so, the court only addressed the parent-child relationship factor of the test for determining college contributions set forth in Newburgh v. Arrigo. The father filed a motion for reconsideration of this decision, which was denied.

On appeal, the Appellate Division reversed the trial court’s ruling based upon several legal errors. First, the trial court erred by not conducting a plenary hearing regarding the material dispute of fact as to the parent-child relationship. While the father claimed no relationship existed, the daughter claimed a relationship was existent but broken. While the father claimed he was excluded from the college selection process, the daughter contended he paid the application fee and is a graduate of the very same college.

Second, the appellate court found no basis for allocating two-thirds of the college expenses to the father without further fact finding. The PSA requires the parties to contribute according to their ability to pay, but a review of updated financial information was not conducted by the trial court. The appellate court found that the trial court failed to review the statutory criteria of N.J.S.A. 2A:34-23(a) as well as the Newburgh factors to reach a decision regarding allocation of the college costs.

Finally, the trial court erroneously found there was no change in circumstances with regard to the father’s child support obligation. The trial court ignored the fact that (1) the original child support obligation was based upon 2 children, though the parties’ son had since been emancipated and (2) the daughter’s residence at college required a modification of the child support obligation. While the appellate division noted that child support and contribution to college are two discrete obligations, one cannot be ignored in determining the other when establishing a parent’s appropriate financial obligation.

This decision reminds practitioners and litigants that college contribution cases are fact-sensitive inquires that will more often than not require a plenary hearing in order to be resolved. Further, it serves as a reminder that while child support will be affected by an obligation to contribute to college expenses, the mere fact that a child enters college does not extinguish a traditional child support payment. However, these two distinct obligations remain symbiotically intertwined, and must be looked at together in addressing a parent’s responsibility to contribute to the ongoing support and education of their children.

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Katherine A. Nunziata, Associate, Fox Rothschild LLPKatherine A. Nunziata is an associate in the firm’s Family Law practice, based in the Morristown, NJ office. You can reach Katherine at (973-548-3324) or at knunziata@foxrothschild.com.

 

It has been said over and over again that there are no formula’s to determine alimony.  As I have blogged in the past, other than one legal malpractice referencing the formula or “rule of thumb”, virtually every time the Appellate Division gets a case where a formula was used, the case is reversed because the use of formulas is not permitted.  Rather, courts are required to analyze the statutory factors which are as follows;

 (1)The actual need and ability of the parties to pay;

(2)The duration of the marriage or civil union;

(3)The age, physical and emotional health of the parties;

(4)The standard of living established in the marriage or civil union and the likelihood that each party can maintain a reasonably comparable standard of living, with neither party having a greater entitlement to that standard of living than the other;

(5)The earning capacities, educational levels, vocational skills, and employability of the parties;

(6)The length of absence from the job market of the party seeking maintenance;

(7)The parental responsibilities for the children;

(8)The time and expense necessary to acquire sufficient education or training to enable the party seeking maintenance to find appropriate employment, the availability of the training and employment, and the opportunity for future acquisitions of capital assets and income;

(9)The history of the financial or non-financial contributions to the marriage or civil union by each party including contributions to the care and education of the children and interruption of personal careers or educational opportunities;

(10) The equitable distribution of property ordered and any payouts on equitable distribution, directly or indirectly, out of current income, to the extent this consideration is reasonable, just and fair;

(11) The income available to either party through investment of any assets held by that party;

(12) The tax treatment and consequences to both parties of any alimony award, including the designation of all or a portion of the payment as a non-taxable payment;

(13) The nature, amount, and length of pendente lite support paid, if any; and

(14) Any other factors which the court may deem relevant.

That said, the rule of thumb, or as I have called it, the “dirty little secret”, still exists in practice.  Prior to the 2019 change in the taxability/deductability of alimony that was part of the Tax Cut and Jobs Act, you would commonly see the rule of thumb being applied as one-third of the difference between the payer’s income and the recipient’s income (or imputed income), though supposedly a lower percentage was used in South Jersey for some unknown reason.  That said, and by way of example, if the payer earned $350,000 and the recipient earned $50,000, the alimony under the “rule of thumb” was $100,000 per year.

Query how any rule of thumb squares with factor 4, “The standard of living established in the marriage or civil union and the likelihood that each party can maintain a reasonably comparable standard of living, with neither party having a greater entitlement to that standard of living than the other.”  Necessarily, the payer will have the ability to have the greater lifestyle than the recipient because they will have more net after tax dollars, whether the alimony is taxable, or not.  When the parties have no children or the children are grown, the results of the “rule of thumb look more stark when juxtaposed against this factor.  When there is child support paid to the recipient, it would not be uncommon for the parties’ net after tax cash flows to look similar – ignoring for a moment that on the payer’s side, that cash flow is meant to support one person, while on the recipient side, the cash flow would be to support the recipient and the children.

Aside from the tax issue addressed herein (and people used to say 1/3 for the husband, 1/3 for the wife and 1/3 for the government – though the numbers never actually worked that way), what is the justification for giving the income earner more than the recipient in light of Crews v. Crews (the seminal Supreme Court case addressing marital lifestyle) and factor #4?  For more than two decades, I have heard things like “you have to give the guy a reason to get out of bed in the morning” or “he’s the one earning the money” as reasons given by judges and mediators.  Additionally, now that the issue of a “savings component” of alimony is more of a consideration in high income/high asset cases after the Lombardi case in 2016, when combined with Crews and factor #4, shouldn’t the recipient be arguing for an alimony award that puts the parties in equipoise?  That said, despite that statement in the statute, there is no case at this point that stands for the proposition of income equalization – though I have heard the argument since factor #4 was amended in 2014.

But back to these thorny rules of thumb.  Since January 1, 2019, when the changes in the tax code began to affect alimony making it no longer deductible to the payer or includable in the recipient’s income, practitioners began clamoring for the new “rule of thumb.”  I have heard, 22%, 25%, 27%, somewhere between 22% and 27%, and even as low as 20% of the difference between the incomes (or imputed income).  I then began to hear that the higher the income, the lower the percentage because of the higher tax rates.  At first, that seemed plausible, but when put to the test – especially when compared to factor 4 – that myth can be debunked.

Lets start with the same incomes from above – $350,000 for the payer and $50,000 for the recipient:  using 25%, the rule of thumb alimony is $75,000 per year; using 22%, it is $66,000.  At 25%, the net after tax split is 55%-45%; at 22%, it is 58%-42%.  In this case at 22%, the payor has $148,644 net after tax cash flow per year and the recipient has $106,668 or $41,976 less ($3,498 per month).  At 25%, the difference is only approximately $24,000 ($2,000 per month).

If we use $500,000 for the payer and $50,000 for the recipient:  using 25%, the rule of thumb alimony is $112,500 per year; using 22%, it is $99,000.  At 25%, the net after tax split is still 55%-45%; at 22%, it goes to 59%-41%.  In this case at 22%, the payor has $199,056 net after tax cash flow per year and the recipient has $139,668 or $59,388 less ($4,949 per month).  At 25%, the difference is only approximately $32,388 ($2,699  per month).

If we use $750,000 for the payer and $50,000 for the recipient:  using 25%, the rule of thumb alimony is $175,000 per year; using 22%, it is $154,000.  At 25%, the net after tax split is still 54%-46%; at 22%, the spread widens to 58%-42%.  In this case at 22%, the payor has $273,072 net after tax cash flow per year and the recipient has $194,664 or $78,408 less ($6,534 per month).  At 25%, the difference is only approximately $36,408 ($3,034 per month).

If we use $1,000,000 for the payer and $50,000 for the recipient:  using 25%, the rule of thumb alimony is $237,500 per year; using 22%, it is $209,000.  At 25%, the net after tax split moves to 53%-47%; at 22%, it is 58%-42%.   However, in this case at 22%, the payor has $345,744 net after tax cash flow per year and the recipient has $249,672 or $96,072 less ($8,006 per month).  At 25%, the difference is only approximately $39,072 ($3,256 per month).

If we use $1,250,000 for the payer and $50,000 for the recipient:  using 25%, the rule of thumb alimony is $300,000 per year; using 22%, it is $264,000.  At 25%, the net after tax split stays at 53%-47%; at 22%, it stays at 58%-42%.  However, in this case at 22%, the payor has $418,416 net after tax cash flow per year and the recipient has $304,668 or $113,748 less ($9,479 per month).  At 25%, the difference is only approximately $41,748 ($3,479 per month).

If we use $1,500,000 for the payer and $50,000 for the recipient:  using 25%, the rule of thumb alimony is $362,500 per year; using 22%, it is $319,000.  At 25%, the net after tax split stays at 53%-47%; at 22%, it stays at 58%-42%.  However, in this case at 22%, the payor has $481,088 net after tax cash flow per year and the recipient has $359,664 or $121,424 less ($10,119 per month).  At 25%, the difference is only $44,424 ($3,702 per month).

If we use $2,000,000 for the payer and $50,000 for the recipient:  using 25%, the rule of thumb alimony is $487,500 per year; using 22%, it is $429,000.  At 25%, the net after tax split goes to 52%-48%; at 22%, it stays at 58%-42%.  However, in this case at 22%, the payor has $636,672 net after tax cash flow per year and the recipient has $469,668 or $167,000 less ($13,917 per month).  At 25%, the difference is only $49,764 ($4,147 per month).

So it seems clear that the rationale that the higher the income, then lower the percentage for the rule of thumb doesn’t really add up.  One reason is that the marginal tax rate is 35$ for income between $207,151 and $518,400.  After $518,400, it goes up to 37%.  That said, virtually all of the above scenarios, basically everything $518,400 and above fall into the highest tax bracket.  I think that most people who propose a variable rule of thumb wouldn’t apply the lower rate to $500,000, $600,000, $700,000 – maybe even not until income more than $1,000,000.  (And yes I understand that there may be a difference when discussing effective rates but query whether it is enough to justify using a lower percentage for the “rule of thumb.”)

Also, looking at the differences from a percentage basis is misleading as the income goes up.  While the use a 22% rule of thumb provided a consistent 58%-42% across the board (I did not know this until doing the calculations for this blog, and quite frankly was surprised by it and it almost blew my theory), looking at the percentages is misleading.  You actually have to look at the net after tax dollars to gauge the fairness or unfairness – especially if factor #4 is really a consideration.  Again, what the courts and practitioners should do is actually analyze the alimony factors.  But if people are still going to use these “rules of thumb” as a guide, care should be taken to show where the net after tax cash flows shake out for each party to see if result of the formula is fair and resembles in some way the goals and objectives of the alimony statute.

Eric S. Solotoff, Partner, Fox Rothschild LLPEric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric is resident in Fox Rothschild’s Morristown, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973) 994-7501, or esolotoff@foxrothschild.com.

A recent unpublished (non-precedential) decision, Steffens v. Steffens, suggests that the answer to the above question is “no.”

In Steffens, the Wife sought to set aside a prenuptial agreement, arguing that it was unconscionable, in large part because the alimony payments she was to receive under the agreement would not allow her to maintain the marital lifestyle.  At trial, the Court excluded evidence of the marital lifestyle.  On appeal, the Wife argued that the Court erred by excluding such evidence which, she claimed, should have been a part of the analysis when the Court decided whether enforcement would leave her “without a means of reasonable support.”

The trial court, however, had good reason to exclude this evidence, because the parties had specified in the prenuptial agreement itself that neither of them would have the right to assert a claim against the other to maintain the marital standard of leaving.  Therefore, the trial court only considered the question of whether the Wife would have a means of “reasonable” support if the agreement were enforced – not whether she would have a means of support that would enable her to continue to leave at or reasonably close to the marital lifestyle.  Put another way, she made her deal as to the specific amounts of support she would be entitled to in the event of a divorce at the time of the prenuptial agreement, and because she had means of support vis a vis the agreement and other financial resources, the Court enforced; it did not matter that her lifestyle would be diminished.  The Appellate Division found that this analysis was proper.

Interestingly, the Appellate Division touched upon the relatively recent amendments to the New Jersey statute related to prenuptial agreements, noting that for agreements executed after the effective date of the amendments (June 27, 2013), the question of whether a spouse will be left with a reasonable means of support is no longer relevant.  The prenuptial agreement in Steffen pre-dated the effective date.  However, for later agreements, these amendments make it even harder to set aside prenuptial agreements because those who seek to set them aside can no longer argue that they will be left without reasonable means of support if the agreement is enforced.  Instead, they can only advance arguments about the agreement being unconscionable from inception as a result of lack of full and fair disclosure, involuntariness, or lack of independent counsel.

This recent decision serves as food for thought for anyone considering entering into a prenuptial agreement applying New Jersey law.  Absent a future change in the law, the level of fairness of the result of enforcement of the prenuptial agreement matters little, if at all, and as the supported spouse you may have no recourse if the prenuptial agreement leads you to live a dramatically lessor lifestyle post-divorce than you enjoyed during the marriage.

headshot_diamond_jessicaJessica C. Diamond is an associate in the firm’s Family Law Practice, resident in the Morristown, NJ, office. You can reach Jessica at (973) 994.7517 or jdiamond@foxrothschild.com.

The recent unpublished decision of Gormley v. Gormley serves as a good reminder for four polestar issues in matrimonial litigation, below, as well as to put on your best evidence in an effort to ensure that the trial court enters the appropriate decision and, ultimately, to not stop litigating up the ladder when it fails to do so:

  • Imputation of income to a party who receives Social Security Disability Income;
  • Imputation of income to a party who is voluntarily under or unemployed;
  • Determining the need for support;
  • Deviating from the Child Support Guidelines particularly in a case where the child does not have a relationship with the non-custodial parent

Relevant to each issue are the following facts:

  • The parties married in 2000, separated in 2012 and the divorce complaint was filed by Plaintiff/husband in 2015.  They had one child born in 2004, who did not have a relationship with Plaintiff at the time of trial in or around 2018.
  • Defendant/wife received Social Security Disability (SSD) benefits due to her diagnosis of Multiple Sclerosis, which diagnoses she had since prior to the parties’ marriage.  Defendant was determined disabled by the Social Security Administration (SSA) in 2002 and was out of the workforce since that time.
  • Plaintiff earned $150,000 gross per year in the two years leading up to the divorce trial through his commission-based employment, but then purposefully reduced his hours in order to study psychology and parental alienation, and to prepare for trial.

Based upon these facts, the trial court imputed income to Defendant because she did not produce further evidence of her disability beyond her SSA determination and testimony, and because of the court’s observations of Defendant during trial; did not impute income to Plaintiff for his admitted voluntary underemployment and, rather, used a six-year average of his pre-separation income – which was five years prior to trial – and totaled less than $100,000 per year as compared to $150,000 he earned in the two years leading to trial; reduced Defendant’s budget without any reasoning on the record; and, entered child support deviating from the New Jersey Child Support Guidelines primarily because Plaintiff did not have a relationship with the child.  All of the foregoing was subject to a Motion for Reconsideration that the trial court denied and then became subject of this appeal, which lead to reversal, remand and vacating those aspects of the decision.

The Appellate Division reviewed each area of the trial court’s decision and correctly found flaws in all, as follows:

  • Imputation of income to a litigant who receives Social Security Disability Income – Golian v. Golian remains the controlling case on this issue and holds that the litigant who was declared disabled is subject to a rebuttable presumption that he/she is unable to work, and the opposing party then bears the burden to rebut that presumption.  The court in the instant matter confirmed that to the extent the trial court decision of Gilligan v. Gilligan has contrary holdings to Golian, Golian prevails.  Specifically, Gilligan requires the disabled party to first produce more evidence beyond the SSA disability determination before the adverse party is required to rebut the presumption.   In Gormley, the Plaintiff failed to rebut Defendant’s disability and, thus, the Appellate Division found the the trial court erred in imputing income to Defendant based upon its own observations of Defendant.
  • Imputation of income to an underemployed litigant – The Appellate Division again found error in the trial court’s decision, this time by calculating Plaintiff’s income for purposes of paying support using a six-year, pre-separation average – ending five years prior to trial – and ignoring his last two years of income prior to trial, when failing to consider whether Plaintiff was earning at his full capacity.  The Appellate Division, citing to Lynn v. Lynn, specifically noted that it is a fatal error to leave out the amount of the payor’s income leading to the trial when averaging income to determine an ability to pay support.  Thus, it is an obvious error to average income over the six years prior to separation, particularly when that time period was five years prior to trial, and to ignore his income for the two years leading to trial.
  • Need for Support – In the third error in this matter, the trial court failed to explain why it reduced Defendant’s budget from $7,700 per month for $4,300 per month, which is undoubtedly erroneous and leaves the Appellate Division without a specified decision to review.  This issue was remanded (sent back) to the trial court for an explanation as to is calculation for this budget reduction.
  • Deviating from the Child Support Guidelines – To add icing on the cake, the trial court deviated from the Child Support Guidelines because Plaintiff did not have parenting time with the child (noting, however, that prior to the reconsideration decision the trial court did not place any findings on the record as to why it deviated from the Guidelines).  First, the Guidelines include the amount of overnights a parent does/does not have so this should not even be an issue.  Moreover, as the Appellate Division reiterated, the Guidelines allow for deviation when the non-custodial parent spends more time with the child than contemplated in the Guidelines calculation but not in the manner as the trial court ordered in Gormley.  Most Notably, the Appellate Division found error by the trial court’s failure to consider the best interests of the child when deviating from the Guidelines, which is arguably the material consideration when determining a child support award and, frankly, when evaluating any child-related issue.

Gormley serves as another lesson regarding the importance to lay out all relevant facts for the trial court to absorb and have at the ready to incorporate into a decision (including in pre- and post-trial memoranda) and to not stop litigating upon receipt of a poor decision when the trial court has provided the groundwork for a successful appeal.

Lindsay A. Heller is an associate in the firm’s Family Law practice, based in its Morristown, NJ office. You can reach Lindsay at 973.548.3318 or lheller@foxrothschild.com.

Lindsay A. Heller, Associate, Fox Rothschild LLP