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.