Ah, retirement.  Your golden ticket.  You have visions of laying out on the beach, taking mid-day naps and going fishing with your grandchildren.  Sometimes, it’s the only thing that gets you through your long, arduous work day.  You plan, you scrimp, and you save; all in anticipation of that glorious moment where you walk out of your job for the last time.

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But, if you are a payor of alimony, those visions become more illusory, maybe even just wishful thinking.  Many considerations may come in to play; considerations that likely are not in that employee handbook you may have consulted when setting up your 401(k).  For example, will you be permitted to reduce your alimony obligation upon retirement?  How do you create a retirement savings plan that may need to take into account continued alimony or equitable distribution payments to your former spouse?

On the flip side, if you are the spouse receiving alimony, you need to plan for the potential that your income may be drastically reduced upon retirement due to the cessation of alimony payments.

Unfortunately, many of the issues surrounding retirement are not addressed at the time of the divorce, leading to potentially protected litigation regarding the finer factual disputes as to the retiring parties’ respective incomes and financial circumstances.  Part of the reason for that is that in New Jersey, there is a lack of real guidance as to when a paying spouse can retire in good faith and reduce or terminate their alimony payments.

In a recent reported decision, Krupinski v. Krupinski, the New Jersey Appellate Division tackled some of these muddy issues surrounding alimony and retirement head on.  Namely, what effect does a payee spouse’s receipt of pension benefits have on the payor spouse’s obligation to pay alimony?

In Krupinski, the parties were married in 1968, and separated twenty years later on October 24, 1988. The husband was a public school teacher at the time the parties separated in 1988, earning an annual salary of $45,798.28. He was enrolled in the Public Employment Retirement System (PERS). With respect to the equitable distribution of defendant’s pension benefits, Paragraph 14 of the Property Settlement Agreement (PSA) provided as follows:

It is agreed that at such time as the Husband starts to draw his pension, the Wife shall be entitled to one-third of each of the periodic pension payments made to the Husband. The Husband further agrees to execute such qualifying domestic relations order [QDRO] as may be necessary to direct the organization administering the pension to make the Wife’s one-third share of each pension payment directly to the Wife.

The husband was sixty-four years old when he retired on April 1, 2010 and he began receiving pension benefits on May 1, 2010, triggering the wife’s right to receive her share of the PERS pension benefit, per the parties’ PSA.

A fact found to be of notable importance by the Appellate Division was that following the divorce, the husband attained as Masters Degree, and was therefore elevated to school administrator. He ultimately retired with a pension based upon a salary of $132,000; nearly three times his salary at the time of the divorce.

In light of the above, the husband filed his motion to terminate alimony in August 2012. The record before the judge in 2012 showed that after plaintiff began receiving her share of defendant’s pension benefits, her annual gross income increased from $18,282 in 2009 to $40,734 in 2010, when she began receiving benefits.

Without holding an evidentiary hearing, the Court denied the husband’s motion for termination of alimony.  The husband’s appeal followed.

The Appellate Division found that the trial court erred by denying the husband’s application to terminate alimony: “Specifically, the court must discern what part of the $1,871 monthly pension benefits plaintiff has been receiving since defendant’s retirement in 2010 is attributable to defendant’s post-dissolution efforts, and thus may be considered income to plaintiff for purposes of determining alimony, outside the bar imposed in N.J.S.A. 2A:34–23(b).”

In so finding, the Court agreed with the husband’s argument that the trial court was required to address the fact that  the husband’s “pension benefits increased significantly as a result of his post-divorce efforts to continue his education and training, which led to his promotion to high school administrator [and] [t]hus…the motion judge was required to identify which portion of his pension shared by plaintiff was a joint effort of the parties during the marriage, and which part was due to defendant’s post-divorce efforts.”

As an aside, the Appellate Division heavily relied upon the case of Barr v. Barr, 418 N.J.Super. 18, 41 (App.Div.2011) – a case in which I was involved with writing the appellate brief – wherein the Court ruled: “[T]here are some extraordinary post-judgment pension increases that may be proven to be attributable to post-dissolution efforts of the employee-spouse, and not dependent on the prior joint efforts of the parties during the marriage. In such instances, these sums must be excluded from equitable distribution and the application of the coverture fraction may be insufficient to accomplish this purpose.”

The Appellate Division therefore concluded that the trial court must establish a discovery schedule, following which the trial court is to confer with counsel to determine whether there are material issues of fact in dispute warranting an evidentiary hearing.

It is also important to note that the new New Jersey alimony statute provides extensive language addressing a retirement scenario and, as a threshold matter, alimony may be modified or terminated upon the prospective or actual retirement of the payor spouse. There is now a rebuttable presumption that alimony terminates once the payor spouse reaches full retirement age (which can be set to a different date based on a showing of “good cause”).  The law then provides several factors for a court to consider in determining whether the rebuttable presumption can be overcome.  For more information about the changes to the alimony laws, you can find Robert Epstein’s blog on the issue here and the Family Law Altert by Eric Solotoff and Robert Epstein here.

Even with the new alimony laws now in effect, one of the my main takeaways from the case is that retirement should be addressed, to every extent possible, at the time of the divorce.  Spending some extra time during the divorce on these issues may ultimately avoid  protected litigation upon retirement as occured in the Krupinski’s case.

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Baer, Eliana T.Eliana T. Baer is a frequent contributor to the New Jersey Family Legal Blog and a member of the Family Law Practice Group of Fox Rothschild LLP. Eliana practices in Fox Rothschild’s Princeton, New Jersey office and focuses her state-wide practice on representing clients on issues relating to divorce, equitable distribution, support, custody, adoption, domestic violence, premarital agreements and Appellate Practice. You can reach Eliana at (609) 895-3344, or etbaer@foxrothschild.com.

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