We see it all of the time. The support (alimony and child support) obligor’s income is made up of multiple components – typically salary, bonus and/or deferred compensation. In cases where the bonus/deferred comp makes up only a small portion of the total yearly income, you usually wont see too much fighting about what the income to use for support purposes should be. On the other hand, when the majority of the income comes from bonuses and/or deferred compensation, that’s were the fighting starts. Sometimes, the question is simply one of timing – i.e. how should the support be paid when a bulk of the income comes in a lump sum either once or a few times per year. They payor often wants to pay as they get the income – meaning- paying base support on his/her salary, and then paying a percentage or amount of the additional income as support when it comes in. On the other hand, the recipient wants the steady, reliable monthly support because their mortgage and other bills aren’t variable.
In these cases, the fight also turns to whether the income above the salary varies greatly from year to year. If a court adjudicates a case like this, the judge will usually compute the payor’s average income and then fix the support in a monthly or weekly amount. Often, where these is some level of trust, the recipient wants to share in the upside when income is up and the payor wants the other party to share in the downside when income is down, it is not unusual for their to be a base amount of support based upon the salary (or some agreed upon base) and then supplemental support often based calculated as a percentage of the bonus/deferred comp.
At other times, the payor takes the position that support should only be based upon the base salary and/or less consideration should be given to the additional income. This seems to be what happened in the unreported (non-precedential) Appellate Division decision released on December 2, 2020 in the case of T.J. v. M.J.
In that case, the parties divorced after a 27 year marriage. The husband’s total annual compensation during the last five years of the marriage averaged just over $1,170,000. His compensation at Goldman Sachs included a base salary of $400,000, a bonus, which in the last two years of the parties’ marriage averaged over $450,000 per year, and restricted stock units. The wife, who was a CPA but stopped practicing as an accountant in 1988, was imputed $40,000. As to marital lifestyle, the court found that the wife was credible and that the husband was not – and that to maintain her marital lifestyle, she would need $13,000 per month. To that, the court added $4,000 per month finding that the parties had regularly saved money during the marriage. Accordingly, the total monthly alimony award was $17,000. Parenthetically, the husband’s trial position was that alimony should only be $4,500 per month or less than 5% of his gross income. Despite the fact that he was going to have substantially more net income per year more than the wife (more than six figures), the husband appealed. The Appellate Division affirmed the trial court’s award.
The Appellate Division synthesized part of the husband’s argument as follows:
Plaintiff spends considerable time arguing that the family court did not appropriately consider his ability to pay alimony. In making those arguments, he focuses on his base salary of $400,000 per year. He contends that if you considered just his base salary and you assume that he pays forty percent in taxes, he has a monthly income of $20,000. That is, $400,000 less forty percent
equals $240,000, divided by twelve equals $20,000. He argues that it is unfair that he should have to pay $17,000 of that to defendant.
He also argued that making him pay through a wage garnishment violated the law. Specifically, he contended that he is paying eighty-five percent of his monthly net take-home pay to the wife which he argues causes the garnishment to be a violation of 15 U.S.C. § 1673, which establishes the maximum allowable garnishment level as sixty-five percent of an obligor’s disposable earnings. The Appellate Division disagreed noting:
The flaw in plaintiff’s argument is that he completely ignores his annual bonus. 15 U.S.C. § 1672(a) defines “earnings” to include bonuses. The undisputed evidence at trial established that in 2018, 2017, and 2016 plaintiff’s annual bonuses were $505,000, $418,950, and $486,674 respectively. As already noted, plaintiff receives other forms of compensation and there was substantial credible evidence supporting the court’s finding that plaintiff’s annual income exceeded $1 million. The substantial credible evidence amply supports that plaintiff had the ability to pay alimony in the amount of $17,000 and the garnishment did not violate 15 U.S.C. § 1673.
Now, the alimony statute also requires the court to consider the investment income that can be earned from the equitable distribution, which in this case was apparently substantial (though the exact amount was not disclosed in the opinion.) Quite frankly, this factor is often honored in the breach and is not usually specifically considered. In this case, the Appellate Division noted:
In making his arguments concerning what defendant might earn, plaintiff ignores the substantial investment income he would be able to earn. The family court was clearly aware of the assets that the parties had accumulated during their marriage. Accordingly, we discern no error or abuse of discretion in the family court’s rulings on alimony.
I have heard this rationale a lot – i.e. that the payor has similar ability to earn investment income on his/her share of the equitable distribution. That, of course, begs the question of why this factor is even in the statute if courts typically ignore how potential investment income reduces the recipient’s need.
Either way, what is clear is that the argument requesting a court to focus substantially on the salary, as opposed to the total income, is not likely to be a winner.
Eric 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 firstname.lastname@example.org.