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Divorces involving a spouse in the military generally involve unique issues.  In the recently published decision of Fattore v. Fattore, the Appellate Division held that the trial court cannot replace, “dollar for dollar”, an ex-spouse’s benefit from a military pension that was lost after the military spouse elected to receive disability benefits.  Doing so is against Congress’ intent to omit such disability benefits from veteran retirement pay that is otherwise subject to equitable distribution.  However, the trial court may treat the lost pension benefits as a change in circumstances warranting alimony and/or an alimony modification for the spouse who lost his/her share of their ex-spouses military pension.  This is true even when there is an alimony waiver as part of the parties’ divorce, which is what the parties had in Fattore.  After all, the family court is a court of equity and so we should expect, and hope for, some sort of an equitable result.

Okay, that was a mouthful!  It’s not often that our New Jersey family law cases explore military law, Congressional intent and/or United States Supreme Court cases.  In order to better understand the complexities here, and delve into that Federal law, let’s break this down with the relevant facts:

  • When the parties divorced in 1997, they both agreed to waive alimony from the other.  They distributed the equity in the marital home.  They also divided their pensions in equitable distribution, with each party being entitled to 50% of the marital portion of each other’s pension.  Plaintiff/ex-wife had a pension through her employment as an operating nurse and Defendant/ex-husband had a pension through his service in the Army National Guard. Defendant was still serving in the Army National Guard at the time of their divorce.
  • The parties obtained a Qualified Domestic Relations Order (“QDRO”) following their divorce, which is the Order that allows for distribution of a retirement account in the event of a divorce without taxes and penalties typically associated with retirement account withdrawals.
  • In 2002, Defendant became disabled and, accordingly, was forced into retirement from the Army. Upon becoming disabled, Defendant was authorized to collect his pension and Social Security benefits.  After collecting his pension for some time, Defendant elected to receive tax-free disability benefits.  Defendant’s receipt of these disability benefits eliminated Plaintiff’s share of the Army pension.
  • In the meantime, Plaintiff was unaware that Defendant’s pension was in pay status, while Defendant believed that Plaintiff was collecting her proper share.  Plaintiff learned that her share of the pension was forfeited after she contacted the Army offices regarding the status of her payments that she never received.
  • In 2016, Plaintiff filed a Motion seeking compensation for her equitably distributed share of Defendant’s pension that she lost by virtue of Defendant collecting disability.  The trial court held that Defendant must pay Plaintiff a tax-free equitable distribution payment of $1,800 per month pending  a pension appraisal that the trial court ordered to determine the value of the Army pension at the time of the parties’ divorce.  Notably, Plaintiff sought alimony in lieu of the pension payment but the trial court denied that request, holding that alimony does not replace equitable distribution.
  • Three months after the trial court’s decision, but before the Appellate Division decision, the United States Supreme Court issued a decision in the matter of Howell v. Howell, based on an Arizona family law case.  To understand Howell, we must first know that Congress had previously enacted USFSPA, which permits state courts to equitably distribute “disposable retired pay” except for such retirement pay that is waived because of disability benefits.  That waived pay is excluded from equitable distribution.  This is the exact issue faced by the parties in Fattore.
  • The Supreme Court in Howell, as cited by Fattore, held that “a military pension, which has been equitably distributed, is not a vested right, but rather, a contingent benefit where the pension is later reduced as a result of a veteran’s disability and”

 [t]he state court did not extinguish (and most likely would not have had the legal power to extinguish) that future contingency. The existence of that contingency meant that the value of [the wife’s] share of military retirement pay was possibly worth less—perhaps less than [the wife] and others thought—at the time of the divorce.

  • The Supreme Court in Howell further found that state courts cannot overcome Congress’ intent to omit disability benefits from disposable retirement pay.  In other words, to give the spouse “dollar for dollar” what he/she lost from the pension due to the military spouse’s disability benefits is contrary to Congress’ intent when enacting USFSPA.

Now that we have the background, let’s talk about the Appellate Division’s holding:

Close up of wooden gavel isolated on white background

  • Following Howell, which the trial court did not have at the time it decided this case, the Appellate Division reversed the decision because the trial court’s order for a pension evaluation and, seemingly, “dollar for dollar” replacement of the amount Plaintiff lost from Defendant’s pension was contrary to USFSPA and Howell.
  • The Appellate Division rejected potential remedies of (1) contractual enforcement/indemnification because the parties did not have such an agreement; (2) offset or reallocation of equitable distribution because of the amount of time that passed and, importantly, “equitable distribution is final and not subject to a change in circumstances”; and (3) res judicata because the Supreme Court had already issued an opinion in the case of Mansell, holding that a veteran’s retirement benefits lost due to collecting disability benefits are not disposable retired pay that is subject to equitable distribution.
  • Ultimately, the Appellate Division held that an alimony award may be the appropriate remedy notwithstanding the parties’ alimony waiver at the time of their divorce.  In order to get around this waiver, the Appellate Division cited prior case law standing for the proposition that Family Part judges have “a broad supervisory role” to determine whether a divorce agreement is fair, and that Family Part judges have “greater discretion when interpreting such agreements”.  The Appellate Division also noted the parties’ duty of fairness to each other, which is separate from the judge’s duty to assure fairness.  The Court did not stop there – it continued by citing to the parties’ income disparity at the time of their divorce (with Defendant earning 34% more than Plaintiff) and the fact that Plaintiff gave “valuable consideration” in exchange for the alimony waiver.  Notably, the Court stated:

[T]he unforeseeable loss of the bargained for pension benefit was a substantial and permanent change in circumstances, which invalidated the waiver.  Upholding the alimony waiver in these circumstances would be wholly unfair.

While there is a lot to digest from this opinion, the security it offers is something special about the Family Part being a Court of Equity.  Of course, the military spouse who thinks he/she has an alimony waiver may not feel so secure.  It therefore follows that this decision provides good practice tips for divorce matters with spouses in the military – Rather than going with the typical division of retirement benefits by way of QDRO, we may want to consider an offset in equitable distribution that avoids having the distribute a military pension and, thus, the potential loss to the non-military spouse.

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

The issue of the division of deferred compensation in divorce – more particularly, unvested deferred compensation, is often one that is hotly disputed.  This is in part because there is not a lot of case law on the issue.  The case law is clear that deferred compensation (eg. stock options, restricted stock, RSUs, REUs, etc.) granted during the marriage, or even shortly after the date of complaint but for efforts that occurred during the marriage are subject to equitable distribution.  The fights arose regarding whether (1) the deferred compensation should be treated as either income and/or an asset; and (2) if an asset, should they be divided 50-50 or in some other percentage.  In fact, I blogged about this in a piece entitled Deferred Compensation – Income, Asset or Both, back in 2013.  at the time, I said:

If the deferred compensation is not vested and requires continued, post-divorce Complaint service in order for vesting to occur, that is where things get more difficult.  I have seen some simplistically argued that anything granted before the Complaint gets equally divided no matter when it vests.  More recently, I have seen a greater use of some type of calculation (coverture fraction) used to recognize the post-complaint service of that spouse.  Many believe this to be the fairer way of equitably dividing deferred compensation.

There hasn’t been much case law on this issue since that time, though a case that I will discuss later, suggests that the language of the documents granting the deferred compensation is key,  That said, late in 2018, we got some more guidance from the Appellate Division.  Specifically, in the reported (precedential) opinion in the case of M.G. v. S.M. decided on December 26, 2018, Judge Mawla gave new guidance with regard to the distribution of deferred compensation, again pointing to the importance of the plan documents.

In M.G., the plaintiff worked as a  principal consultant for a large multi-national corporation. Beginning in August 2003, and every August thereafter until 2010, plaintiff received a stock award from his employer. Plaintiff received 490 shares in 2003 and those years began to vest at a rate of 174 shares per year commencing in 2011. A similar vesting schedule was applied to the other grants.  Note that in my experience, this is an unusual vesting schedule.  That is, it is unusual, in my experience, for their to be  a 7 year gap before deferred compensation vests.  Typically, I have seen deferred compensation serially vest, over three or five years, starting with the year following the grant.  What that means is that if 600 shares of restricted stock were granted in 2018, then they would vest 200 shares each in 2019, 2020 and 2021.  Other times, you see shares cliff vest in 3 or 5 years.  What that means is that if 600 shares were granted in 2018 that vest in 3 years, all 600 shares would vest in 2021.  This is important because the argument you most often heard from the titled spouse is that the because the shares will vest post divorce allegedly based upon post divorce efforts, that they should be distributed in a less than 50-50 percentage.

Back to M.G.  At the date of complaint, only 3 of 8 awards were fully vested.  At trial, plaintiff offered into evidence plan documents that stated:

Stock-based compensation is a key component of our reward program . . . because it provides an ownership stake in the company’s success for employees who contribute over the long term. To preserve this core element of our culture, in July 2003, [we] decided to grant employees stock awards, which represent the future right to receive shares of . . . stock when a vesting requirement is satisfied.

. . . .

At [our company] we believe that employees who become shareholders maintain a long-term, vested interest in sustained individual excellence and the overall success of the company.

. . . .

Each eligible employee’s annual stock award grant is based on his or her impact, level, and country.

In my experience, the plan language for most plans is much more generic than this.  However, in this case, the plan language supported the husband’s position that his continued employment was required for him to receive the value of the options.  Judge Mawla noted:

Plaintiff’s unrefuted testimony was clear that post-complaint efforts were necessary to cause the stock, which had not vested as of the date of complaint, to become payable. The plan documents and literature adduced in evidence at trial, and attached to plaintiff’s post-judgment motion, stated vesting would occur dependent upon plaintiff’s post-complaint performance. We reject defendant’s argument that “performance” in this case required plaintiff merely to continue living and go to work. Nothing in the record supports this assertion. Indeed, all of the objective evidence in the record demonstrates much more was required of plaintiff as a high-level corporate employee in a highly competitive industry.

As we noted, plaintiff’s employer described the stock plan as a “reward program . . . because it provides an ownership stake in the company’s success for employees who contribute over the long term.” Company literature explained the stock grants were to “maintain a long-term, vested interest in sustained individual excellence and the overall success of the company.” This language does not suggest the stock would vest through mere continued employment without consideration of plaintiff’s level of proficiency. Nor does this language suggest the stock awards were for work already performed.

As a result, Judge Mawla held that the trial judge misapplied his discretion because in the absence of any evidence or testimony to the contrary, he concluded the stock was earned for work performed during the marriage.  Judge Mawla rejected both the use of a coverture fraction or applying the concept of “marital momentum” to address the equitable distribution of the unvested stock awards noting, “In instances where an asset has been granted after the date of complaint, these principles are of little help because they presume a marital component attributable to the asset in question.” (emphasis added).

In determining how to divide such assets, Judge Mawla modified a mechanism found in a case out of Massachusetts.  Specifically, the court adopted the following rubric:

(1) Where a stock award has been made during the marriage and vests prior to the date of complaint it is subject to equitable distribution;

(2) Where an award is made during the marriage for work performed during the marriage, but becomes vested after the date of complaint, it too is subject to equitable distribution; and

(3) Where the award is made during the marriage, but vests following the date of complaint, there is a rebuttable presumption the award is subject to equitable distribution unless there is a material dispute of fact regarding whether the stock, either in whole or in part, is for future performance. The party seeking to exclude such assets from equitable distribution on such grounds bears the burden to prove the stock award was made for services performed outside of the marriage. That party must adduce objective evidence to prove the employer intended the stock to vest for future services and not as a form of deferred compensation attributable to the award date. Such objective evidence should include, but is not limited to, the following: testimony from the employed spouse; testimony of the employer’s representative; the stock plan; any employer correspondence to the employed spouse regarding the award; and the employed spouse’s stock plan statements from commencement of the award and nearest the date of complaint, along with the vesting schedule.

In this case, the court noted that the unvested stock was either in whole or in part unattributed to the marriage based upon the plan documents and testimony at trial.

But before people go too wild about this decision, and simply say that all non-vested deferred compensation is the property of the titled spouse, they should really go back to square one and look at the grant documents, because many, if not most, are not like those in M.G.  In fact, in an reported case last year entitled K.C. v. D.C., a review of the plan documents lead to an entirely different result.

Rejecting the husband’s argument about his post-complaint efforts being necessary to receive the deferred compensation, the court held that the RSUs awarded were “subject to equitable distribution and shall be equally divided,” observing defendant provided no evidence to support his theory that the award was for future performance.  Like in M.G., the generic purpose of the plan was:

to aid the Company . . . in recruiting, retaining and rewarding key employees . . . of outstanding ability and to motivate such employees . . . to exert their best efforts . . . by providing incentives through the granting of Awards. The Company expects that it will benefit from the added interest which such key employees . . . will have in the welfare of the Company as a result of their proprietary interest in the Company.

Different from M.G., however, is the fact that the employee would still get the deferred compensation if they died, became disabled, or were terminated through no fault of their own.  Put another way, no post-complaint efforts were specifically required.  Accordingly, the Court held:

Aside from the generalized aspiration that “key employees” who are granted RSUs will have an enhanced interest in the welfare of Accenture, there is no requirement that the employee meet any performance goals before a batch of RSUs will vest pursuant to the schedule. The only condition for vesting is “continued employment.” Moreover, in the event the employee is no longer employed due to death or disability, all of the RSUs granted, whether vested or not, are transferred to the employee or his estate. Obviously, the transfer of RSUs following death or disability would not be based on future performance.

In sum, all the documentary evidence in the record1 states that such promotional grants are awarded based on performance ratings at the time of the award, in recognition of employees’ efforts, and no document provided to the court states defendant must meet any given performance goal to trigger the vesting of RSUs that are part of the grant. Contrary to defendant’s argument, the record was clear, and fully supported the trial court’s determination that the RSUs were subject to equitable distribution.

So what is the takeaway here.  You need more than just a party’s self serving testimony.  You need the plan documents and the documents seemingly must really require post-divorce exemplary efforts more than just staying employed, in order to exempt the deferred compensation granted but not vested during the marriage.  M.G. does not address the necessary corollary which would be that if the deferred compensation is exempted from equitable distribution, should it not then be considered as income available to pay alimony when it vests?  Seems so but we shall see.

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 the wake of the September 10, 2014 amendments to N.J.S.A. 2A:34-23, the legislature clarified the circumstances under which an alimony payor’s obligation can be modified or terminated due to the obligor’s intended or actual retirement.  Under the statute as amended, when faced with an obligor’s application to modify or terminate alimony due to good faith retirement, the Court must consider the question of the alimony recipient’s ability to save for his or her own retirement.  As discussed In the new unpublished (non-precedential) Appellate Division decision Stansbury v. Stansbury, this question is given much greater weight in pre-Amendment cases (i.e. in cases that were decided or agreements that were entered into prior to September 10, 2014).

For post-Amendment cases, there is a rebuttable presumption that if a payor retires at “good faith retirement age” (defined as the age at which (s)he would be entitled to receive full Social Security Retirement benefits), then alimony shall terminate unless the recipient can show by a preponderance of the evidence and for good cause shown that alimony should continue (either in full or in a reduced amount).  In making that determination, the court must consider eleven (11) factors, one of which is the ability of the recipient to have saved adequately for retirement.  See N.J.S.A. 2A:34-23(j)(1).  This factor is listed along with the ten other factors, in no order of importance, with no emphasis whatsoever.

But for pre-Amendment alimony awards (like the Stansburys’), the statute does not just list the obligee’s ability to save for retirement as one of many on a list of factors to be balanced and considered.  Instead, it absolutely mandates and even elevates this criteria first and foremost among the others:

When a retirement application is filed in cases in which there is an existing final alimony order or enforceable written agreement established prior to the effective date of this act, the obligor’s reaching full retirement age as defined in this section shall be deemed a good faith retirement age.  Upon application by the obligor to terminate or modify alimony, both the obligor’s application to the court and the obligee’s response to the application shall be accompanied by current Case Information Statements or other relevant documents as required by the Rules of Court, as well as the Case Information Statements or other documents from the date of entry of the original alimony award and from the date of any subsequent modification.  In making its decision, the court shall consider the ability of the obligee to have saved adequately for retirement as well as the following factors in order to determine whether the obligor, by a preponderance of the evidence, has demonstrated that modification or termination of alimony is appropriate:

(a)  The age and health of the parties at the time of the application;

(b)  The obligor’s field of employment and the generally accepted age of retirement for those in that field;

(c)  The age at which the obligor becomes eligible for retirement at the obligor’s place of employment, including mandatory retirement dates or the dates upon which continued employment would no longer increase retirement benefits;

(d)  The obligor’s motives in retiring, including any pressures to retire applied by the obligor’s employer or incentive plans offered by the obligor’s employer;

(e)  The reasonable expectations of the parties regarding retirement during the marriage or civil union and at the time of the divorce or dissolution;

(f)  The ability of the obligor to maintain support payments following retirement, including whether the obligor will continue to be employed part time or work reduced hours;

(g)  The obligee’s level of financial independence and the financial impact of the obligor’s retirement upon the obligee; and

(f)  Any other relevant factors affecting the parties’ respective financial positions.

N.J.S.A. 2A:34-23(j)(3) (emphasis added).

In Stansbury, the Defendant had a permanent alimony obligation but, at the age of 72 (well past good faith retirement age), he was looking to retire and made the appropriate application, which the Plaintiff opposed.  Eliciting certain facts from the parties’ respective certifications that accompanied their motions (and, reasonably, hoping to avoid the time and expense of a trial for two litigants with modest means and of a senior age), the judge addressed each of the factors listed above, including the question of the Plaintiff’s ability to save for retirement.  She found that – based on what the Plaintiff certified about a recent health issue and about her income and budget set forth on her Case Information Statement – it was “unlikely” that the Plaintiff had been able to save for retirement.  Based on this assumption and on the remaining factors, the trial judge declined to terminate the Defendant’s obligation and instead reduced it.

The Defendant appealed, arguing that – having failed to conduct a hearing – the trial judge did not have sufficient evidence to make the assumption that the Plaintiff did not have the ability to save for retirement.  In fact, on the question of what had happened to the Plaintiff’s share of Defendant’s pension awarded to her in equitable distribution, the trial judge had essentially taken a guess that the Plaintiff had liquidated her share of that marital asset and spent it while she was not working due to her recent illness, or else re-invested it.  There was no testimony in the record from the Plaintiff herself as to what she had done with this money.  The Appellate Division found that the trial judge’s failure to make findings after a hearing as to the issue of the Plaintiff’s ability to save for retirement was an error, and remanded the matter to the trial court, instructing that:

The hearing should require plaintiff to come forward with evidence that she saved for retirement to the extent she was able to do so, and how plaintiff disposed of her share of defendant’s pension.

The case makes clear that for pre-Amendment alimony awards in particular, trial judges not only have to consider this factor, but must give it great weight.   Therefore, litigants opposing retirement applications in pre-Amendment cases should be prepared to address this in great detail.   Additionally, the Appellate Division’s instruction to the trial court quoted above in the Stansbury case certainly suggests that whether an obligee has actually saved for retirement is not the important thing that courts must consider in these applications, but rather whether the recipient COULD HAVE saved for retirement based on his/her income, assets inclusive of equitable distribution, and the alimony received.  In other words, fiscal irresponsibility on the part of the obligee shouldn’t bar the obligor from making a successful application.

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.

Going through a divorce is one of life’s greatest disruptions. Whether you are resistant to the divorce and it feels like a tragedy or you are initiating the divorce and it feels like an escape, there is no doubt that divorce creates a massive change in your family life, finances and day-to-day routine.  At its core, divorce is the process of going from “we” to “me” which can be daunting, exhilarating or something in between. Many clients going through a divorce ask: when can I start dating and how will it affect my divorce?  The answer is never black and white, as dating during a divorce can have its pros and cons.

people holding sign pros

  1. Dating is a much needed distraction during divorce

For all parties involved, the process of getting divorced is difficult. Divorce can turn your life upside down, add new stressors to an already hectic life and create a financial burden that wasn’t there before. Your spouse, the court (and yes, sometimes the lawyers) can at times be frustrating. It is perfectly normal to want to forget about your divorce and take a break from it, even if it’s just for an evening. Dating can be a much needed “vacation” from the reality of divorce.

Many divorcing couples do not go from marital bliss to divorce court overnight, and it may have been a while since you’ve had a positive romantic experience. Dressing up for a night on the town with an uncomplicated new partner is sometimes just what the doctor ordered. Spending time with a new, exciting person can be a wonderful distraction from the messy, tortured history of your marriage.  This breath of fresh air can give you the reprieve from the drama that you need to forge ahead in your divorce.

  1. Taking control of your dating life is empowering and can boost self esteem

Divorce can make a person feel unappreciated, undesired and out of control. Whether you did not want the divorce, or you don’t like a decision a judge has made, it can be unnerving to feel like you have a diminished say in what happens in your life. Dating can put you back in the driver’s seat of one area of your life, and provide some semblance of control. The positive benefits of a “clean slate” cannot be understated.  Stepping out with a new partner who finds you desirable and engaging, unburdened by the complications of parenting and finances that can come with a marriage, can work wonders for your mental health and sense of self-worth.  After long periods of battling with your spouse, it can be exceptionally refreshing to spend time with someone who is nice to you! Getting back in the game and feeling pursued and appreciated might be the ego boost you need to power through an unpleasant divorce.

  1. Embracing positivity can set the scene for a rational and amicable divorce

When you are in a bad place mentally, it is difficult not to make emotionally-charged decisions. Strategizing in a divorce based on emotions will position you and your spouse further away from resolution and, in the end, cost you more time and money.  While it may feel good to exact revenge or act out of spite, in the long term, it will likely only make your divorce that much more protracted and painful.

When you are in a good place mentally, you can more easily make decisions based on reason and practicality. You will feel less incentivized to hurt your spouse or be vindictive. In many cases, your approach to the divorce will shape your spouse’s attitudes, after all, no one wants to play the villain, but people are all too happy to take the gloves off when their spouse is already playing dirty. Dating may make you happier, which in turn, will enable you to approach your divorce with a level head and amicable attitude to create a more pleasant experience for all those involved.

holding sign cons

  1. Dating may fan the flames of acrimony between you and your spouse

While dating may make you happier, it might spur feelings of anger, jealousy or resentment in your spouse which will promote an ill-will in your divorce proceedings.  In this regard, you know your spouse best, and can gauge how they will react to you reentering the dating world. If you believe that dating again will cause your spouse to fly off the handle, be warned that it will likely lead to your spouse taking less reasonable positions and being more litigious in your divorce. In this sense, dating can backfire – as you are trying to move on with your life, your spouse may dig his or her heels in further, dragging out the divorce even longer as a result.

  1. Your kids might freak out

If you have children, you should give serious consideration to their thoughts and feelings before you start dating.  Without a doubt, your children’s lives will change drastically as a result of a divorce and they will likely mourn the loss of your family unit.  Do your children hold out hope that you and your spouse will reconcile? Have they (or are they old enough to) express their emotions about the divorce? Do they have the assistance of a family therapist or mental health professional to guide them through this process? All of these things must be considered before you throw another curveball into the family dynamic.

With regards to the legal implications of dating, how involved your new partner becomes with your children may have an effect on a custody battle between you and your spouse.  If custody experts are involved in your case, they will interview collateral contacts (including your new partner) as part of the evaluation and his or her past can affect the outcome of your case! A new partner with a criminal record, substance abuse or certain mental health issues can be a red flag for a custody evaluator (especially if they are around your children a lot) and may impact the custodial issues in your divorce.

  1. (Serious) dating might affect your spousal support

Most people who start dating after a divorce are in no rush for a big commitment, but some find it easier to cope with a divorce by jumping right back into a serious relationship.  You may lose your alimony if you are cohabiting with a partner in a marital-type relationship. Accordingly, you need to remain cognizant of how living with your new partner may affect the amount of alimony you receive in divorce or whether your ex-spouse can make an application to terminate alimony based on your cohabitation after divorce. It is important to note that this is a one-sided consequence. If you are paying alimony, feel free to date to your heart’s content – it won’t affect your obligation to pay your ex-spouse alimony.

__________________________________________________________________

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.

Last week, I blogged about whether you should settle your retirement alimony case and the ingredients that might go into that decision. To be honest, this “why you should or should not settle” question is only the beginning of what you might be facing when you decide it is time to retire and terminate your alimony obligations. There is, of course, also the “where/when/how” of all of it. And that’s quite a nebulous concept if you’re only now beginning to think about your “whys” and whether or not you should even broach the topic. Below, I’ll give you a run-down of the possible scenarios that will at least address the “wheres” and “whens” of your journey.

In my experience, there are several possible ways in which alimony cases resolve: (1) Immediate settlement; (2) settlement following a motion; and (3) a full Court hearing wherein a judge makes a decision as to your continued alimony obligation. Examining each scenario will allow you to put the concept of “settlement” into the context of your particular situation.

(1)         Immediate Settlement: This is the path of least conflict and resistance if your spouse accepts your offer with an eye toward a termination of support. This will, more often than not, begin with a “feeler” letter to your former spouse. The letter may indicate that you are retiring, the date of your proposed retirement, provide some detail as to your financial circumstances, and ask if a termination of alimony would even be considered. Sometimes, the former spouses may negotiate directly with one another, with guidance from an experienced matrimonial attorney throughout.

If successful, this is the most cost-effective and low conflict resolution. The specifics of any settlement would be memorialized in an Agreement and simply filed with the Court, at which point, it would become an enforceable document.

But don’t be mistaken. This path is not for everyone. If you went through a very high conflict divorce, or know you’re dealing with an unreasonable ex-spouse, you may want to skip this step entirely. In the alternative, you may write a letter and the concept of termination may be rejected immediately.

If settlement at this early stage is not successful for whatever reason, you may decide to pursue litigation. That would bring us to scenarios 2 & 3, described below.

(2)         Filing a Motion: To provide some background, when someone paying alimony experiences a change in circumstances (including retirement, other reduction in income, or they believe their spouse is cohabiting etc.), you file what is known as a “Motion”, which is a formal application to the Court. You would be required to submit your current Case Information Statement, Case Information Statement from the time of your divorce, tax returns and a narrative of events leading up to your motion and describing your circumstances along with the motion.

You further file a legal brief describing the case law, including Lepis v. Lepis, which is the seminal support modification case in the state of New Jersey. Under Lepis, an alimony payor is required to file a Motion and establish what is known as a prima facie change in circumstances. A prima facie showing is simply an initial showing (on its face) that demonstrates that circumstances have permanently and significantly changed such that alimony may ultimately be modified.

Several weeks later, you would proceed to Court. This is a formal court proceeding, with oral argument from counsel, but not testimony of the parties, no formal introduction of evidence, etc. In other words, it is not at the point where the Court would conduct a full trial yet based on what has been submitted.

The Court would then review everything and determine if you meet the burden of a prima facie showing. The Court will then move you past what we call “Lepis 1”, or the initial prima facie showing, and enter an order as to whether you should move to a “Lepis 2” analysis – i.e. whether the change is substantial, continuing and permanent. As part of this analysis, the Court may also consider whether there is sufficient reason to award counsel fees to either party in connection with the motion. Because a supported spouse’s financial circumstances may be more precarious than yours, the Court may be inclined to grant counsel fees to equalize the playing field or to provide her an advance for litigation.

During the discovery phase, you are permitted to do a full examination of the other party’s finances to try and substantiate your claim. This includes written discovery, depositions, subpoenas, etc.

Typically following or during discovery and related proceedings the matter may settle. The parties have exchanged the majority of their discovery and the payee spouse, at some point, realizes alimony will end and that some concessions will need to be made. At that point, the parties will come to the table, make a settlement offer which is negotiated or reach a resolution through mediation (sometimes the Court will order the parties to go to mediation).

(3)         Court Hearing:  The matter can sometimes move toward a more contentious conclusion via a court hearing. In that regard, if all possibilities for settlement are expended and the parties have passed the discovery phase, the matter proceeds to a hearing, and the Court will hear testimony, consider evidence and make a determination based on everything before it. It is akin to a trial.

Keep in mind that neither party is obligated to agree to an out of court settlement. But as you can see, settlement at the early stages of the games provides finality without having to subject yourself to the time and effort of full-blown litigation. You also would avoid the counsel fees that go in to the discovery and litigation phases. Of course, having counsel on your side with experience in retirement alimony case will help you reach a conclusion on your terms.

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Eliana T. Baer is a 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

There has been much ado about the new alimony statute. Obligors believe they are now in the driver’s seat when it comes to disposing of their alimony obligations. After all, the statute sends a message that alimony should at least be modified upon reaching full retirement age. Doesn’t it?

On the other hand, recipients believe that the nuances within the new statute provide them with a leg-up in terms of maintaining their alimony awards “as is”. After all, the statute provides that both parties should have been able to save for retirement in the years since the divorce. Doesn’t it?

The truth is, both the obligor and the recipient are correct. The new statute does not provide any bright line rule as to what a court must do when the obligor retires. It provides the Court, instead, with factors to consider and weigh when an obligor brings a retirement application.

It helps to think of your retirement case as if there is an imaginary chef baking a cake. The ingredients and proportions will inevitably change your end result. Likewise, every case has different ingredients and produces a different result. Of course, the chef, i.e. the judge, will also bring certain ideas into the case, that could change the result one way or another depending on the “ingredients” the litigants bring before the Court.

So that brings me to my question: should you settle your retirement case? In a word, maybe.

When I become involved in a retirement case, I tell obligors and recipients alike to think of their matter as a business transaction. Typically, most of the hurt that lingered post-divorce has dissipated. Maybe, the parties have moved on with their personal lives. Most people are ready to engage in a pure cost-benefit analysis to determine if settlement is right for them.

In order to do that in a retirement case, although a bit fatalistic, it’s important to consider the health and life-span of the obligor and recipient. For example, if a retirement application is brought when both parties are 80, a settlement would look quite different than an application brought at age 65.

It’s also important to consider the parties’ respective assets so that a lump-sum buyout can be considered and discussed.

Sometimes it bears repeating that it’s important to remember that it probably does not make sense to spend more money litigating a case in Court than you would have continuing to pay or receive alimony. Because, at that end of the day, even if you believe that you have the best ingredients and proportions, you don’t want to burn the house to the ground just to see if you can get the perfect cake in the end.

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Eliana T. Baer is a 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

Several years ago I did a post on this blog of the same name and then updated it some time later. The list then, as re-compiled below, are things to do if you really don’t want to settle your case.  As I said before, everybody is entitled to their day in court if they want it, but what if there is nothing that can be gained from it?  What if you can’t win?  What if forcing the matter to trial will create other legal issues? What if trial will cost tens of thousand of dollars or more?  Here is the list:

22. Your new significant other is a lawyer, they know better than your lawyer.  Of course they know better, you have been completely honest with them.  Of course they aren’t telling you what you want to hear – why would they do that?  And when they are speaking to their matrimonial partner about your case, they are giving them all of the facts, context and subtext of the case.

21. Every case is the same, so make sure that you demand the same deal that your hairdresser, or cousin’s friend, heard that that their cousin’s friend got.  While this information, if true, may be food for thought or points of discussion, ignore the potential differences inherent to each matter and demand that you get the same, even if it bears no relation to the appropriate resolution of the case.

20.  Pretend that you are Bill Murray in Groundhog Day, and keep having the same conversation over and over, hoping that the answer will be different.  And don’t just do that with your spouse, do it with your lawyer too.

19.  Hold grudges and let anger blind you from coming to a resolution that lets you move on with your life.  They are your feelings, don’t only embrace them but let them control all.  And don’t get therapy to deal with the real hurt, betrayal, rejection, depression, mourning, etc. that you are feeling.

18.  Allow emotions to impair your judgment on financial issues.  I know that you can’t imagine your spouse living in your home with someone new, but it’s a good idea to take less for the house by selling it rather than allowing your spouse to buy you out.

17.  Create a ruse that an emotional issue is really a financial one.  There will be a lot of nasty letters and everyone will be confused because you are not even arguing about the same thing, but at least one of you and his/her lawyer won’t know it.

16.  Profess a desire to settle but then never compromise on any issue.  Also, don’t let your experts compromise either, even in the face of an error in their report.  And if they do have to concede the error, make sure that they change something else so that their final number never actually changes.

15.  Hire a new lawyer on the eve of mediation or trial, and let that person enter the case like a bull in a china shop, as if the case just started, and there was no prior history.  Ignore the fact that both sides were making concessions and working towards and amicable resolution, and just blow things up and start from scratch, without any basis for doing so.  I am not saying that people cannot and should not change lawyers.  Sometimes it is necessary.  Sometimes the concessions being made are too much, for a variety of reasons.  But in cases where the negotiations and concessions are appropriate on both sides, if you don’t want to settle, pull the rug out from under the negotiations.

14.  Hire a second, then third, then fourth, then fifth attorney every time something doesn’t go your way.

13.  In alternating conversations with your lawyer, tell them that you need to settle immediately, then tell her that you want her to litigate aggressively, then settle, then litigate, and so on.  Follow that up by being angry with your lawyer because they were trying to settle when you were back to aggressively litigating, and vice versa.

12.  Believe your spouse when they are pressuring you to settle for a lot less than your attorney tells you would be a reasonable settlement.  While perhaps this doesn’t belong on this list, because it is a “how not to settle” list, maybe it belongs on a new list regarding regrets people have after taking a bad deal for the wrong reason.

11.  Let your spouse convince you that they you don’t need all of the discovery because “you can trust me”, when all other evidence indicates that you can’t.  Perhaps this belongs with the prior thought.

10.  Ignore your expert’s advice.  What do they really know about the value of your business or how a judge will likely assess your total income/cash flow?  What does an accountant know about taxes, or more importantly, how the IRS may address the creative accounting practices that you or your business have employed?  What does the custody expert really know?

9.  Ignore your lawyer’s advice.  What do they know anyway?  If your lawyer is telling you that you should jump at the deal on the table because it looks like a huge win, disregard it.  If they tell you that you have real exposure on certain issues or may be forced to pay your spouses legal fees, roll the dice. If your attorney tells you that they are willing to try your case, but that you should consider settlement because the cost of the settlement will be less than the cost of the trial plus the absolute minimum you have to pay, don’t believe it.  And what does your lawyer know about the law or the judge anyway?

8.  Ignore the facts of your case.  Trust your ability to spin the facts in a way that doesn’t make sense.  Plus, how can they prove if you’re lying.

7.   Ignore what the neutrals are saying.  What do the Early Settlement Panelists know?  What does the mediator know?  When the judge has a settlement conference and gives directions, what does she/he know?  Assume that the people that have no “horse in the race” are aligned with your spouse or their attorney, have been bought off, or are just plain ignorant.  Really, it has nothing to do with the facts of your case or the reasonableness of your position.

6.  Ignore the law.  It doesn’t apply to you anyway.

5.  Continue to misrepresent things, even when the other side has documents to disprove virtually everything you are saying.  Assume that you will be deemed more credible than the documents.

4.   Believe that the imbalance of power that existed during the marriage will allow you to bully your spouse into an unfair settlement.  Assume that your spouse’s attorney wont try protect her/him.  All lawyers roll over on their clients, right?

3.   Take the position that you would rather pay your lawyer than your spouse. Ignore that fact that this tactic usually ends with your doing both, and maybe your spouse’s lawyer too.

2.  Pretend as if your spouse never spent a second with the kids in the past and has no right to do so in the future.  Make false allegations of neglect or abuse.  Ignore the social science research that says that it is typically in the children’s best interests to spend as much time as possible with each parent.  What do the experts know about your kids anyway?  And while you are at it, bad mouth your spouse to or in front of the kids. Better yet, alienate them.  Then fight attempts to fix the relationship.

1.   Take totally unreasonable positions implementing any or all of above and on top of that, negotiate backwards.  Ignore the maxim “Pigs get fat, hogs get slaughtered.”  Put deals on the table and then reduce what you are offering.  Negotiate in bad faith.  Negotiate backwards.  Don’t worry that this conduct may set your case back.

The above was and is clearly facetious and tongue in cheek. I do not recommend this behavior.  It is usually self destructive and short sighted.  But, believe it or not, these things happen all of the time.  While I am not saying that no case should ever be tried, because sometimes trials are necessary, if you want to ensure a costly trial that may not go well for you, try the things on this list.  And if it is your day in court that you want, be careful you wish for.

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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.

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Credibility is key when it comes to matrimonial litigation – from your initial filing through the last day of trial. In our practice, we can often make educated guesses of the range for equitable distribution and alimony from the initial consultation based upon the many statutory factors that a court has to consider and some rules of thumb in settlement negotiations. However, there are those cases that do not result in such a typical manner and the reasoning often comes down to presentation.

For a trial that I conducted in February 2016, the Appellate Division recently upheld the court’s decision awarding the plaintiff/wife 100% of the equity in one of the parties’ businesses with a value of $133,000 (where she primarily worked) and 40% of defendant/husband’s $214,000 interest in the other business (where he primarily worked), as well as determining that each party retain his/her individual retirement accounts following a long-term marriage of over 30 years.  Wife’s retirement accounts exceeded those which husband disclosed – being the key word. In addition to this equitable distribution award, the Appellate Division upheld the trial court’s 40% counsel and expert fee award for the wife, totaling $31,388.10.

Why did the wife prevail in this way? It’s pretty simple based upon a reading of the decision – her husband just could not help himself as a litigant or a witness.

As a litigant, he “stonewalled” discovery, failed to pay the support obligation order during the pre-trial phase of the litigation (a.k.a pendente lite support) that was initially agreed upon, and failed to file a complete Case Information Statement (the bible in family law cases that lists income, budget, assets and debts).

As a witness, he would not even give a straight answer for his address. While he may have thought he was being cute when he responded that the wife could have the value one of the companies, and do “whatever she wants to do with it”, the trial court and the Appellate Division used the husband’s own words against him to find that he abdicated any interest in the company.

The husband’s lack of credibility resulted in a unique comment of the Appellate Division when it stated that the trial court’s counsel fee opinion was upheld even though the trial court did not specify the factors considered under the applicable Court Rule, R. 5:3-5(c). The Appellate Division opined that “…the discussion throughout the opinion made clear he had those factors very factors in mind”. The Appellate Division again cited to the husband’s bad faith (without utilizing the term) by citing to the trial court’s findings that the requested fees were “’fair and reasonable’ and that much work was required due to the ‘recalcitrance of [the husband]’”, as well as that the wife “faced substantial difficulties” to enforce court orders and agreements, and ultimately prepare for trial.

So, what’s the takeaway? What you say and how you act at each stage of the case is important… someone is always watching and, oftentimes, that someone is your spouse’s attorney who will jump at the opportunity to show the court how you have oppressed your spouse. Having handled this trial and appeal, I can confirm that cross examining the husband and finally having the opportunity to point out all of the misbehavior was fun, but not for him. You don’t want to end up in that seat! Mind your manners even in the heat of the moment and, as painstaking as it may be, always remember that it’s better to be the “bigger person” – the games will catch up to the other!

Lindsay A. Heller, Associate, Fox Rothschild LLPLindsay 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.

Demonstrating yet again that cohabitation cases are almost always a creature of their specific facts and circumstances, the Appellate Division in the recently unpublished, Salvatore v. Salvatore, reversed a trial court’s decision denying a payor former husband’s motion to terminate his alimony obligation based on his payee former wife’s cohabitation in a manner defined by the parties’ Marital Settlement Agreement (MSA).

Here are the facts that you need to know:

  • The parties entered into a settlement agreement and were divorced in early 2011.
  • As to alimony, the agreement provided that the payer’s alimony obligation would terminate upon payee’s remarriage, payer’s 66th birthday, or either party’s death.  As to cohabitation, the agreement provided that payee’s “cohabitation with an unrelated adult in a relationship tantamount to marriage [would] be a re-evaluation event”.
  • In an outright rarity in cohabitation matters, which often involve payee spouses concealing the cohabitation from the payor spouse so as to preserve the support obligation, here the payee advised the payor of her planned cohabitation.
  • Even more rare is that the parties then entered into an addendum to the MSA, wherein: (1) they agreed to the cohabitation; (2) recognized they were “without sufficient knowledge to determine whether the cohabitation [would] be temporary or permanent”; (3) reduced monthly alimony payments by $850 “during the period of cohabitation”; and (4) provided that, “[b]ecause the [p]arties cannot determine the permanency of the cohabitation,” alimony would be reinstated “at the full amount in the [MSA] . . . for the remainder of the term” if the cohabitation terminated.
  • Approximately six years later, the payor filed a motion to terminate his alimony based on the payee’s continued cohabitation.  The trial judge denied the motion, finding that the cohabitation was admitted to at the time of the addendum and, as a result, its continued existence – in and of itself – was not a change in circumstances.  Payor appealed.

Reversing the trial court, the Appellate Division held that the trial judge:

  1. “misapprehended that the change of circumstances involved only defendant’s cohabitation, failing to consider the terms of the MSA that provided cohabitation ‘in a relationship tantamount to marriage’ triggered the ‘re-evaluation event.'”
  2. erred in considering the payer’s failure to allege a financial change in circumstance.
  3. held that financial changes were “of no moment” when considering the MSA language at issue.

In so doing, the Appellate Court reiterated seminal pre-2014 statute case law mandating that the “economic needs” of the payee spouse need not be considered so long as the cohabitation provision meriting an alimony modification is fair.

Addressing the subject addendum to the MSA – really the unique feature of this particular cohabitation case – the Appellate Division found that the trial court:

  1. ignored the cohabitation provision of the MSA by finding that the addendum was the very “re-evaluation” called for by the settlement agreement;
  2. in so doing, relegated the addendum as the benchmark event from which a change in circumstance would have to occur to merit further relief for the payor.  In other words, it was in error for the trial court to find that the payee’s ongoing cohabitation was not a change in circumstance simply because the cohabitation was initially acknowledged by the parties six (6) years earlier in the executed addendum to the MSA.  Specifically, “the trial judge ignored the agreement – and the Konzelman Court’s definition – that more than a casual, perhaps temporary, cohabitation was needed to precipitate a review of the plaintiff’s alimony obligations.”
  3. the cohabitation here was neither short-term, nor temporary.
  4. there was no indication in the executed addendum that it in any way superseded the cohabitation provision of the MSA.

As a result, the matter was remanded to the trial court for a period of discovery and ultimate plenary hearing on the payor’s motion to terminate alimony.  While not shedding further light on the 2014 cohabitation statute (since this matter applied pre-statute case law), the unique factual scenario at issue only further highlights how cohabitation matters are often unpredictable, and rise and fall on the case-specific circumstances at issue.

 

 

As I wrote in December, the Tax Cuts and Jobs Act enacted at the end of last year, changed the taxability of alimony starting in 2019.   Specifically, while alimony is currently income to the recipient and deductible from the income of the payor, for agreements and judgments entered after December 31, 2018, that will no longer be the case.  Put another way, the ability to shift income so that it is taxed at the rate of the tax payer at the lower tax bracket will no longer be available.  As I noted, this will likely mean less after tax cash flow available to both parties under the new law (not to mention, the possibly unintended reduction on child support that may be caused since child support is calculated based upon the combined after tax incomes of the parties, i.e. the lower the net income, the lower the child support.)

Now we all know that there is no official “formula” or guidelines to calculate alimony in New Jersey.  That said, we have blogged many times before on the so called “rule of thumb” that many use to get a ballpark figure for alimony, and many more use to actually settle the issue, despite that fact that it often ignores the statutory factors and economic reality.  The way that this formula works is essentially this:  you subtract the actual or imputed income (if unemployed or underemployed) of the recipient from the payer’s income and then take a third of the difference and call it alimony.  I have heard it called the one-third rule – a third for the husband, a third for the wife and a third for the government – however the math really doesn’t work and typically the payor has more after tax income before child support is calculated.  Even after child support is calculated, it was unusual to see the alimony and the kids with more than half of the net after tax income, which meant that the payor lived on half of the net income for himself and the recipient and children lived on the other half, or less.  The fairness of this result can be debated on another day.

That said, because the “formula” contemplated taxes in it’s “theory”, seemingly, that formula will not be able to be used once the tax change really goes into effect.  My guess is that people will look for some new formula that has the same result but there are several problems with that.  With less dollars to go around, a formulaic approach that ignores actual marital lifestyle is likely to be very unfair to the recipient.  Moreover, given the complexities (and quite frankly, the unknowns) of the new tax code and the fact that different business types will be taxed in different ways, to the extent that a one-size fits all formula ever worked, it cannot work now.  I was at a recent seminar where a slide was shown of a doctor and a plumber with the same gross income, but a very different net income, given the difference in how their businesses are treated under the new code (not even including the perks.)  And speaking of perks, things that might have been written off as business expenses but added back to income for support purposes may in many cases, no longer be deductible business expenses which could similarly reduce net cash flow available for support.

In reality, more consideration is going to be have to given to the true after tax cash flows of both parties so that fair alimony and child support results are reached.  We have software that creates those calculations but I expect in the future, we will have to input many more variables to see the true after tax cash flow.  I would also expect that there will be more use of forensic and tax accountants to help with these calculations so that the most fair result is arrived at.

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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.

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