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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.

 

 

 

There has been a lot of talk about the lack of preparedness for last week’s snow storm that left many people stranded in traffic for hours trying to get home.  While many have argued, perhaps rightly, that the storm turned out being much worse the forecast, at the end of the day, as with many other things in life, people focus on the end results.  In fact, my bet is that most of the people who were complaining when schools called an early dismissal the night before, when the forecast was for much less snow than actually fell, were the same people complaining about the ultimate outcome.

Divorce is very much the same way.  While you may not know exactly when the process may start, few people are really, deep down, surprised that it is actually happening because the warning signs are there, whether it is adultery, lack of intimacy, constant fighting, lack of communication, bad communication, lack of agreement regarding parenting, etc.  This reminds me of a story that a client told me many many years ago.  He and his wife were in marriage counseling for years and he ultimately decided to tell his wife that he intended on pursuing a divorce during a counseling session.  The wife responded with epic histrionics suggesting that she was shocked.  The therapist ultimately told her that she could express any number of emotions but surprise wasn’t one of them.

The point again is that divorce is seldom a surprise.  Moreover, you don’t really know how bad the storm is going to be until it happens.  Most people want an “amicable” divorce but seldom agree on what that actually means at the beginning.  Very often, emotion takes over and derails what should be an “easy”, legally speaking, divorce.  On the other hand, some matters that appear like they can be very complex resolve easily because one or both of the parties are sufficiently motivated to get a deal done.

And because the ultimate divorce is seldom a surprise, if you think that divorce is possibility, you can do two things.  One is to put your head in the sand and then be overwhelmed by the storm when it comes.  The other is to prepare for the storm, just in case.  What are the things you can do to prepare?  Here are some things you can do:

  1. Familiarize yourself with your finances – income, assets, liabilities, budget.  Perhaps prepare a balance sheet of your assets and liabilities and start putting together a budget of your historical spending.
  2. Familiarize yourself with your spouse’s income?  How are they paid?  Do they receive a base and a bonus? Is the bonus guaranteed?  Is there a target bonus? Is there deferred compensation – stock options, restricted stock, RSUs, REUs, and/or any of the other of the alphabet soup of other earned income?  Finding out if there what is vested or not, if there is a vesting scheduling, when are these things usually paid, where have they been historically deposited, do they automatically convert to cash or stock when they vest, etc.
  3. Familiarize yourself with your spouse’s benefits and perquisites, including health insurance, other insurances, retirement plans, and the like?  Is there are vehicle that the employer or your spouse’s business (if they are a business owner)?  And if they are a business owner, is there a business credit card?  What things does the business pay for?  If there is a business, is their cash?
  4. While you are doing all of the above, start assembling historical financial documents.  Five years of tax, income, bank, brokerage, retirement and credit card information is a good start but if there are other seemingly important documents in the house, on computer hard drives or online, secure copies of those, as well.  And after you go about doing that, don’t leave the documents lying around the house or in the trunk of your car where your spouse can take them.  Make copies and secure them off site.
  5. If you have assets that are premarital, received via a third party gift and/or inherited, it is your burden to prove to a court that those assets are exempt.  If you can prove exemption, then they are not divided in equitable distribution typically.  It should be of no surprise that when a divorce occurs, these documents disappear, as well.  Accordingly, if divorce is a possibility, secure these documents as well.
  6. If there are valuable items that may “disappear”, you may want to secure them – eg. putting jewelry in a safe deposit box.  You would not believe how many times a wife’s engagement ring (which is legally exempt in most cases), disappears on the occurrence of a divorce.
  7. If custody and/or parenting time could be an issue, familiarize yourself with your children’s teachers, doctors, friends, etc. both at present and in the past.  Think about who may be witnesses regarding your involvement with the children.
  8. Research potential therapists for both yourself and your children.  Even if they are not needed at the moment, once the storm comes, they may be a resource that you want to avail yourself of.
  9. Identify a solid support system.  I am not suggesting that you tell the world that your marriage may be coming to an end.  Rather, identify for yourself the people that you believe you can rely on when the storm comes.
  10. Have a consultation with a divorce lawyer – even if you are not ready to proceed.  For one, you will get some education about your rights and responsibilities.  Fear of the unknown often paralyzes people.  Moreover, based upon your specific facts and circumstances, the above list to help you get prepared in case of the storm may expand.

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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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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.

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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.

One of the most common questions posed by clients is – how is alimony determined?  Unfortunately, there is no easy answer to that question, and it is often dependent upon the facts and circumstances of a given matter.  The law does not provide for a formula, even in the final version of the amended alimony statute that passed in late 2014, and requires that trial judges consider each of the factors outlined in New Jersey’s alimony statute (N.J.S.A. 2A:34-23(b)) in rendering an award.

As seminal New Jersey case law provides, the standard of living established during the marriage serves as the “touchstone” for alimony, with, whenever possible, the alimony award to be set at an amount that will “enable each party to live a lifestyle ‘reasonably comparable’ to the marital standard of living.”  The amended alimony statute confirms that both parties are entitled to such a lifestyle, which is often determined based on a review of the parties’ Case Information Statements, testimony and supporting financial documentation.  Experts may even be utilized to prepare what is commonly referred to as a “lifestyle analysis” to help provide a more accurate indicator of what the marital lifestyle actually was, and how expenses were divided between the parties and children, if any.

When negotiating an alimony resolution, however, practitioners often employ a so-called “rule of thumb” whereby the ultimate alimony figure is based on a certain percentage of the difference between the parties real/imputed levels of income.  Debate between practitioners in applying this approach remains alive and well, especially in high income cases where utilizing a formula may undermine the notion of ensuring that the marital lifestyle is taken into consideration.  Additionally, the formulaic approach oftentimes utilized in negotiating an alimony resolution takes into consideration the alimony deduction to be received by the payor on his or her tax returns.  With the new tax law eliminating the deduction for alimony agreements/awards reached after December 31, 2018, even this approach will likely undergo significant changes.

To that end, case law confirms that a trial judge cannot employ an income-based formula when determining an initial alimony award or modifying one previously established (even if the initial alimony award was reached in settlement based on a formula).  This principle was recently affirmed in Waldbaum v. Waldbaum, wherein the Appellate Division reversed a trial judge’s use of a formula in determining alimony in a post-divorce proceeding.  Specifically, despite generally describing the lifestyle as one of “high-class”, and analyzing the alimony factors, the trial court employed a formula utilized in the parties’ settlement agreement when alimony was first agreed upon.  In reversing the trial court, the Appellate Division held that “by setting alimony using a formula the alimony became untethered from the marital lifestyle and defendant’s needs.”  The resulting alimony amounts had “no reasonable correlation to the evidence adduced regarding the marital lifestyle or needs.”

Thus, while reaching an alimony resolution provides parties with great flexibility in determining the award, a trial judge must follow the above-detailed requirements to ensure that the lifestyle is not only taken into consideration, but that all statutory factors are considered in rendering a final decision.

 

Since the first go round of the proposed massive revisions to the tax code were announced several weeks ago, matrimonial lawyers, litigants, accountants, etc. have been in a veritable tizzy over the prospect that one of the modifications was to eliminate the deductibility of alimony payments by the payer and the includability of the payments by the recipient as income, for all agreements or judgments after December 31, 2017.  The angst was with good cause because that provision of the tax code allowed the payer to pay more alimony to the recipient because he did not have to pay taxes on the income used to pay alimony, therefore, creating greater net after tax cash flow for him/her.  On the recipient side, because she/he often paid taxes at a lower rate, it made sense all the way around, except maybe to Uncle Sam who was losing the higher tax revenue by the shifting of income from the higher taxed payer to the lower taxed recipient.

When the Senate version of the tax reform bill was announced, this issue was not addressed at all, causing some hope, albeit short lived because the bill that came out of the reconciliation process had the elimination of the deduction, but not at the end of 2017, but rather, the end of 2018.  This was explained yesterday in a blog posted by my partner, Mark Ashton, of our Chester County, Pennsylvania Office, on our Pennsylvania Family Law Blog, entitled Alimony About to Experience an Untimely Death.  The House just voted to pass the tax bill and the Senate is not far behind.

The bottom line is that the new tax laws will provide less to go around for both sides of the equation. Old “rules of thumb” will go out the window.  Child support guidelines will have to be adjusted as they are based upon combined net income.  Because combined net income will be less, especially in places like New Jersey that are hit hard by the new laws eliminating some of the property tax and other deductions, will child support go down too?  Will this lead to a race to the courthouse in 2019 to adjust child support because whether or not you are able to deduct alimony, will tax increases be considered a change of circumstances?

I would think that savvy people who are contemplating divorce might see the change in the law as a catalyst to finally pull the plug on a marriage to take advantage of the tax benefits of alimony in their final year.  People embroiled in an ongoing divorce may finally agree on something, i.e. to get the divorce over with before the end of 2018 for the same reason.  Only time will tell whether the unintended consequence of the so called tax reform will cause 2018 to be the Year of the Divorce. Either way, we are all going to have to get used to this paradigm shift in figuring out what a fair alimony amount should be given the change in the law.

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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It’s a story as old as time in the New Jersey courts. Alimony is set based upon the income of parties to a divorce, but then years later, a spouse loses his or her job and is unable to continue to make the agreed upon or ordered payments. What is a Court to do?

61199328 - the word of alimony on wooden cubes

In the old days, prior to the enactment of the new alimony statute, judges had certain checklists, gathered from all the law that they typically used to assess whether to obligor would gain relief. You can find that checklist I compiled in 2013 here.

However, now that the new statute is in effect, the question becomes, how should judges treat on obligor’s loss of employment?

Mills v. Mills, an opinion by Judge Jones of Ocean County, approved for publication, provides some guidance on the issue.
In the Mills case, the parties divorced in 2013 after a 13-year marriage. At the time of the divorce, the parties agreed that the Husband would pay the Wife alimony in the amount of $330 per week for 8 years, as well as child support in the amount of $200 per week. This award was based upon the Husband’s income as a district sales manager for a company selling residential and commercial flooring services, earning $108,000 per year and the wife’s income as a teacher, earning $59,000 per year.

In January 2015, after 12 years of employment at the flooring company, the Husband lost his job. The job loss was involuntary; it stemmed from his employer’s decision to restructure its business plan and eliminate the Husband’s position.

The Husband began searching for a new job immediately. In April, 2015, he received an offer of employment form another flooring company, but at a significantly lower salary of $70,000, with a $6,000 car allowance.

At this point, the Husband was faced with a difficult decision – does he accept the job at a lower rate, or decline the opportunity and look for another job closer to his prior income? Ultimately, he decided to accept the new job.

Initially after accepting the new job, the Husband continued to pay alimony at the rate of $330 per week. He had received severance pay of $35,000 and was able to temporarily supplement his income from there. However, as the year neared its end, the Husband had depleted all reserves.

The Husband filed a motion on November 24, 2015 for a prospective modification and reduction of his support obligations based upon a substantial change in circumstances. In the meantime, he earned a performance bonus of $6,000, bringing his total compensation t $82,000, which still constituted a $26,000 from his prior income.

The Wife opposed the motion, and questioned the circumstances under which the Husband lost his prior employment, and that even if the loss was involuntary, he had not demonstrated that he could no longer earn at least $108,000. She also stated that the loss of support would create economic difficulties for her.

The parties were unable to resolve their differences and the matter proceeded to a contested hearing. The Husband testified that when he began at the flooring company, he was earning $50,000 and gradually worked his way up to a salary of $108,000. The Court found that he testified credibly that he could not simply walk into a new position at a new company and immediately command the same salary.
Interesting, the Court began its legal analysis by expounding upon a “Catch 22” in which many obligors found themselves under the old statute.

…no matter what decision he or she made in accepting or declining a new position at a lower pay, that decision might subsequently be critiqued, criticized and even legally challenged by an ex-spouse who, in resisting a reduction in alimony, might contend that the supporting spouse made an inappropriate choice and therefore should not receive a reduction in his or her support obligation   … when a supporting spouse lost his or her job and then declined an offer to take a lower paying position…and instead kept searching for a higher paying position while seeking a reduction in support, the supported spouse would often argue that the obligor unreasonably bypassed an opportunity to earn at least some income that could have been used to pay some of the ongoing support obligation…
…
Reciprocally, if a supporting spouse accepted the offer for new employment at a substantially lower salary and then sought a reduction in support, a supported spouse would often argue that the obligor was underemployed because he or she accepted a position at a significantly decreased level of pay or proven “income potential”…

Judge Jones rejected the suggestion that there is a “one-size-fits-all” legal analysis for approaching and analyzing these types of issues. In that regard, he stated “imputation of income was a discretionary matter not always capable of precise or exact determination”.

After citing the amended alimony statute – N.J.S.A. 2:a:34-23(k) – for guidance as to how to analyze this issue. In doing so, he specifically referenced subsection (2), which expressly references that when an obligor loses his or her employment, a judge may consider the obligor’s documented efforts to obtain replacement employment or pursue an alternative occupation, as well as subsection (3) which provides that a court may consider the obligor’s good faith effort to find remunerative employment at any level in any field.

However, the Judge noted that the amended statute does not expressly establish or provide a specific standard for statutory analysis in situations when an obligor actually obtains new employment at a significantly lower pay, then seeks to reduce his or her support obligation over the supported spouse’s objections.

The Court concluded that as a matter of equity, fairness, as well as the most reasonable, consistent and straightforward analysis would be addressed by the following two-step inquiry:

(1) Was the supporting spouse’s choice in accepting a particular replacement employment opportunity objectively reasonable under the totality of the circumstances?
(2) If so, what if any resulting support adjustment should occur that is fair and reasonable to both parties, given their respective situations?

In applying this two-step inquiry, as well as the statutory mandates, the Court concluded that the loss of income was involuntary and that the Husband made legitimate efforts to obtain new employment in the same industry in good faith.

While the salary in the new position was lower, the Court found that the Husband nonetheless made an objectively reasonable decision in responsibly trying to begin at a new place of employment. In fact, the Court found that the Husband was very fortunate in this economy to find replacement work.

Nor did the Court find any objective evidence that the Husband was deliberately underemployed or unreasonably turned down or avoided other job opportunities at higher income levels.
After considering all the evidence, the Court reduced the Husband’s alimony obligation to $250 per week and his child support obligation to $194 per week.

With this decision, Judge Jones clearly articulated what I have personally heard many obligors say to me when deciding whether to move forward with a first, second or even third motion for a reduction in alimony based upon reduced income. Whatever step an obligor took, the supported spouse had a response; and one that was well supported by case law.

Either way, the supported spouse would argue that the reduction in income constituted underemployment and that the Court should impute income consistent with the obligor’s prior income.

Judge Jones’ decision provides a clearer analysis that Court should undertake in this all-too-familiar situation.
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Eliana Baer, Associate, Fox Rothschild LLPEliana 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.

Every family uses its money in different ways. Some families spend every cent they have on everything imaginable, others save every last possible cent for the proverbial “rainy day”, and many families fall somewhere in between. Once a marriage comes to an end, however, will both spouses be able to continue spending or saving in the same way they did during the marriage as part of the lifestyle lived?

New Jersey case law has long held that a trial court may consider a savings component as part of an alimony award to protect a dependent spouse from the potential future loss of income by allowing her to accumulate a post-Judgment safety net. One question that has never been answered until now, however, is whether a history of regular savings during the marriage as part of the marital lifestyle should be considered in setting an initial alimony award even when there is no need to protect the dependent spouse.

According to the Appellate Division in the newly published, precedential decision of Lombardi v. Lombardi, the answer is a resounding yes.

Kid counting money
Copyright: sbworld8 / 123RF Stock Photo

FACTS TO KNOW:

During the parties’ marriage, savings was the largest component of the parties’ lifestyle, but the trial judge rejected inclusion of a savings component when awarding alimony because the payee-wife did not need such funds to protect herself from a potential future loss of alimony. The parties jointly decided to live a comfortable lifestyle during which they saved approximately $70,000 per month, and budgeted most of the earned collective income so that the parties would have no worries about finances when paying for college and entering into retirement. In fact, the parties budgeted so efficiently that the payor-husband could retire at age 45 with an accumulation of $5 million in assets that could generate sufficient income to help fulfill the family’s lifestyle.

THE TRIAL COURT’S DECISION:

At trial, the wife indicated that she needed approximately $16,000 per month for herself and the three children to live a standard of living comparable to that lived during the marriage, exclusive of a savings component that she requested in the monthly amount of $30,000. She also sought $5,000 in monthly child support and for the husband to be responsible for all child-related supplemental expenses.

The trial judge acknowledged the existence of savings component during the marriage, but awarded a monthly permanent alimony payment of $7,600 based on a finding that the parties lived an undisputed “modest middle-class lifestyle” with a monthly budget of $14,516 (excluding savings). The $7,600 was calculated as sufficient to cover the shortfall in the wife’s budget after accounting for child support, monthly after-tax income estimated she could generate by investment of her share of equitable distribution (each party was receiving half of the roughly $5.5 million estate), and her after tax net income from part-time work.

Based on each party’s anticipated share of equitable distribution, the trial court found that each party had a significant opportunity to save and invest, even though the husband’s substantial income provided him with a far greater opportunity than the wife. Specifically, the court noted that the parties monthly average savings of approximately $87,000 was a “component of lifestyle” (whether for an early retirement or to enhance the parties’ economic security), but should be included in an alimony award “only [ ] to the extent it was necessary to ensure a dependent spouse’s economic security in the face of a later modification or cessation of support, which were not issues here.”

Even without a higher amount of alimony (inclusive of a savings component) the court noted that the wife could save (albeit at a lesser extent than that seen during the marriage) when considering:

  1. some “overlap” in the presented alimony and child support budgets;
  2. the wife’s right to claim the children as exemptions for tax purposes; and
  3. her “ability to work and retain earnings to use for savings . . . because of the maturation of the children . . . such that she would have more time to spend working if she chose to do so.”

The court also noted the wife would have no obligation to pay for college or any unreimbursed medical expense, the cost of extracurricular activities was covered by the “above guidelines” child support award, and if she wanted to work more she would be “protected against any claim that her alimony should be reduced or that she has lesser need,” and the alimony would likely never be reduced because of the husband’s income and assets. Summarizing its determination to exclude a savings component, the court held:

The [c]ourt finds that a permissible savings component which it elected not to do or not to include was because there are potentials for [plaintiff] to accumulate, earn, and otherwise be protected from a reduction by virtue of, one, reasons having to do with the current budget and the room in the budget to still save, the ability to work more without worry about a reduction in alimony, the investment opportunity that might enhance the return on the over $2 million that she will receive, the life insurance to protect against the death of the defendant, and the likelihood of a continued appreciation and increase in assets and earnings that . . . would protect her against any arbitrary . . . reduction in alimony based upon early retirement or otherwise.

The wife’s appeal followed.

THE APPELLATE DIVISION WEIGHS IN:

On appeal, the Appellate Division agreed with the wife’s position that the subject award allowed only the husband to maintain the standard of living experienced during the marriage, and that required Case Information Statement form, on its face, suggests that a savings component is a “fundamental element of the family lifestyle” because the savings category was specifically added to the budget portion of the form after its initial issuance.

Reviewing seminal New Jersey alimony law, the Court reminded that each party is entitled post-divorce to live a lifestyle reasonably comparable to that lived during the marriage, with neither party having a greater entitlement to do so than the other (as codified in the 2014 statutory amendments to the alimony law). As a result, the alimony award designed for the supported spouse to achieve such lifestyle that is ultimately the “touchstone for the initial alimony award.”

While noting how case law has long recognized that a savings component in an alimony award can protect a dependent spouse against the potential future termination of alimony, or to provide for future events such as retirement, the Court provided:

The most “appropriate case” in which to include a savings component is where the parties’ lifestyle included regular savings. Because it is the manner in which the parties use their income that is determinative when establishing a marital lifestyle, see Weishaus, supra, 180 N.J. at 145, there is no demonstrable difference between one family’s habitual use of its income to fund savings and another family’s use of its income to regularly purchase luxury cars or enjoy extravagant vacations. The use of family income for either purpose over the course of a long-term marriage requires the court to consider how the money is spent in determining the parties’ lifestyle, regardless of whether it was saved or spent on expensive purchases. The fact that the payment of the support ultimately is protected by life insurance or other financial tools, does not make the consideration of the savings component any less appropriate.

Rejecting the husband’s argument that the court appropriately considering savings through its equitable distribution award, the Appellate Division held:

The argument runs afoul of the rule that “equitable distribution determinations are intended to be in addition to, and not as substitutes for, alimony awards,” which are awarded to provide for the maintenance of the marital lifestyle post-dissolution. Steneken, supra, 183 N.J. at 299. Moreover, it is not equitable to require plaintiff to rely solely on the assets she received through equitable distribution to support the standard of living while defendant is not confronted with the same burden. As expressed under the alimony statute’s current version, the court must recognize that “neither party ha[s] a greater entitlement to that standard of living than the other.” N.J.S.A. 2A:34-23(b)(4).

In finding that its holding went beyond what most other jurisdictions provided regarding the savings component issue, the Court concluded:

We therefore hold that the Family Part must in its assessment of a marital lifestyle give due consideration to evidence of regular savings adhered to by the parties during the marriage, even if there is no concern about protecting an alimony award from future modification or cessation upon the death of the supporting spouse.

The issue of how to treat savings as part of the marital lifestyle under the type of circumstances present in Lombardi has long been discussed amongst family law attorneys without definitive judicial guidance.  Now that such guidance is here, this may not be the last we hear from the Lombardi family as perhaps the Supremes will ultimately weigh in.

 

As avid readers of this blog know, New Jersey’s recently amended alimony statute has been the inspiration for many blogs posts as cases interpreting same are coming down the pike. Under the amended statute, a party may seek to terminate or modify his or her spousal support obligation based upon an actual or “prospective” retirement. While this was seemingly good news for those seeking to retire, the question many practitioners had was what does “prospective” actually mean?

In the case of Mueller v. Mueller, Judge Lawrence Jones provides some insight as to this very question. The facts in Mueller are simple. The parties were married for twenty (20) years, divorcing in 2006. Under the parties’ Marital Settlement Agreement, the obligor was to pay $300.00 per week in permanent alimony and their agreement did not expressly address retirement or its relationship to the alimony obligation.

The obligor filed a post-judgment motion, under New Jersey’s amended alimony law, seeking a determination that his alimony would end in five (5) years. At the time of the hearing, the obligor was 57 years old. In five years, he would be 62 and entitled to receive his full employment-related pension benefit. The obligor asserted that if his alimony does not end at that time, that he will be unable to retirement at that age.

Judge Jones provides a thorough analysis of the obligor’s claim, specifically discussing the distinction of a pre-September 2014 agreement modification/termination analysis (where the burden is on the obligor to demonstrate why alimony should terminate) vs. a post-September agreement modification/termination analysis (where there is a rebuttable presumption of termination with the burden on the recipient).

He also notes that the amended statute covers the situation where an obligor wishes to retire earlier than “full retirement age” as defined by the receipt of full social security benefits”, which in this particular case would be 66 years and 8 months for the obligor. The rationale behind this provision is to avoid the proverbial “Catch-22” financial situation.

Specifically, if an obligor is considering the possibility of retirement in the near future, he or she logically benefits from knowing in advance, before making the decision to actually leave the workforce, whether the existing alimony obligation will or will not change following retirement. Otherwise, if the obligor first retires and unilaterally terminates his or her primary significant stream of income before knowing whether the alimony obligation will end or change, then the obligor may find him/herself in a precarious financial position following such voluntary departure from employment if the court does not terminate or significantly reduce the existing alimony obligation.

When applying the new law to the facts of the Mueller case, Judge Jones held:
• The spirit of the statute inherently contemplates that the prospective retirement will take effect within reasonable proximity to the application itself, rather than several years in advance.
o Thus, in this specific case, the request for an order prospectively terminating alimony five (5) years in advance does not lend itself to the Court being able to reasonably analyze and consider all relevant information. The Court warns about how an application too far in advance of prospective retirement could in essence be nothing more than an attempt to summarily change the terms of an alimony settlement agreement.

• An order for prospective termination or modification of alimony based upon reaching a certain retirement age inherently contemplates that the obligor not only reaches retirement age, but actually retires at that point. If the obligor reaches the age, but does not actually retire, the “retirement age” provisions do not trigger until such time as the obligor actually retires or submits an application regarding a prospective retirement in the future.

o Here, the obligor did not provide a specific plan but merely stated a desire to potentially retire in five (5) years, without anything more. While this case does not create a bright-line for when such applications should be brought, Judge Jones notes that a prospective retirement application brought, 12-18 months before prospective retirement, may be more appropriate.

The takeaway from this case is that while the amended alimony statute permits a degree of reasonable prospective adjudication by the court for a prospective rather than actual retirement, an attempt to engage in the necessary statutory analysis several years in advance of such retirement would likely be replete with long-term guesswork. Any such effort would essentially ignore the practical reality that the parties’ economic situations, health and other relevant factors may radically change over such a lengthy period of time, before an actual retirement ever takes place. If you are paying alimony and are within 12-18 months of retirement, you should think about consulting with an experienced professional to discuss your options regarding the termination or modification of your alimony obligation.

I’m not usually one to place a lot of stock in celebrity gossip, but I couldn’t help but take notice of the fact that it has been rumored that Amber Heard’s monthly income is $10,000, yet she spends $44,000 a month on shopping, dining out and vacations. Her ask for spousal support: $50,000 per month, based upon the parties’ marital lifestyle.

45351836 - champagne bottle in ice bucket and two full glasses realistic vector illustration
45351836 – champagne bottle in ice bucket and two full glasses realistic vector illustration

Amber Heard may not be only one spending beyond her means. This phenomenon applies to us common folk as well.

Particularly during the economic downturn, we have seen many cases where parties have splurged during times of plenty and then failed to scale back when the economic downturn hit. As a result, the parties are living on credit or perhaps not paying their bills. It, in effect, creates an artificial lifestyle which neither party really has the ability to maintain.

This puts the Court in a tough spot. On the one hand, the Supreme Court explained in Crews, “the standard of living experienced during the marriage . . . serves as the touchstone for the initial alimony award.” On the other hand, what happens when the marital standard of living is based on nothing more than irresponsible spending?

An unpublished case was just recently decided by the Appellate Division that touched on this issue. Although the crux of the case really focused on the reversal of a judge’s suspension of alimony as a discovery sanction, what peaked my interest was how the judge dealt with what he classified as an “artificial lifestyle,” marked by the parties’ “irresponsible spending and outlandish behavior, whether going on expensive vacations to South America and Europe, or purchasing fancy cars” when awarding alimony.

In Ponzetto v. Barbetti, decided on June 28, 2016, the parties had a nineteen year marriage which ended in a contentious divorce when the parties were in their mid-forties. The parties did not have any children and the only issues in the case were equitable distribution and alimony, both of which were hotly litigated during the course of a lengthy trial.

The husband had started a sound system business when he was a teenager, for which the wife kept the books. At one point, the business was so lucrative, that it generated revenue of $500,000 per year. These were the times of plenty.

Unfortunately, the business suffered during the economic downturn. The parties’ lifestyle, however, did not. They continued to spend lavishly. By the time of the divorce, they had two Ferraris, a Harley Davidson, Pontiac Fiero and two hummers.

While typically a judge would look at the parties’ spending during the last several years of the marriage to determine lifestyle, in this case, the trial judge found that it would not be appropriate to do so in this situation, where the lifestyle was not based on income or need.

As a result, the judge declined to use “the parties’ irresponsible spending from 2006 through 2008 in determining marital lifestyle” and instead determined to “kindly” utilize the marital lifestyle from 1990 through 2006, which the judge determined to be $14,500 per month. Ultimately, the wife was awarded $400 per week in alimony.

This is just one example of how a judge has dealt with this increasingly common situation. However, judges are frequently placed in these precarious situations, where the parties have exceeded a reasonable lifestyle based upon their income as compared to their expenses. In the case of Ponzetto v. Barbetti, the judge crafted a remedy that was equitable given the specific circumstances of the case.
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Eliana Baer, Associate, Fox Rothschild LLPEliana 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.

Too often in family law practice, the discovery process by which one litigant is supposed to procure information from the other litigant becomes a frustrating and costly game where the non-compliant party hopes that the other party will simply give up rather than continue the chase down the rabbit hole of information.  Long-term readers of this blog may, in fact, remember Eric Solotoff’s post about the Discovery Dance, where parties can, in fact, “dance if they want to and leave their friends behind”.  Information is deliberately withheld, or incomplete, or ignored, etc.   As opposed to standard civil litigation, however, it often seems that a non-compliant litigant does not pay the price for such misconduct.  While perhaps this simply goes along with family law’s often mis-characterized “Wild West” reputation, what is one party who simply can’t get information from the other party to do when discovery motions are commonly frowned upon as a waste of the court’s limited resources?

Hide and seek

This is especially true in cases where one party seeks to modify an alimony or child support obligation.  Trying to get the full financial picture, especially from the party seeking the modification, is often the most difficult challenge of litigating such a matter.  It often becomes even more difficult in cases where either party is remarried and the new spouse has assets, income and the like that the remarried litigant does everything he or she can to shield from the court’s consideration.  This becomes a problem when one party is, perhaps, providing the new spouse with money to hold in a separate account, or the house is solely in the new spouse’s name, and the like.  In other words, the financial picture can be manipulated a dozen different ways and roadblocks structured so that the court never has all of the relevant facts and circumstances upon which to render a determination.

In Null v. Null, a recently unpublished (not precedential) decision from the Appellate Division, an ex-husband’s application seeking a termination of his alimony obligation was dismissed – with prejudice – because of his repeated refusals to comply with discovery requests and related court orders.  Here is a brief recitation of the relevant facts:

  • After a lengthy post-judgment procedural history wherein the payor sought to terminate his alimony obligation, the court – in November 2010 – found that he had made an initial showing of “changed circumstances” sufficient to warrant a plenary hearing on his motion to reduce alimony.  Notably, payee claimed that payor had entirely stopped making alimony payments at that point.
  • The judge directed that payor produce certain forms of discovery including, but not limited to, his current wife’s most recent three pay stubs.  Payor objected, moving to bar discovery of his new wife’s assets.  The motion was denied because payor was claiming to be employed by a business owned by new wife, and payee claimed that payor had placed businesses and assets he owned in new wife’s name.
  • Payor subsequently moved again to block discovery of his new wife’s financial information and was denied.  Payor was ordered to pay counsel fees – the first of many consequences to the payor for his misconduct.  New wife was also ordered to sit for her deposition.
  • At her deposition, new wife failed to produce tax returns or pay stubs as previously ordered.  She also failed to produce documents relating to the dry cleaning business payee claimed was owned by her.
  • With scheduled trial dates having come and gone, and payor still having failed to comply with discovery, the trial court denied payor’s motion to depose payee and compel her to undergo an employability evaluation.  In so doing, the judge noted that payor took no issue with violating discovery orders, and “unreasonably delayed” payee’s ability to effectuate litigation.  Counsel fees were again awarded for payee.
  • In October 2013 – three years after the initial changed circumstances burden was fulfilled – a third trial judge entered an order rescheduling the plenary hearing, and appointing an expert to examine businesses allegedly owned by new wife and operated by payor.  Payee was permitted to depose new wife as to whether payor maintained an equitable ownership of the businesses registered to new wife.  Payee was again awarded counsel fees for a third time.  Payor sought reconsideration and a stay of the October 2013 orders.
  • On April 3, 2014, the trial judge dismissed payor’s motions to modify alimony – with prejudice – pursuant to Rule 4:23-2(b) based on payor’s “failure to cooperate with the court’s expert, his failure to file complete Case Information Statements, and his extensive history of failure to timely respond to [payee’s] discovery requests and comply with court orders.”  Payor was also ordered to resume alimony payments at $6,000 per month, and to pay $201,000 in alimony arrears from November 2010 (when the hearing was first scheduled) through March 2014.

While noting that dismissing an action “with prejudice” (a final determination on the merits of the case that precludes further litigation of the matter) because of a party’s failure to comply with discovery is a drastic sanction “generally not to be invoked except in those cases in which the order for discovery goes to the very foundation of the cause of action, or where the refusal to comply is deliberate and contumacious,” the Appellate Division affirmed the trial court’s decision to do so in this case.

In so doing, the Court analyzed the differences between Rules 4:23-2 and 4:23-5 of the New Jersey Court Rules because payor argued that the trial court engaged in an abuse of discretion under 4:23-5 by failing to first dismiss the case “without prejudice” (a dismissal without a decision on the merits that leaves the parties able to litigate the matter in a subsequent action) and then only dismissing “with prejudice” if he failed to thereafter comply.  Disagreeing with payor, the Appellate Court found that while 4:23-5 does, in fact, require the initial without prejudice dismissal, 4:23-2 does not.

Here, payor even acknowledged that he had not been compliant with all discovery demands made, and his position that he and his new wife had provided timely and relevant information was unsupported by the record.  After more than five years of continuous litigation, there was still no clear picture of payor’s earnings, and the trial court found that his “willful and deliberate violations of court orders across a period of more than five years justified dismissal.”  Five years of delay.  At least ten court orders directing payor to provide payee with discovery to which she was entitled.  Still no end in sight.

The Appellate Division concluded, in light of such facts:

  • “[T]he trial court reasonably concluded that it was unfair to plaintiff to be interminably delayed in resolving the alimony dispute.”
  • “Because the judge’s decision was prompted by defendant’s blatant and continuous defiance of several court orders, we perceive no abuse of discretion in her decision to dismiss defendant’s claim with prejudice.”

While there will always be litigants who believe that the discovery rules and obligations are not worth more than the paper on which they are written with the belief that playing games will provide the optimal result, the trial court’s implementation of available sanctions shows that, at least in some cases, there is a price to pay for such non-compliance.

 

*image courtesy of Stuart Miles.