One might think that by sixty-six years of age, New Jersey alimony laws should allow you to retire and have your lawyer successfully file a motion to terminate your alimony obligations to your ex-spouse. This may be a valid change of circumstances to compel a judge of the Family Part of the Superior Court of New Jersey that would compel a judge to terminate alimony. However, as per New Jersey’s alimony laws, an experienced divorce attorney is aware that many factors go into the court’s analysis. The very recent case of Starr v. Starr, established that a reduction of income, such as involuntary retirement, is a valid change of circumstance that will warrant a recalculation of alimony. However, the fact that the payer of alimony could not explain what happened to over one million dollars that he had received almost ten years earlier, amongst other factors, lead the court to reduce (or modify) the alimony payments as opposed to a complete termination. The New Jersey Appellate Division agreed. Following let’s dissect this complicated case.
In 2012 a trial court held a plenary hearing and determined that change of circumstances warranted the reduction of Joseph Starr’s alimony award. The previous alimony award was set at $3,500 per month and was a part of the party’s 1998 final judgment of divorce. Despite the reduction, Joseph appealed the decision. On appeal, he argued that the alimony award included in the judgment of divorce should be set aside because the trial judge did not consider the legal factors set forth in New Jersey Statute 2A:34-23(b), the new alimony award was incorrectly calculated and should be set at an amount below $550, and that the lower alimony amount should have been made retroactive to the date of his retirement, or the filing of his motion. In his ex-wife Elizabeth’s cross appeal she argued that the trial court incorrectly denied her request for counsel fees, and failed to impute income of $ 150,000 in allegedly improper tax deductions to Joseph.
The Appellate Division started its opinion by stating that the time for an appeal from the 1998 alimony decision had long passed. No further discussion on the first point of argument was necessary. On Joseph’s motion to terminate or reduce his alimony obligation, the trial courts written decision observed that the party’s final judgment of divorce was silent about the effect of retirement and failed to include a provision prohibiting the modification of alimony on a change of circumstances basis. The current motion followed two unsuccessful motions that sought to eliminate or reduce alimony.
Joseph was employed as the Vice-President of Slot Operations for the Hilton Hotel in Atlantic City. According to his 1996 W-2 he earned $320,083 from his combination of salary and payments from his employee deferred compensation plan. Elizabeth on the other hand was a legal secretary and only earned $ 40,368 a year. The judgment of divorce provided for the division of their assets and set Joseph’s permanent alimony obligation at $ 3,500 per month. After the divorce, Joseph continued to work in the casino industry until 2005. Joseph had been advised that his position was being phased out, and so he accepted a severance package.
In support of his motion, Joseph submitted a certification, within which he stated that he had not earned any income since January 2010. He contended that that he supported himself on social security income of $ 23,376 every year. According to his 2011 income tax return he had an income of $ 96,353, which consisted of a $ 79,000 disbursement from a retirement account and $ 17,353 in social security income. Interestingly, Elizabeth was now earning more than Joseph. Her 2010 tax return reflected that her income was $ 102,580, of which $ 60,580 was earned income and $ 42,000 was alimony.
The trial judge found that Joseph acted in good faith in accepting the severance package and retiring at the age of sixty-six, that he attempted unsuccessfully to obtain comparable employment and had not been employed since 2005. Furthermore, the court found that Joseph had sold assets and withdrawn money from his retirement account to make up for the decrease in his income. At the same time, the court found that Elizabeth’s income had “increased significantly” since the judgment of divorce. Taking all the facts in consideration the court concluded the evidence demonstrated a significant change in circumstances which necessarily required the court to re-examine and re-set Joseph’s alimony obligation. Consequently, the court reviewed the relevant statutory alimony factors as they applied to Joseph and Elizabeth, and accordingly entered an order that established an alimony obligation of $ 550 per month. Still, the trial court was sure to note that it retained significant concerns in regards to Joseph’s finances, especially, what Joseph did with the first installment of his severance package, which was over $ 1 million, and his investment in China Trade Rite U.S.
Joseph testified that he invested $ 25,000 in China Trade Rite and obtained a 25% interest in the company in 2005. According to Joseph, the company was never profitable and he sold his interest in 2010 for $25,000. Elizabeth presented expert testimony from one Frank Pelosi, a certified public accountant. The testimony raised serious concerns about the accuracy of the tax returns and the legitimacy of the losses claimed on the same returns for the operation of China Trade Rite. Regardless, the court did not believe it was proper to impute income on Joseph based upon those issues.
Joseph’s W-2 form for 2005 reported an income of $1,053,627. In his testimony, Joseph contended that his income for that year consisted of his $ 180,000 salary, a deferred executive compensation plan payment of $ 138,000, and profit from his exercise of stock options as per his separation agreement. The court was not satisfied that he was able to provide a reasonable explanation for what happened with the money he received in 2005. During testimony he stated that he spent $ 60,000 on dental work. He further contended that half the money was spent on “liquor, gambling and wild women, and the other half was wasted. Joseph’s failure to account for the $ 1 million he received in 2005 was the basis for the courts imputation of his income. Using the income imputed to Joseph, and his declared expenses, the court concluded that he would have a shortfall of $ 1048 every month if his alimony was reduced $ 550 every month. Taking Elizabeth’s income into consideration, the court calculated that a $ 550 alimony award would reduce her shortfall to a virtually equal amount.
Elizabeth filed a motion for reconsideration, and Joseph filed a cross-motion, which sought the termination of his alimony obligation, and the termination of his obligation to maintain life insurance. The trial judge agreed with Elizabeth’s accounting expert Pelosi that his goal had been to equalize the financial positions of the parties. The trial judge also found Pelosi’s calculation represented a more accurate calculation of the party’s net incomes. He also agreed that if he had accurately mathematically calculated each person’s shortfall taking into account the effect of taxes, the alimony would be $ 750 per month, and modified the alimony accordingly.
On appeal Joseph argued that the initial reduction to $ 550 was flawed and the error was furthered after the reconsideration that increased the alimony to $ 750. He argued that the trial judge: failed to consider that his income and assets were significantly lower than Elizabeth’s; incorrectly imputed income on Joseph; and failed to take into account the effect of taxes on him after taking into account the effect it would have on Elizabeth.
The Appellate Division found that Joseph failed to present financial information in opposition to Elizabeth’s motion regarding tax consequences on his income. The question of where the $ 1 million dollars went, still remained a mystery. New Jersey Statute 2A:34-23(b)(11) provides that in setting an alimony award, the judge must consider the income available to each party through investment or any asset held by that party. A spouse may not hide or insulate his or her assets from the alimony calculation by investing those assets in a non-income producing manner. When determining an alimony award, the trial judge may impute income when a spouse is voluntarily unemployed, underemployed, or when a spouse’s investment decisions cause an asset to generate less income than might be earned via an alternative investment.
Therefore it was appropriate to impute a reasonable income from Joseph’s investments comparable to a practical use of his investments. Even though it is true that trial court did not make any adjustment to the alimony award based upon an assessment of Joseph’s tax obligations. The possibility that there were real tax consequences were found to be purely hypothetical. Thus, the trial court’s decision was confirmed in all aspects except one. The Appellate Division reversed the conclusion that a 4% rate of return should have been used to calculate income to be imputed to Joseph, and ordered a new trial to determine the appropriate rate of return.
As the controversial issue of alimony continues to rage on here in New Jersey, please call or email my office if you would like to learn more.