Edward R. Weinstein, Esq.Edward R. Weinstein, Esq.

Is New Jersey, Is Alimony Based Upon My Gross Or Net Income?

            Alimony is based upon your gross income, unless otherwise ordered by a Judge of a New Jersey Family Court or negotiated in a settlement between the parties and their attorneys..  As divorce lawyers, while our law firm does not provide tax advice to our clients, we do explain how New Jersey’s alimony laws are impacted by taxes.  As alimony is a tax deduction to the person paying and taxable income to the person receiving the alimony, the difference between gross income versus net income can be immense. 

            In Schwartz v. Schwartz, David Schwartz appealed the alimony provision within a final judgment of divorce entered by the Superior Court of New Jersey, Family Part of Bergen County  dated September 15, 2014.

            David and Alison Schwartz got married in the fall of 1997, and had one child together. They divorced in the summer of 2014. At the end of the trial on June 23, 2014, the judge, who just happened to be retiring the very next day, found that David’s base salary was $ 85,000 a year, and and imputed an annual salary of $ 22,500 on to Alison. The court made further note that David earned a monthly commission that fluctuated in value depending on the time of year. The Family Part judge made the decision to calculate alimony twice, based on both the salary, and the commission.

            The Family Part judge ordered David to pay $ 396.64 every week out of his base salary. As to the commission he received, the judge ordered David to pay 30% of its net income to Alison. A short-form dual judgement of divorce dissolved their marriage, and provided that child support and alimony would be incorporated according to the judge’s decisions set forth in the record. Then the Family Part judge directed the lawyers to prepare a final judgment of divorce that enumerated those terms, in addition to the terms included in the former couple’s written agreements.

            The case was reassigned to a different judge, because of the original judge’s retirement the day before. David’s lawyer sent this judge a final judgement of divorce in which the alimony provision relating to David’s income from commission provided that his commission is paid to him at the end of every month, and that he would pay Alison thirty percent of the net monthly commissions after subtracting taxes as an alimony payment.

            Alison’s attorney objected to the language of this provision, and in a letter to the motion judge, dated August 8, 2014, he argued that if the addition alimony payment was based on David’s net commissions, Alison would be doubly impacted unnecessarily through a reduced post-tax percentage on top of having to pay taxes on the reduced amount. The remedy this issue, Alison’s attorney sent a revised draft of the final judgment of divorce to the motion judge, that provided that Alison would receive thirty percent of David’s gross monthly commission as an additional alimony payment.

            The motion judge each party a letter on September 15, 2014, indicating that she had entered the version of the final judgment of divorce drafted by Alison’s attorney. The motion judge supported her decision by stating that based “upon the review of the transcript[,] it is clear that [the retired judge] ordered that [Alison] is entitled to 30% of [David’s] gross commission.”

            David filed a motion for consideration, and noted the parts of the transcript where the original judge stated that the extra alimony was to be calculated from his net rather than his gross commissions. Alison opposed this motion.

            At the oral argument on December 5, 2014, the motion judge informed the litigants that she had once again reviewed the transcript of the the first judge’s decision, and based on that review, it was clear to her that she was wrong in her first review of the hearing. She stated that it was now clear to her that the transcript indicated that the original Family Part judge based the addition alimony award on thirty percent of David’s net commission.

            Alison’s attorney got involved and pleaded with the motion judge not to determine the additional alimony amount based on David’s net commissions because it would result in negative after-tax consequences for Alison. After reviewing these potential tax consequences, the motion judge determined that calculating the additional alimony award based on David’s gross commission would be the more fair option because of the potential post tax consequences for Alison. As such, the motion judge denied David's motion for reconsideration.  The judge included a long footnote in  the December 5, 2014 order memorializing this decision, in which she explained the mathematical calculations she used to conclude that using David’s net commission would give him a double tax benefit and also improperly reduce Alison’s percentage to well below the thirty percent provided for by the retired Family Part judge throughout his decision. David appealed the decision.

On appeal, David argued that the retired Family Part judge very clearly stated that the additional alimony amount should be calculated based on David’s net commissions rather than his gross commissions. After that determination was made, David argued that the motion judge’s role was merely to memorialize and finalize the final judgment of divorce in a ministerial capacity.  As such, the motion judge should not have made any significant changes to the now retired, original Family Part judge’s judgment based solely on Alison’s claims that using David’s gross commissions rather than his net commissions as the calculation method for determining the additional alimony would be more equitable for her. The New Jersey Appellate Division agreed with David.

To start, the New Jersey Appellate Division did acknowledge the the challenging circumstances the motion was faced with in this case. The alimony determination method was made by a different judge who had retired and was prevented from finalizing the final judgment of divorce himself.  After that, the litigants could not agree upon the language to be used in the final judgment of divorce, and the motion judge came in to try and resolve the issue and achieve a result that the motion judge thought was fair to both parties.

Despite the soundness of the aforementioned reasoning, however, it is still well established that an oral pronouncement of a judgment, on the record, in open court, constitutes a judicial act, and the actual entry of the written judge is only a ministerial memorialization after the fact. In Schwartz v. Schwartz, the original Family Part judge stated in his oral decision that the extra alimony should be calculated based on David’s net commissions, rather than his gross commissions, several times. Therefore, the motion judge had a duty to include that language in the final judgment of divorce. Thus, the New Jersey Appellate Division remanded the issue back to Family Part to modify the final judgment of divorce to reflect that the amount of the additional alimony should be calculated based on David’s net commissions, rather than this gross commissions.

Still, the New Jersey Appellate Division made sure to note the unique procedural history of this specific case. The appellate panel explained that if the motion judge had included that original Family Part judge’s decision without any changes in the final judgment of divorce, as she was required to do, Alison would have then had the opportunity to file a motion to challenge the Family Part judge’s decision based on her claim that the same judge might have overlooked or had not realized the actual tax consequences of using David’s net commissions to determine the amount of the additional alimony, as compared to using his gross commissions. Furthermore, Alison could have just filed an appeal of the decision with the New Jersey Appellate Division. Therefore, the appellate panel allowed Alison, under Rule 4:50-1, thirty days to file a motion in the Family Part to seek relief from the new order.