The Pitfalls of Making “Side-Deals” in Divorce

By Robert B. Kornitzer, Esq., and Zach Levy, Esq.

A Property Settlement Agreement (“PSA”) is the blueprint for how the parties to a divorce agree to divide assets, and establish custody and support, among other issues to be resolved. Before the court can properly incorporate the PSA into a Judgment of Divorce, however, it is necessary to establish on the record, that both parties actually understand the agreement and are not entering into the agreement under duress, under the influence of drugs or alcohol, and believe that the agreement is fair. If a party does not completely understand the PSA, does not believe it to be fair, or agreed to it as a result of some improper threat, it is critical that the party speak up prior to a final Judgment of Divorce being entered.  Parties are generally not permitted to re-litigate their divorce later, simply because they decide later on that they could have done better, or agreed to something that they probably shouldn’t have agreed to.

In Corman v. Corman, the plaintiff-wife waived equitable distribution to certain real property owned by the defendant-husband located in Brooklyn, New York. Why the wife agreed to waive equitable distribution with respect to these assets was perplexing to all involved, and something her attorney specifically advised her was a bad deal. Nevertheless, before the Judgment of Divorce (which would incorporate the PSA) was finalized, the wife gave testimony that she understood the terms of the PSA and intended to be bound by it. The wife also denied the existence of any side deals. About one year after the divorce was finalized, however, the wife moved to set aside certain portions of the PSA, including the portion regarding the Brooklyn properties. Contrary to her earlier testimony, the wife now argued that the PSA was essentially a contract of adhesion, and she only agreed to it primarily because of the husband’s promise to keep the family intact after the divorce. The wife also argued that the husband represented to her that the Brooklyn properties were in a state of financial collapse, and he wanted to secure a divorce so he could file for bankruptcy without damaging the wife’s credit.[1]

In the end, the court disagreed with the wife’s position, and declined to set aside the requested portions of the PSA. Applying well-established principals of contract law, the court noted that a party to an agreement (such as a PSA) is bound by the apparent intention that he or she outwardly manifests to the other party according to the actual terms of the agreement. To that end, it is immaterial if the party had some secret or unknown intent, even if that intent differs from the actual terms of the agreement. Accordingly, even if the wife secretly believed she was giving up rights to the Brooklyn properties in exchange for the husband’s promise to keep the family together, that understanding was not evident in the terms of the PSA itself and therefore cannot be a basis to reform the PSA.

The result in Corman shows the major risk a party to a PSA takes by making a side deal that differs from the actual terms of the PSA. If the other party fails to follow through with their end of the side deal, there is a strong likelihood that no recourse will be available to the other party, and they will be stuck with the terms of the PSA as written.

 

[1] It is unclear if this was a misrepresentation.

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Can I Pay Child Support Directly to My Child?

By Zachary Levy, Esq.
zlevy@pashmanstein.com

When children are involved in a divorce, determining an appropriate child support obligation for the non-custodial parent is a key function of Family Court judges. In cases where child support is necessary, the judge will typically order the non-custodial parent to pay a specific amount each month (or other predetermined amount of time) to the custodial parent to ensure that there are adequate funds available to meet the child’s needs. A recent opinion authored by the Honorable L.R. Jones, J.S.C., however, addressed an interesting alternative approach: if the child is over the age of eighteen, can the non-custodial parent can make child support payments directly to the child rather than to the custodial parent.[1]  It is called child support after all.

In the case of Kayahan v. Kayahan, the defendant/father (the non-custodial parent) requested that the court modify his child support obligation, and permit him to make payments directly to the parties’ daughter, who was over the age of eighteen and attending college at the time, instead of to the plaintiff/mother (the custodial parent). Although the father’s request to make payments directly to the child was ultimately denied in this case, Judge Jones noted that such a payment methodology could be permissible in certain circumstances, and identified three main factors that should be considered when determining if direct parent-to-child support payments should be permitted. The first factor is the child’s maturity and history of responsibility. Otherwise put, can the child be trusted to use the support money for its specific intended purpose? If the court feels that the child does not possess the requisite fiscal responsibility or would be too susceptible to the temptations typically associated with being eighteen years old and being away at college, direct payment to the child should not be permitted.

The second factor is the non-custodial parent’s history of paying timely child support. This factor is important because if the non-custodial parent fails make a support payment to the child, the child is far more likely to succumb to guilt or other pressures not to seek recourse for non-payment than the custodial parent would be. Finally, and perhaps most importantly, the court should consider whether there would be sufficient remaining child support funds for the custodial parent to continue reasonably maintaining the child’s primary home without significant economic hardship. In Kayahan, Judge Jones recognized that if the court were to permit a portion of the child support to be paid directly to the child, the remaining portion paid to the mother would not be enough for her to maintain the home and basic budget for the child’s benefit. This, of course, would not be in the best interest of the child, because even though the child was a college student, she was still dependent on her mother for support at this stage in her life.

At the end of the day, Family Court judges have broad discretion to fashion unique remedies based on the specific circumstances of the controversy before them. Although not the norm, direct parent-to-child support payments might be a worthwhile alternative option if appropriate based on the facts and circumstances of the case.

[1] Judge Jones’s opinion can be found here: http://www.judiciary.state.nj.us/decisions/kayahan%20%20opinion%20P.pdf

Considerations When Imputing Income to Determine Support

Robert B. Kornitzer, Esq. and Caitlin Dettmer
rkornitzer@pashmanstein.com

Courts consider a variety of factors when determining what amount of alimony is appropriate.  Among these factors are the actual needs of the person requesting the support, the financial wherewithal of each party, and the earning capacities of each of the parties.  N.J.S.A. 2A:34-23(b).  This last factor may require the court to consider what income, if any, should be imputed (assigned) to a spouse who is either not working or underemployed.  This “imputation of income” is important in determining the extent to which the party requesting support can contribute to his/her own support, as well as the ability of the other party to pay support.  For a party seeking alimony, a higher imputed income to her/him may result in a lower alimony award, so this issue is the subject of much litigation.

An interesting illustration of one way the courts approach imputation of income in the unreported (non-binding) 2014Maine v. Maine. This case discusses an alimony request by a spouse who has some vocational training, but who was not employed in that field  during the marriage.  The wife in Maine sought support and explained that during the marriage, her husband had been the primary financial provider, earning $68,000 a year while she earned only $10,000 a year as a part-time custodian.  The husband argued that the wife should have a higher income “imputed” to her because she was capable of earning more money ($32,400 according to the N.J. Department of Labor (“DOL”)), having trained as a medical assistant during their marriage.

The court determined that while it would impute income to the wife, it would not do so without further inquiry and blindly use the average income of a medical assistant as reported by the DOL.  Instead, the court took into consideration the time it may take the wife to find work at the average income level of a medical assistant, due to her minimal work history in the field.  The wife was assigned an income of $23,000 which the court found she could earn immediately if she were to work forty hours a week at her current hourly rate.  The wife was also given four months to demonstrate that she had sought and was unable to obtain employment at a higher income level, before the court would reconsider her imputed income.

While the DOL’s averages provide helpful guidelines for determining what income should be imputed to someone who has training in a particular field, they are not necessarily representative of the income that a court will impute to a spouse who has a spotty work history in that field.  The Court will examine all specific circumstances surrounding the spouse for whom income is sought to be imputed and will not solely rely on a government statistic offered in a vacuum.

Arrested (and released) for Non-Payment of Support

Incarceration
Incarceration

Recently, New Jersey’s Supreme Court ordered the release of a Hunterdon County man who had been jailed for more than eight weeks for falling behind in his alimony and child support payments and for failing to pay arrears. In a 5-2 vote, the high court granted the petitioner’s application for a stay pending the disposition of his appeal to the Appellate Division. While family court judges are generally loathe to incarcerate the supporting spouse for non-payment, as this can in fact cause more financial harm in the form of lost income or even loss of employment itself, the Hunterdon man was ordered to be jailed after he had fallen approximately $60,000 behind in his alimony payments.

There are many reasons a parent or former spouse may fall behind on child or spousal support payments. They may have lost a job or otherwise had a substantial change in income, which has been a common occurrence in the wake of the economic downturn over the last five or so years,  or they may be experiencing medical problems that keep them from working. In some cases, people blatantly choose not to live up to their obligations.

No matter the reason, it is important to recognize that falling behind on support payments is a violation of a court order. Support enforcement actions brought by the other party can lead to serious consequences, including wage garnishment, loss of professional and driver’s licenses, and, as the man in the case above found out, jail time.

In the above case, the incarcerated party contended that the current support obligations were beyond his means. In the context of child support, when either party experiences a substantial change in financial circumstances following a divorce, they each have the right to petition the court to seek modification of support payments. Where a settlement agreement so permits, such changes may also support a request for modification of alimony as well. Generally, the court will hold an “ability to pay hearing” to determine whether in fact support needs to be adjusted. At these hearings, the petitioning spouse can present proofs about their current reduced income, available assets and overall inability to afford support at current levels and the opposing party has the opportunity to challenge those proofs.

While unemployment is generally viewed as a temporary status, and thus has not customarily been deemed a significant changed circumstance supporting modification, for payor spouses who have lost their jobs – or who have endured a significant drop in income – it is critical that they take affirmative steps legally and not simply ignore their obligations. As the man in Hunterdon County found out, you might find yourself spending significant time in jail.

Savings as a Component of Alimony

Let’s assume two fact patterns.  In the first, the couple saved 20% of their income each year.  In the second, the couple saved nothing.  Each couple is now getting divorced.  Which couple is more likely to have savings added in as a component of alimony?

The not obvious answer is that the couple who saved during the marriage is really not more likely to have savings included in the alimony formula.  The key purpose of adding a savings component to an alimony award is for security in the event alimony may be modified downwards at some point.  It is also to anticipate for the eventual time when the paying spouse retires and/or alimony is terminated.  At that time, savings will be needed to continue support for the spouse who needs the support. 

While the marital lifestyle is reviewed to help determine which “lifestyle” expenses should (and can) be maintained after the divorce, savings as a lifestyle expense really should should be primarily viewed as an expense more akin to insurance that ensures a stream of support.

“CAN I EVER RETIRE?”

“Can I ever retire?” is a question often posed by the client who is paying permanent alimony.  It is also a question that I often dread answering when the client is a business owner as what I am really being asked is not whether s/he can retire, but whether s/he can stop paying alimony. 

The good news is that at some point of time, depending on the job and the requirements of the job, it is reasonable for the payor to cut back on work and eventually retire.  Every job is different.  A union worker or even a judge with a mandatory retirement age is not treated the same as a business owner who is often able to cut back but continue operating a business well into their 70s, 80s or even 90s.   As long as the income flow keeps pouring in, permanent alimony may continue.  The term of art “permanent” alimony may truly end up “lifetime” alimony.

So the better question to ask is often not: “Can I ever retire?”, but “When the time comes that I decide to retire, can I be relieved of my obligation to pay alimony?”  Alimony, especially in New Jersey, is a complex subject, so be certain to give yourself plenty of time to discuss with your attorney the nuances of this often maddening issue.

Isn’t Cohabitation Hard to Prove?

Cohabitation with a paramour may be a basis for modifying or even terminating alimony.  So it stands to reason that the spouse receiving alimony may try to hide from the spouse paying alimony that s/he is cohabitating with an unrelated adult.  Post office boxes and false addresses may even be used to thwart discovery of the truth, which can make it very difficult for the payor spouse to piece the proofs needed to prove cohabitation. 

Luckily for the payor spouse, s/he does not have to provide all cohabitation proofs right away.  Initially, the payor spouse needs to present to the Court only sufficient information to convince the Court that more in-depth discovery is warranted.  Then, the paying spouse will be granted the ability to use the force of the Court to compel production of the information necessary to prove or disprove cohabitation by the former spouse.  At the end, a modification or even a termination of support may be warranted.

Alimony: Does It Work Both Ways?

The “traditional” object of alimony is support of the wife.  In fact, for years alimony has been defined as a continuation of the husband’s duty arising out of the marital relationship to support his wife.  However, as with many gender bias issues that have evolved over the years, the notion that only a wife will receive alimony as a result of divorce is simply not true today.  

Notwithstanding the traditional verbiage contained in case law, alimony may, in fact, be awarded to either party.  The roles of the husband being the breadwinner and the wife being the dependent spouse no longer apply in every divorce situation.  This sociological change was affirmed in the case Lepis v. Lepis, 83 N.J. 139 (1980), when the late Justice Morris Pashman avowed, “traditional notions of sexist stereotypes must be abandoned.”  Thus, for at least the Continue reading “Alimony: Does It Work Both Ways?”