You Can’t Take It With You, But Can Your Spouse?

When a party in a divorce action dies during litigation, the right to equitable distribution disappears. This is because equitable distribution is specifically awarded upon final dissolution of a marriage. The courts, however, have allowed exceptions to this principle; crafting equitable relief to prevent clearly unfair results, such as to prevent one party (or estate) from being unjustly enriched or to prevent fraud by one party upon the other.

In the 1990 case of Carr v. Carr, 120 N.J. 336, our Supreme Court reviewed the equitable distribution claim of a wife following the death of her husband. Despite the couple having been married for seventeen years, the husband’s will left the entirety of his estate to his children from a prior marriage. Because there was also divorce pending, the wife’s rights to at least a spousal share of the estate were in question. Reviewing the probate and equitable distribution statutes, the court concluded, “the principle that animates both statutes is that a spouse may acquire an interest in marital property by virtue of the mutuality of efforts during the marriage.” It thus held that, “if warranted by the evidence,” a court can act to prevent unjust enrichment where equitable distribution becomes unavailable because of the death of one party prior to the entry of a Judgment of Divorce.

Twenty years later, the Supreme Court revisited these principles in the case of Kay v. Kay, 200 N.J. 551 (2010). In that case, the roles were reversed somewhat, as the deceased spouse’s estate was seeking relief from the surviving spouse, who was accused of having improperly diverted assets. Once again, the court authorized equitable relief to promote fair dealing and to ensure that, “marital property justly belonging to the decedent will be retained by the estate for the benefit of the deceased spouse’s rightful heirs.”

This brings us to the Appellate Division’s recent unreported decision in Beltra v. Beltra, 2014 WL 8096146, decided just last month. In this case, plaintiff-wife filed for divorce after a thirty-four year marriage. She was subsequently diagnosed with a terminal illness and tragically died six months into litigation, and prior to a final hearing. The estate was permitted to substitute in and the parties had a five-day trial to determine equitable distribution. The trial court’s written opinion was scathing in its assessment of defendant’s behaviors. It noted that defendant’s, “non-verbal actions were extraordinary in demonstrating his lack of candor with the court.” It noted he was “evasive” and that his testimony was “inconsistent.” More still, the trial court found he had made substantial deposits of cash generated from his business into foreign banks, purchased foreign assets with cash payments, and had interests in a number of spin-off businesses – much of which remained undisclosed to the wife/estate even after multiple contempt orders for his failure to disclose.

The trial court entered an award of assets and husband appealed. The appellate division vacated the order and remanded the matter for further findings. Following additional argument from the parties, the trial court specifically noted that exceptional circumstances warranting equitable relief existed and reinstated the original order for distribution. The judge further imposed a constructive trust on defendant’s assets.

Defendant again appealed, this time challenging the trial court’s imposition of a constructive trust, and arguing that because the estate failed to demonstrate “the nature or value of the subject assets,” it was error for the trial court to order distribution.

Unmoved by defendant’s arguments, the Appellate Division noted that, “[t]he facts were so flagrant and defendant’s offered explanation so unbelievable, the [trial] judge reported the apparent unreported income to regulatory and law enforcement agencies.” Moreover, the appellate court called out defendant’s extreme bad faith in arguing wife’s inability to ascertain the value of the assets. It highlighted the fact that because of defendant’s efforts to hide assets, plaintiff provided what information she could obtain. Thus, it was unreasonable to place a burden of proof on the party not having access to evidence to support that burden. Finally, the Appellate Division affirmed the use of a constructive trust to remedy the inequity caused by defendant’s clandestine efforts, and to “protect the right to claim marital assets in a matrimonial action.”

This case is an extreme reminder of the complexities that can arise in matrimonial litigation. The conflicting intersection of estate and divorce law clearly shows the potential for clients to be left in a legal “black hole” of sorts. To the extent that case law has developed to limit the possibility of parties being left without recourse, it is instructive that the Appellate Division first remanded the matter back to the trial court for specific findings in support of its imposition of equitable relief. That is, the ability to avoid this possible black hole is not guaranteed. As a practical matter, then, it is important that the right to relief is not simply assumed because of one party’s untimely death.

While death itself may seem to beg the question of inequity, this is clearly not the case. It is, therefore, critical that the court be presented with an explicit basis on which to find that equitable remedies are necessary to avoid injustice. There are a myriad of scenarios where the interests of justice might suggest leaving the parties “as is,” such as insolvency, or where a surviving spouse must continue to care for an unemancipated child, or where the parties each have substantial independent wealth, to name but a few. On the other hand, where one party acts to obstruct discovery, the Beltra court’s understanding with regard to burdens of proof counsels that the other party should not be penalized for being unable to present proofs beyond that to which they had reasonable access.

As is so often the circumstance in matrimonial matters, the specific facts of any given case matter. While Beltra reinforces important guiding principles for a serious, yet infrequently occurring, situation, more than anything it highlights that ensuring fairness between the parties is what matters most.

 

 

 

Advertisements

Boilerplate Language in a Matrimonial Settlement Agreement

Every well-drafted Matrimonial Settlement Agreement (“MSA”) contains what seems like endless pages of paragraphs that clients often gloss over, called ‘boilerplate language’.  I include this in each MSA that I draft.  Some attorneys include little of the language.  When agreements are verbally placed “on the record” in Court, much of the boilerplate language is actually ignored.

But the boilerplate language should not be ignored and it often has an immense impact down the road.  For example, a “Waiver of Discovery” paragraph will generally preclude a person from later claiming that their spouse did not supply the financial data that should have been supplied. 

Another example is a paragraph included in which a person representing himself acknowledges that he could have been represented by counsel but  is satisfied that he has represented himself.  This could preclude him from later arguing that he did not understand his rights or even the MSA language itself. 

I mention the above because it has been my frequent experience to consult with someone who complains that he either did not understand the agreement or that he thought he agreed to something other that what is the clear language of the MSA.  As the saying goes: the devil is in the details.  In an MSA, the details are not merely filler.

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.

How Should I Approach “Discovery”?

Litigant’s often wonder how seriously they must take the “discovery” process.  Discovery essentially boils down to the gathering of information about the marriage and the litigants that later may become the foundation of a final settlement or trial decision.  The answer is: very seriously.  Continue reading “How Should I Approach “Discovery”?”

Beware Unreported Income

What happens when a divorcing couple has not historically reported their accurate income on their tax returns?  This is a common theme in divorces, especially when the divorcing couple owns their own business. What may have seemed like a great way to maximize “take-home-pay” (by paying expenses directly from the business) when married, may backfire once the husband and wife debate as to what was the true income earned during the marriage.

The case frequently referred to by Courts on this issue is Sheridan v. Sheridan, 247 N.J.Super. 552 (Ch. Div. 1990),  in which trial judges were determined to have a duty to report unreported income to appropriate authorities (such as the IRS).  On a practical level, the cloud of getting the IRS involved in a couple’s divorce can have a large impact on negotiations for support and ultimately, the decision on whether to risk a trial before a Superior Court judge, have an arbitrator make decisions, or simply settle out of court.