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Divorce Mediation Blog

The SJC Weighs in on Self-Adjusting Alimony Orders and Recipient “Need”: Young v. Young, Part 4

Wednesday, November 29, 2017

“Marital station, when?”

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In this entry, we will begin discussing how the Young case determines “need” in the context of alimony.

We have long known that need is a relative term. “The standard of need is measured by the ‘station’ of the parties -- by what is required to maintain a standard of living comparable to the one enjoyed during the marriage.” Grubert v. Grubert, 20 Mass. Ap. Ct. 811, 819 (1985).

This is sensible, given that marital station is fueled by the parties’ financial resources, generally income from employment or self-employment. For one couple, subsistence may characterize the marital standard; while country clubs, international travel and maybe even cash available for investment, might be necessary to grasp the breadth of a high income living standard.

In Young v. Young, the trial judge chose to characterize standard by observing that:

    The husband's substantial compensation package allowed the parties to enjoy an affluent, upper-class station in life and marital lifestyle during their marriage.

Critically, she did not “…make a finding regarding [the wife’s] actual weekly or annual expenses or needs.”, as seemingly required by Grubert’s “what is required” mandate. (More on this is a later blog entry.)

The case does not disclose whether or not the judge looked at this question with a temporal focus, yet it is something that we have always found to be unclear in our law. After all, “during”, without more, seems to cover an entire marital span, in this case, 24+ years.

In many cases, the parties separate at their highest income level, when careers are successful and linear. But, what of couples with variable living standards because of industry volatility, entrepreneurial cycle, episodic illness or simple luck (good or bad)? How to measure their marital living standard?

The Supreme Judicial Court (SJC) approached this problem in Young for reasons that are not apparent, since there was no evidence recited beyond the expectation of unceasing rise of standard. The SJC had touched on it in Pierce v. Pierce, 455 Mass. 286, 296 (2009), which the Young court summarized as

    … [T]he recipient spouse’s need for support is generally the amount needed to allow the spouse to maintain the lifestyle you were she enjoyed prior to termination of the marriage. (Italics ours)

“Prior to” implies, at least, that trial judges should look to a timeframe that is somehow proximate to divorce, and the Young court looked approvingly to a treatise, stating:

    [S]ee also 1 Lindey and Parley on separation agreements and antenuptial contracts §22.63[2][e] (2d ed. 2017) (‘standard of living experienced during the several years before the divorce [is] relevant for alimony determination is pre-separation standard of living)… (Italics ours)

And yet, at Footnote 8, the Young case states:

    In light of this conclusion, we need not address the husband's argument that the judge was clearly erroneous in finding that the husband's income will continue to grow on an "upward trajectory." Even if it did, the wife's alimony would still be limited to the amount needed to allow her to continue to live the lifestyle she enjoyed at the end of the marriage. (Italics ours)

So, which is it? At the least, the SJC’s mixed signals may open the door to living standard evidence that is broader than simply that which existed on the eve of divorce, inviting evidence that might have been excluded previously on relevancy grounds, and it may allow the courts to take account of the more volatile, or inconsistent at least, economic fact patterns, which probably makes good sense.

Think: a high standard that dips late in marriage, or a lower one that spikes at the end. Giving the trial judge access to broader evidence suggests concomitant discretion in the ultimate marital standard finding.

As divorce mediators, we think it is good to encourage parties to look at the “need” question more openly; and as family law arbitrators and masters, it is instructive to know that SJC recognizes the possibility at least that “station” evidence need not be static in appropriate circumstances.

In the next entry, we will discuss a particular challenge that the trial court with have on remand in the Young case.

 

GOP Plan to End Alimony Deductibility: Time to reform the Alimony Reform Act?

Monday, November 20, 2017

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The House GOP seems to think that repealing §215 of the Internal Revenue Code is a good idea. We have long believed that there are probably too many alimony-paying lawyers in Congress to let this day ever come. It probably won’t, but if it does, it will plunge the Alimony Reform Act (ARA) (eff. 3.1.12) into crisis. Either way, the legislature needs to respond.

M.G.L., ch. 208, §48 defines “alimony” as: “the payment of support from a spouse, who has the ability to pay, to a spouse in need of support for a reasonable length of time, under a court order”. Nothing about tax impact. The drafters, like us, clearly took deductibility under federal and state law for granted.

Moreover, M.G.L., ch. 208, §53(b) defines a “reasonable and lawful” presumptive formulation for general term alimony, stating the general term alimony should generally not exceed the recipient needs, or 30-35% of the difference between the parties’ applicable gross incomes.

This statutory range makes the same once-safe assumption: that IRC §215 allows parties to leverage dollars to the family’s benefit, by shifting income tax from a higher progressive tax rate of the payor, to the payee’s lower rate.

If the alimony deduction dies, it will take the viability of §53(b) along with it. Yet, the zombie statute will persist, entitling litigants to rely on it, despite its infirmity; unless and until the state legislature takes corrective action. This will not happen overnight – these things never do – and in the meantime… Sophisticated divorce agreements have “savings” clauses, which help people adjust alimony sums in the unlikely event of a deductibility repeal, and the GOP plan grandparents existing judgments, at least until modification. But modification cases and new divorces won’t get off so easy.

Maybe, the legislature should take the GOP proposal as a warning shot, at least. The legislature could act pre-emptively. Sections 48 and 53(b) at least need reformulation, regardless of Congress’ ultimate action. We should convert the assumption of the tax-shifting leverage of continued deductibility for alimony into a clear predicate for the ARA, with provisions to address the alternative.

And, if the unthinkable happens, it’s better get started now.

 

The SJC Weighs in on Self-Adjusting Alimony Orders and Recipient “Need”: Young v. Young, Part 3

Wednesday, November 15, 2017

What did the court decide and why; and might it have decided differently?

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Here, we delve into the SJC’s analysis in Young v. Young.

Young was high income case, in which the husband’s executive compensation fueled a persistently rising lifestyle (“affluent, upper class”) for the parties during a 24-year marriage. Both parties sought fixed sum alimony in the wife’s favor, but at broadly disparate levels.

After trial, the Probate and Family Court judge concluded that the wife’s sworn representation of the costs required to maintain the marital station (i.e., her “need”) was unreliable; and that the husband’s compensation scheme (i.e., his capacity to pay) was complex, not clearly predictable, but implicitly at least, likely to maintain an upward trajectory.

Critically, the judge did not quantify the wife’s “need” in a finding. Instead, the opinion suggests, the trial court defined the marital living standard as an intangible expectation of rising station, supported presumably by family history, and with no apparent end in sight.

In light of her findings, the trial judge rejected both parties’ alimony proposals, and ordered the husband to pay the wife 1/3 of his gross income derived from his work compensation in its various forms, with neither a base guarantee for the wife (floor) nor an upper limit for the husband (ceiling). Recognizing that the judgment would leave the parties in a thicket of disclosure, verification, enforcement and potential conflict, the judge imposed a special master to address future conflicts, at the parties’ expense. Think, alimony coordinator. (More on that in a later blog entry.)

The husband appealed, and prevailed, when the SJC vacated the formulaic alimony award and remanded to the trial court to re-cast the alimony obligation as a fixed sum. The core rulings are neither complex nor novel on their face. They are:

  1. Variable or self-adjusting alimony orders are not per se prohibited, but they are to be limited to “special”, though not necessarily “extraordinary”, circumstances; and that
  2. Self-adjusting alimony orders that “intend” to elevate the recipient spouse’s standard of living above the marital station are prohibited.

Now, just what are “special circumstances”? We are tempted to emulate the late Supreme Court Justice Potter Stewart and say that we would know them when we see them, but to date, we only know of two examples, both noted by the Young court:

  1. An alimony recipient living in a foreign land during high inflationary times, with a self- adjusting cost-of-living increase that is intended to protect the value of an alimony order that is a sum, per Stanton-Abbott v. Stanton-Abbott, 372 Mass. 814 (1977); and
  2. An alimony payor who is ill at the time of divorce, with depressed earnings for a period of recovery, and the expectation of resumed earnings that are closer to the marital experience, when health returns, per Wooters v. Wooters, 42 Mass. App. Ct. 929 (1997).

The paucity of fact precedent has long made trial judges reluctant to even consider variable support awards, and we expect that the Young decision won’t likely change this institutional reticence. As we discuss below, we see this as unfortunate.

In the meantime, what of the marital station? The SJC’s emphasis on recipient “need” is both deeply entrenched in our law, and unsurprising. After all, need and ability to pay have long been the accepted pillars of spousal support. But we wonder several things:

  1. What if the trial court had made a traditional finding of “need”, expressed as a dollar amount required to meet it;
  2. What if she had made a finding that even at the rarefied level of Young finances, when following the 30-35% range of a “reasonable and lawful” alimony order (Hassey v. Hassey, 85 Mass. App. Ct. 518 (2014)), the wife could not live at the marital standard formerly funded when the parties lived as one household?
  3. What if the trial court had quantified “need”, and capped the amount that the Wife could have received by application of the percentage formula, at that level?

Would these counterfactuals have led the SJC to find that the orders were not “intended” to exceed to wife’s recovery beyond the marital standard? After all, the Young court stated, with credit to both Stanton-Abbott and Wooters, that:

    [We] reject the argument, as we have before in a different context, that a judge lacks statutory authority to order a supporting spouse to pay alimony in an amount that may vary according to variables or contingencies set forth in the order, such as the income of the supporting spouse…

    [and]

    [We] do not consider every change in the amount of payment under such an alimony order to be a modification of the judgment, which we recognize would require a showing "by the party favorably affected the conditions [have] changed justifying the modification” …

    [and]

    [T]here may also be special circumstances where an alimony award based on a percentage of the supporting spouse's income might not be an abuse of discretion, such as where the supporting spouse's income is highly variable from year to year, sometimes severely limiting his or her ability to pay, and where a percentage formula, averaged over time, is likely not to exceed the needs of the recipient spouse.

    [but]

    Here, the percentage-based award ran afoul of the act and therefore was an abuse of discretion not because of its variable nature but because it was intended to award the wife an amount of alimony that exceeds her need to maintain the lifestyle she enjoyed during the marriage. (Italics ours)

If those findings had been made, we think they could, and should have, held differently.

Interestingly, the SJC did not comment upon the fact that the Young percentage-based support award also protected the husband from the very danger noted above: that his income might dip (it generally does at some point), and “severely limit his ability to pay” support commensurate with the marital standard. Had this been noted by the judge, might the SJC been more sparing in its critique? Maybe.

The primary purpose of an SJC case is to determine if there was error in the case before it, and secondly, but not necessarily secondarily, to create precedent for future cases. For every Young case, the trial court will encounter thousands of cases in which the marital station is in no way attainable on a 30-35% alimony award, and in which the court could carefully craft orders that meet all of the SJC’s concerns discussed above, without consigning the courts and the parties to serial modification actions.

In this respect, the Young decision represents a missed opportunity, in our view.

Finally, the SJC noted that variable support orders can lead to contention because of poorly worded criteria and complex compensation schemes. Correctly, the Young court pointed to the trial court’s appointment of an alimony coordinator (our term) to police the judgment; an unauthorized and unaffordable solution for most couples (though, ironically, affordable for thee parties). The court also lamented that formulaic orders could encourage fraud, and collusion between employers and employee alimony payors.

These are real concerns, but ones that exist in every case, regardless of the support structure, and based on this rationale, the trial courts should not accept settlements with self-adjusting formulae, which they properly do every day. It is equally lamentable, that the SJC does not apparently deem the bench and bar capable of proposing and adopting high quality judgments. We fear that this aspect of the case is rejecting the good because it is not perfect.

In our next entry, we will discuss the Young case treatment of determining how to determine “need” and the trial court’s particular challenge in this case to do what the SJC has ordered with respect thereto.

 

The SJC Weighs in on Self-Adjusting Alimony Orders and Recipient “Need”: Young v. Young, Part 2

Tuesday, November 07, 2017

“What are they, anyway?”

We introduce the subject that the Supreme Judicial Court (SJC) addressed in Young v. Young by examining the kinds of orders from which the case arose: variable or self-adjusting support orders. Here, we address the basics.

What are self-adjusting support orders? They are alimony orders expressed by a formula rather than a sum. The payor computes alimony periodically by applying a percentage to his or her defined income. Sometimes, different (usually declining) percentages apply to different tiers of income, and increasingly, thanks to M.G.L., ch, 208, § 53(b) (of the Alimony Reform Act (ARA) of 2011, eff. 3.1.12) the percentage(s) may apply to the parties’ income differential.

Think: Client A pays Client B 32.5% of the difference between the two parties’ gross pre-tax employment income each year, as received, and subject to a periodic true up after sharing of agreed income verification.

Who makes self-adjusting orders? Most often, self-adjusting alimony orders are a creature of agreement. A judge then approves and incorporates the agreement in its judgment, making the self-adjusting features court orders. For reasons discussed in previous and subsequent blog entries, judges rarely initiate such orders, being limited to doing so only in “special circumstances”, which Massachusetts caselaw has thus far identified only two: where an alimony recipient lives on another continent during high inflation times, which may justify an automatic cost-of-living provision; and one in which the payor was ill at the time of divorce, with resulting depressed earnings, but the court expected return of his historic income when his health recovered. We will discuss this standard more fully in a later blog entry.

Who uses self-adjusting orders? Most parties adopt this approach because the alimony payor’s income is subject to significant fluctuation, sometimes on the upside (think: bonuses or commissions) and sometimes up or down (think: profits). It protects the payor from having to pay alimony on income that he or she does not actually receive (downside risk protection), and the recipient is compensated by sharing when income is higher (upside benefit sharing). It echoes the way an intact couple live, economically.

Why don’t courts initiate many self-adjusting orders? The general answer is that self-adjusting orders “feel” like a violation of “due process” rights because they change the amount of support without the right to a court hearing for the purpose of showing current facts and circumstances that might mitigate against the change. The more precise reason is that case law discourages it. Young v. Young will likely reinforce the reticence of cautious judges; but we will suggest later that this ought not necessarily be the case.

In the next blog entry, we will begin to discuss the analysis that the SJC used in Young, and the standards suggested by it and earlier law.

 



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