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Divorce Mediation Blog

Alimony in Massachusetts: Discretion “Unaffected”? Zaleski v. Zaleski, Part Three

Wednesday, October 01, 2014

In our last two entries we introduced the SJC’s second case, Zaleski v. Zaleski, on the Massachusetts Alimony Reform Act, eff. 3.1.12, in which it upheld a judgment of 5 years of rehabilitative alimony to the wife at the conclusion of a 16-year marriage; and then we discussed the evolving role of recipient needs as impacted thereby. Here, we consider a remarkable comment by the court in footnote 13, in which the SJC wrote:

    The legislative history clearly shows that the broad discretion judges historically have had in making awards of alimony was not affected by the Alimony Reform Act of 2011.

And:

    Indeed, the Legislature appears to have viewed the creation of the four categories of alimony as providing greater discretion to judges.

The court then cited comments from legislators during the pendency of the bill that do not support either proposition. And if that was “the Legislature’s”, view, it was certainly wrong.

The alimony reform bill was all about changing judges’ discretion: broadening it in some ways and restricting it in others. Without the retention of discretion, neither the Probate and Family Court nor the organized bar would have supported the bill and it is unlikely that the bill would have survived without those endorsements. But to say that this means that the judges’ discretion is unaffected could not be further from reality.

Some ways in which discretion is broadened:

  1. A judge may now fashion short-term awards in appropriate circumstances. These remedies pre-existed the statute but they were dimly defined by case law, and because of the cases, they were reluctantly and rarely applied.
  2. A judge may now reduce, suspend or terminate alimony by reason of the status of cohabitation, something prohibited by the SJC in the last of the cases Bell v. Bell, in the 1980’s.
  3. A judge may now decline to order alimony continuation after social security retirement age of the payor, even if he or she is still earning and need of the payee persists.
  4. A judge may more readily “tack on” years of marriage for pre-marital periods of economic partnership, but within the context of strict durational limits, noted below.

Some ways in which discretion is restricted:

  1. A judge may not order alimony post social security retirement age of the payor except under narrowly proscribed circumstances and conditions.
  2. A judge may not consider expected income from assets being divided in calculating alimony, at least in applying the percentage income differential of the statute.
  3. A judge may not consider second job incomes in modification cases where the income was obtained to facilitate compliance with the initial orders
  4. A judge may only impute income to a party who is alleged to be underemployed with evidence of available employment.
  5. For marriages of under 20 years duration, a judge is prohibited from entering an indefinite duration award; and she has rigid time restrictions with each 5 year block of shorter marriage.
  6. A judge may not extend alimony beyond defined termination points without heightened levels of evidence provided by the payee.
  7. In cases of proven cohabitation and judge must do something, albeit within a range from the symbolic to the terminal.

Different constituencies will argue that some of these changes are positive while others are regressive; but discretion is clearly affected by the alimony reform statute.

We were always taught that we should not cite legislative history in Massachusetts, but neither of us can remember the source of this teaching. But the “why” is now a bit clearer.

Go Back to Rehabilitative Alimony: Its All about the Effort, Or is It? Zaleski v. Zaleski, Part One

 

Alimony Reform and Child Support Changes: Judge Ginsburg’s View

Wednesday, June 04, 2014

In the April 14, 2014 Massachusetts Lawyers Weekly, the most thoughtful Massachusetts Probate and Family Court judge of his generation, Hon. Edward M. Ginsburg (ret), laments that 2012’s alimony overhaul by the legislature and 2013’s quadrennial review and revisions to the child support guidelines by the Trial Court add up to a giant missed opportunity, and a failure that will hurt families for years to come. Specifically, Judge Ginsburg, who devoted a good chunk of his two decades on the bench to advocating for predictability and consistency in all things support points out that no one thought to look at spousal support and child support as a piece. He is right.

We have all been focused intensely on how the new alimony laws work; how the new guidelines work; and how we might manipulate the two into making sensible orders that are tax-efficient. But in debating the trees, we lost sight of the forest: why didn’t the lawmakers look at these two cognate and connected subjects as two parts of the same puzzle that they are? How do we rationalize two sets of support theory into a fair, efficient and sustainable whole, not just for the privileged few who will take the time in mediation, or with sophisticated counsel, to develop a custom-made support regime, but for everyone? Reform is not reform without addressing all relevant considerations; and here, half the house was built as a tudor and the other side a cape. The result is a leaky home.

An example. We recently had to explain the following muddle to mediation clients. Under the new child support guidelines, a mother with 2 children would often receive 18.4% of the Husband’s gross income as child support, and no alimony, he having income of about $200,000.00 per year. The same woman learned that if she had no kids at all, she might expect 30 – 35% of the very same income, as alimony. Granted, we explained, taxable income is worth less than its gross sum. But is it worth less that 18.4% on the gross? Not likely.

Another example. As we have discussed here before, the alimony law says that the court may not take dollars into account that have already been tapped for child support, suggesting that child support is computed first on income up to $250,000.00 per year, with excess income only being addressed for alimony. Meanwhile, the child support guidelines say that the court may calculate alimony first, and then child support. We have argued before that sound discretion and good divorce mediation can turn these conflicts into opportunity in the search for a sensible result. But the legal inconsistency is undeniable.

Would it not have made sense for some body to review the matter of family support as of a whole? Is it too late?

Thanks to Judge Ginsburg for this valuable and disturbing insight.

 

Isn’t it Time to De-criminalize Adultery?

Wednesday, May 21, 2014

In April, New Hampshire repealed its adultery statute. In doing so, it deleted a misdemeanor that was punishable by a fine of up to $1,200.00. Reports were that it had not been enforced in more than a decade, and the state Supreme Court had already eroded it by exempting gays and lesbians from prosecution because their sexual intercourse could not produce a child. New Hampshire joined 3 other states that have recently removed this archaic law from their books. That leaves 20 or so states that still criminalize marital infidelity, including Massachusetts.

Of the remaining statutes, ours is particularly harsh. Unlike Maryland, which threatens straying spouses and their lovers with a $10 fine, our law offers a 3 year prison sentence, a 2 year jail sentence or a fine of up to $500. While New Hampshire’s statute reputedly punished this act with lashes when enacted 2 centuries ago, ours has puritanical roots, too, that are obviously obscured by time and societal change. Our law has also fallen into complete disregard by law enforcement for more than a generation.

After New Hampshire’s repeal, we heard some Boston public radio commentators chuckling about those wacky New Hampshire-ites, seemingly oblivious to the fact that in comparatively liberal Massachusetts, the law is both more draconian and very definitely still on the books. The main impact of continued criminalization is an evidentiary complication in divorce cases, when testimony is impeded by refusals to admit cheating on the pretext of potential prosecution, based on the privilege against self-incrimination of the 5th amendment to the U.S. constitution. It is a small complication since our Supreme Judicial Court permits a judge to draw an inference adverse to the privilege claimant, but to no good end.

Crimes are acts against “the people”, and “the people” gain nothing from this unenforced statute. Its net effects are to clog the flow of evidence otherwise deemed to be relevant and helpful to the alleged “victim”, and minor amusement to lawyers. Clearly, it is not an effective deterrent! Contrary to the argument of New Hampshire opponents to repeal, continuing criminalization does not, by any demonstrable measure, protect marriage.

It is still illegal to graze cows on Boston Common on a Sunday. For a list of other silly laws that remain on state and local books, see www.dumblaws.com. It’s a hoot! There is still plenty of legal nostalgia to go around.

Isn’t it time for repeal?

 

Justice Delayed…

Wednesday, October 30, 2013

In the October 20, 2013 edition of the Boston Globe, Bella English wrote about alimony in Massachusetts, which she described as a model for the country that is being subverted, in her view, by judges who are slow to honor some of the limiting aspects of the Alimony Reform Act (eff. 3.1.12). She focused on a couple of hard cases: one where a judge attributed income to a payor who claimed to have no ability to pay; and another where a judge ordered to a payor to pay past his social security full retirement age.

We read the piece with interest as it dealt with scenarios that we deal daily as Boston area and Western Massachusetts family and divorce mediators and arbitrators. But, as sometimes happens, we were struck in the end, not so much by the main theme of the article, as by by subsidiary detail in the last paragraph; namely that the man's divorce case was heard for one day in January and next heard, for day 2 of trial, in October.

An axiom of criminal law is "justice delayed is justice denied". Well, it is not a constitutional matter for divorcing parties, but it sure is a substantive one. How can a judge possibly remember anything about a single day of trial, ten months later, with literally hundreds of intervening cases heard? How many facts and circumstances have shifted in nearly a year of family life during a truncated trial? For someone who is over-paying, or for another who is not receiving enough, how can a two-day trial over ten months ever serve their needs?

The court system struggles, in some respects heroically, in others with futility, with short resources, longer and increasing demands and a shrinking social safety net. But how can the public feel confident that it is being served, regardless of any substantive law reform, when cases cannot be effectively tried?

 

2013 Child Support Guidelines Preview Part 2: Which Comes First? The Alimony or The Child Support?

Wednesday, July 17, 2013

In an earlier blog entry, we wondered about how various judges might apply what are arguably competing aspects of the presumptive formulae for alimony and child support. Since 2009, the Child Support Guidelines (CSG) have presumptively absorbed the first $250,000.00 of combined family income, while the Massachusetts alimony “reform” statute (eff. 3/1/12), forbids the use of dollars for alimony analysis, when they have already been exposed to CSG treatment. Since neither specifies which calculation comes first, which is the chicken and which the egg?

This is no idle wondering. Given the opposite tax impacts of alimony (taxable/deductible) and child support (not taxable/not deductible), the economic differences in the two approaches can be substantive, even substantial. We noted earlier that judges addressing lawyers’ groups about their own practices in this regard seemed open minded to hearing both sides of the equation. Meanwhile, as Greater Boston and Western Massachusetts divorce and family law mediators, we have been running the calculations both ways all along, not in an undereducated effort to mirror judicial thinking, but to help inform our clients of the differing possible economic outcomes, in seeking consensus on fair and tax-efficient family support arrangements.

The 2013 CSG resolves the question expressly, if not definitively. They state that neither approach is improper, and that under appropriate circumstances, judges may apply either approach. We applaud this approach as it maximizes flexibility, elevating inquiry and analysis over form, in the search for equity and efficiency.

 

Pet Protection: A Judge Takes Action

Wednesday, December 05, 2012

The November 28th Patriot Ledger reported that Judge James Menno, of the Plymouth Probate and Family Court, had entered the first court order of protection for a pet, permitted under a recent statutory enactment signed by Governor Patrick. LDRC’s Chouteau Levine recalls from her years on the bench that serious abuse cases routinely included threats of and/or acts of abuse towards human victim’s pets. Abuse is abuse, whatever its manifestation. That Judge Menno made the first order of this kind in Massachusetts is both random and fitting. No judge has a bigger heart or inclination to use his bench authority to protect and benefit his litigants and their dependents.

Dogs have long been recognized for their forensic and security usefulness to police and military institutions, as guides for the blind and most commonly, as beloved family members. In an era in which offices, hospitals, therapists and even courts are using or experimenting with pets as aides to reducing stress their own uniquely stressful environs, the role and importance of pets continues to grow. We have seen this principle at work in our own practice at LDRC.

For restructuring families, the disposition of pets is a growing demand. Some states have dipped their toes into “pet custody”. We have not, which is probably appropriate. Pets remain “property” under our divorce framework. But, under Massachusetts law, people may now fund testamentary trusts to provide for care of a pet; and now Judges like Menno may enhance the security of these important members of our society.

Good for Judge Menno, and good for all of us.

 

Spousal Medical Insurance After Divorce: A Priority

Wednesday, August 08, 2012

Many, many years after Massachusetts’ (pre-Romney) groundbreaking effort to provide medical insurance for non-employee former spouses beyond the rights provided by the federal COBRA laws, we remain the most advanced state in this regard; but not without our own continuing uncertainties. In the most general terms, COBRA allows a divorced heterosexual person (don’t forget the Defense of Marriage Act: it is, regrettably, still national law) to buy continuing health coverage through the other spouse’s employer plan for a period of up to three years post-divorce only, at a cost of 102% of the cost of an individual plan member. Massachusetts, by contrast, offers an indefinite period of coverage at no cost beyond that required for the employee spouse to cover himself and children under a family plan without a fixed limitation of years; and when child coverage is no longer necessary, the non-employee may still have coverage on the family plan if the employee has not remarried, without a time limit. If the employee spouse marries another person, the former spouse may still be covered at the cost of an individual employee, by use of a rider. The non-employee spouse loses these rights whenever she remarries.

Yet, when the law was enacted, it had a loophole that has not, to this day, been closed:  self-insurance.  The law is an insurance statute and not a generic healthcare provision, so employers who choose not to buy an insurance product for their employees, but instead pay defined medical costs themselves, are exempt for the law, even if the hire an insurance company to provide administrative services to help run their internal plan.  It is likely that self-insurance employers become “insured” for the law’s purposes if they buy “stop loss” insurance (that is, if costs go above a certain amount, an insurance company steps in to cover the excess – think catastrophic coverage for the employer), but this information difficult to ascertain, uncertain and costly for the consumer to enforce.

There also remains a lack of clarity about what is a Massachusetts employer for purposes of the law. Many companies who do business here, but are based elsewhere, continue to contend that their obligations are covered by the (lack of) law to trump or augment COBRA in their home state. There is also uncertainty about what happens to the non-employee former spouse’s coverage if the employee changes jobs or moves out of state. To make matters more difficult, many company human resource departments appear, genuinely or not, to be hearing about our laws for the first time when counsel or client inquires.

For all of these reasons, it is a priority in any divorce action for the parties to gain and share the greatest level information possible about the employee spouse’s coverage, at the earliest time available in the divorce process. This information is all spelled out somewhere in paper or digital format; and if it is left to be treated as a last minute detail of divorce negotiation, or as one that is informed by casual representations only, disastrous and unanticipated consequences can occur. Sometimes, significant time must be invested in communicating with the employer about its state law obligations before they will be acknowledged and honored. In some cases, litigation, or the suggestion of same, may even be necessary.

As always, knowing is essential; and time is an ally.

 

Three Important Massachusetts Valuation Cases

Saturday, March 17, 2012

Bernier v. Bernier (SJC) (448 Mass. 774 (2007)

In this groundbreaking case, the highest court of Massachusetts began the erosion of the “fair market value” standard for privately held businesses in divorce. The case involved two grocery stores on Martha's Vineyard, which the husband owned and operated; and critically, he had no intention to sell either property. The ownership form was and S Corporation, and he was the sole shareholder.

At trial, the husband’s expert witness followed the traditional route and, after deriving a value by using a “income” approach, he applied to discounts of 10% each: one being a “key man” adjustment, and the other for “lack of marketability”. The theory for the first discount was that as owner-operator, the loss of a husband would reduce the value of the business to a third party purchaser; and the second was based upon the reality that there is a limited pool of potential buyers for such a business. The wife's expert did not apply any discounts.

The trial judge accepted the wife’s proposed discounts and the husband appealed. The SJC agreed with the husband, and vacated the trial court valuation. The court's rationale stated, for the first time in our divorce jurisprudence, that the standard of value to be applied was not akin to that which a third party purchaser might pay for the business, but rather, what value was being retained by the owner as its holder, rather than as its seller. The court felt that this was appropriate because:

… where after divorce, the judge must take particular care to treat the parties not as arm’s-length hypothetical buyers and sellers in a theoretical open market, but as fiduciaries entitled to equitable distribution of their marital assets.

Thus, for the first time did a Massachusetts case suggest that the standard of value in divorce could be anything other than fair market value; and based on this premise most experts inferred that the SJC changed the standard of value to “fair value”, the standard applied to withdrawing shareholders in a statutory proceeding. To implement its rationale, the SJC then concluded that where the husband had no intention of selling the business, and where the value of the business to him was not jeopardized by his absence, neither discount should fairly apply, lest the court unfairly penalize the wife.

There were other aspects of this case, notably involving taxation adjustments for an S Corporation, but the trembling ground beneath the feet of divorce lawyers, valuation experts and business owners was caused by this unanticipated departure from the traditional standard of value, and accompanying reduced capacity to discount.

Adams v. Adams (SJC) 459 Mass. 361 (2011)

In this case, the SJC relied upon its previous decision in Bernier, reiterating the fiduciary theory of business property division in divorce, rather than that of the free market. Adams, however, was a far more complicated case involving the valuation of the husband's interest in the Wellington Management Company, LLP. The husband claimed that this partnership interest should be accorded no value in the division of assets, but should be viewed only as a stream of income, which the court might order support. The wife's expert calculated value based on the capitalization of earnings, a result that the trial court (by way of a master) essentially accepted. The husband appealed.

In a complex opinion, the SJC supported the conclusion of the trial court that the husband’s partnership interest was, indeed, a marital asset to be valued and divided. It rejected the notion that because the expected distributions were subject to some degree of uncertainty, that

… a divorcing spouse’s interest in a partnership that produces a consistent stream of profits, and reliably disperses those profits to the partner spouse over a period long enough to appraise the present value of the partnership interest fairly, is, in the discretion of the judge, assignable to the marital estate if it is inclusion would achieve a fair financial settlement.

The SJC then reviewed the valuation methodology advanced by the wife's expert and adopted by the trial court. The “capitalization of income” carried the day below, but not at the appellate level. Rather, the SJC concluded that because the husband’s partnership entitlement to the distributions was limited to a period of years, it was an abuse of discretion to capitalize income, as if it could be received perpetually. The SJC found, instead, that the trial court should have applied “some variant of the “discounted cash flow method”.

Again, there were numerous other aspects of the Adams opinion, but the SJC’s emphasis of its earlier Bernier holding, it’s affirmation of the trial court’s discretion to divide as property a partnership interest that consists of merely expected cash flow (as distinguished from an asset from which one might expect a yield upon liquidation or sale) and its willingness to wade in to the valuation methodology waters, were dramatic.

An important sidebar to this decision was the way in which the SJC handled the expected confidentiality of the information belonging to Wellington. The extreme level of detail regarding closely guarded Wellington financial information was duly noted, and caused the court to withdraw its opinion for several weeks, while it grappled with the fact that the information that it disclosed had been subject to impoundment orders entered by the lower court. After a period of reflection, the SJC decided to retrospectively amend lower court’s confidentiality orders to the extent of the disclosures that they (the SJC) had already made: a surprise, no doubt, to all of the Wellington partners; and a cautionary tale for all who rely upon impoundment orders of the trial court.

Caveney v. Caveney (Appeals Court) _____Mass. App. ____ (2012)

In Caveney, Massachusetts Appeals Court (an intermediate court between the trial court and the SJC) reviewed the first reported Massachusetts appellate divorce decision that involves two experts, both of whom claimed to apply the “fair value” standard instead of “fair market value”, in the wake of Bernier. In this case, the court was addressing a 24.75% non-voting interest that the wife held in three companies that her father had founded, and in which he had transferred equal interests to each of his four daughters (i.e., the father retained “control” despite gifting a 99% economic interest).

The wife's expert urged acceptance of the “assets” or “adjusted net asset method” as the most appropriate methodology for this particular company. Then, despite his purported use of “fair value”, he applied a 15% discount for lack of control because the wife's interest was a distinctly minority one; and he used a 30% discount for “lack of marketability”, presumably reasoning that the market for a quarter interest in the company otherwise held by a father and his remaining three daughters would attract a limited array of investors, at best. The trial judge accepted these opinions and the husband appealed.

The husband argued that the trial judge in this case had run afoul of Bernier, albeit within the application of the posited “fair value” standard. He drew a direct comparison to Bernier, noting that there was no imminent sale of the business contemplated and that, therefore, the lack of control and marketability discounts would unfairly deflate the value for equitable distribution purposes. The wife replied that her minimal interest in the company, and consequent total lack of control, made the interest essentially illiquid to her and thus worthy of the demanded discounts.

The appeals court agreed with the husband on the matter of the discounts, while acknowledging that the wife did not have the same level of control as did the husband in Bernier; but still finding the marketability of her interest to be of “little consequence” here. Noting that a “minority discount” (essentially lack of control) was not specifically at issue in Bernier, the Appeals Court wrote that the SJC had “made clear that such a discount “should not be applied absent extraordinary circumstances.””

The Appeals Court did not disturb the trial court’s acceptance of the net asset methodology, despite the husbands complaint, but without explanation.

Thus, the intermediate appellate court, where the vast preponderance of domestic relations cases are heard and disposed of, appears to have broadened Bernier by extending its “no discount” policy to non-controlling interests, simply because no sale is contemplated. Note: the sale of a closely held company is rarely contemplated in a divorce setting because the asset is generally the most significant source of income to the family. The business owner is often charged with support obligations based upon his or her earnings history from that very company, that most cases, the owner views as his or her optimal earning environment. It is interesting to note that the Caveney court could have, but did not choose to limit it’s holding to the specific facts of this case (as many believe the SJC attempted to do Bernier). The court could have noted that the close identity of interest among the father and his daughters made control irrelevant. And, perhaps, the court could have observed that a piecemeal sale of individual interests was so unlikely as to make marketability marginal as well.

Is Caveney the death knell of discounting business interest values in Massachusetts divorce matters?

 



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