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Divorce Mediation Blog

The Appeals Court Speaks on RSU’s in Child Support: This is Going to Be a Challenge Hoegen v. Hoegen

Wednesday, February 03, 2016

In this child support modification case, a Probate and Family Court judge declined to “count” the husband’s income derived from restricted stock units (RSU’s), granted in a corporate compensation package. He did so on the theory that, in the parties’ divorce agreement, the wife had waived all rights in the husband’s “stock plans”. The Massachusetts Appeals Court reversed this month in Hoegen v. Hoegen, ordering the trial court to re-calculate the increased child support with the husband’s RSU derived income included, because:

  1. The Child Support Guidelines (CSG) definition of income is all-encompassing;
  2. Prior case law (Wooters v. Wooters II), established that stock option generated income is countable towards child support
    (an egregious misstatement of the Appeals Court’s own case, since Wooters was not a child support case at all, and it reviewed the construction of broad underlying alimony judgment that gave rise to a contempt controversy, not addressing the discretion of a court to order alimony from stock option derived income, per se);
  3. The husband “regularly” earned income from RSU’s;
  4. The wife’s waiver was not, under any circumstances, binding on the children (who are the beneficial targets of child support);
  5. The court did not make written findings to justify exclusion of this income, other than the wife’s improperly enforced waiver; and that
  6. The order did not comply with the policy of the CSG, and earlier case law, of enhancing child support to reflect the higher standard of living enjoyed by the financially stronger parent.

The appellate decision has a rational basis, but will be difficult to implement; and, as often is the case, it has implications well beyond the results for these parties. Here are a few that come to mind:

  1. Where the legislature determined that income for alimony purposes is defined by the CSG (as the trial court may change it from time-to-time) does every child support case necessarily require examination for alimony implications?
    We think so.
  2. Where the Appeals Court mandated that RSU’s be counted towards CSG income, does this open the door to more self-adjusting litigated judgments (as distinct from incorporated agreements) in both child support and alimony matters?
    It may have to, given the challenges of doing otherwise.
  3. If not, does this decision encourage speculative alimony and child support awards by requiring judges to project market action between grant date and vesting? Is past performance a reliable indicator of future value? Must a judge allow evidence that it may not be?
    Yes, no and, we believe, very probably.
  4. If the market betrays the judge’s projection, high or low, is that a material change of circumstances?
    Why would it not be?
  5. If the judge bets high, as measured against ultimate market value, and resulting income at vesting, would that make the judgment unenforceable by contempt?
    Given In re: Birchall especially, one would expect so.
  6. If self-adjusting judgments are used, when would RSU income realized for support purposes?
    The only reasonable inference would be at the time of vesting, as that is when income is realized. What right does this imply if employee terminates employment and RSU’s are lost?
  7. If self-adjusting judgments ensue, how does this square with Hassey v. Hassey’s prohibition in the alimony context?
    It doesn’t, because the Appeals Court reversed Hassey’s 30% bonus order as related to §34 contributions, and not to traditional needs and ability to pay alimony criteria. The rules may just evolve differently for the two forms of support, despite the legislature’s deference to the trial court’s discretion to define income via CSG. Not ideal, certainly.

 

A Child Support Puzzlah: Martin v. Martin Part 1

Wednesday, June 10, 2015

The May 13, 2015 "unreported" decision of the Massachusetts Appeals Court, Martin v. Martin, has us scratching our head: it is a Puzzlah, as Tom & Ray used to say.

As always, this Rule 1:28 decision is sparse on facts, but they may be summarized as follows:

  1. In 2009, the husband/father agreed by stipulation/divorce judgment to pay 50% of all of his gross pre-tax income, including salary increases and bonuses, as child support; and that, at no time, would his total annual payment be less than that provided for in the Child Support Guidelines for the parties' (2) unemancipated children.
  2. In 2012, the parties settled the parenting aspects of a complaint for modification, which increased the father's parenting time from about 33% to "up to forty percent of the time".
  3. The parties asked the trial judge to decide whether or not the father should be ordered to pay child support on "joint income over $250,000" (joint with whom?).
  4. The trial court held a "non-evidentiary hearing" (in some form or other), and then ordered the father to pay "additional support in accordance with a calculation dependent on the gross incomes of the parties". The Appeals Court did not set out the Probate judge's actual formula.
  5. The Appeals Court vacated the child support orders on income above $250,000 in the modification judgment because it was "... unsupported by findings that the children are in need of additional support."

Since the fuller facts were not reported, some of our questions may be answered in the actual record, but still, we wonder:

  1. Why did the mother join in asking the judge if there should be support on income over $250,000, when she was entitled to it already under the reported terms of the divorce judgment (#3 above)?
  2. Aren’t modifications supposed to bear some rational relation to the change of circumstances found? The guy had increased his overnights by about 26 per year (from .33 to .40 of 365 nights). What has that got to do with whether or not income above $250,000 is fair?
  3. Was the Appeals Court trying to save this guy from himself, at least in part? At divorce, the father agreed to pay more that half of his net-after-tax income (assuming that he pays taxes!), without any cap or other known relief, in a self-executing formula. Did the appellate panel take pity on a poor soul and give him another bite at the apple, in hopes that the trial court might think better of its order and reduce or eliminate the upper tier(s) of support?
  4. Even if the part above $250,000 were to be cured on remand, what of the 50% order below?
  5. Did anyone ask why an order so blatantly beyond the 2009 Child Support Guidelines was deemed fair and reasonable by the divorce judge?

Maybe, a reported decision would have provided the answers to all of these curiosities. But, we’ll get to that in the next entry.

 

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.

 

Massachusetts Alimony and Child Support: Much Ado About Double Counting

Wednesday, March 19, 2014

At the November 22, 2013 MCFM Institute, and in many other settings, divorce lawyers, mediators and judges have considered and debated aspects of the interaction between the March 1, 2012 overhaul of Massachusetts alimony laws and the August 1, 2013 revamp of the Child Support Guidelines, here. One of the hottest topics was the apparently inconsistent way in which each body of law treats the other! At LDRC, we waded into the deep end by addressing the subject in two blog entries, which we have edited only lightly here for FMQ.

 

2013 Child Support Guidelines Preview Part 3: Whose Income is It, Anyway?

Wednesday, July 24, 2013

Since their 1987 inception, our Child Support Guidelines (CSG) scheme has confined its presumed “mandatory minimum” child support formula to family income falling within a fixed threshold. Initially, the annualized income limit was $75,000.00. Since 2009, it has been $250,000.00. The 2013 CSG do not change the threshold amount; but they do clarify a financially meaningful ambiguity: in two earner high-income families whose income comprises the first $250,000.00 and who’s the “excess”?

Historically, there were two common approaches: count the payor’s income first or apportion the parties’ joint income based on their percentage contribution to the whole income stream. Each created a different child support sum and its own version of excess income (income not absorbed by the presumed minimum child support but still available for alimony and/or additional child support with discretion unbridled by formula, and/or ancillary expense obligations such as medical, extra-curricular and education costs).

Here is an illustration, based on the following assumed facts: payor income of $300,000.00; and payee income of $50,000.00; and one child. For simplicity, without permitted medical insurance or childcare adjustments, the results are:

1. Count the payor’s income first:

Child support = $40,144.00 per year
Excess income = $50,000.00 for and each parent
Likely alimony = none.

2. Allocate the parties’ incomes:

Child support = $34,944.00 per year
Excess income = $85,000.00 payor; $15,000.00 payee
Likely alimony = $22,750.00

These two very different results illustrate a potential for inconsistent outcomes that are anathema to CSG, so the 2013 version settles the question: option 2 is now the rule. This resolution is conceptually consistent with the underlying “income shares” theory of CSG. It also has an economic effect on the parties. In this case, if the payee’s combined effective tax rate is 18% (which it would be assuming no other taxable income or itemized deductions), the net after tax yield is $18,655.00: a result of $53,599.00 of combined alimony and child support vs. $40,144.00 of child support alone.

So, what appears at first blush to be reduced child support is actually a 34 per cent increase in net-after tax total support. This increase might be tempered by shifting more ancillary child costs to the payee, but the differing outcomes are nonetheless stark. We wonder if this was an intentional effort to increase periodic family support payments in high-income cases (despite that many child support payments under 2013 CSG will be lower), or simply an effort to promote uniformity.


  1. Assuming application of CSG before the 2012 alimony law, and not the reverse, as is now permitted under 2013 CSG. See our last blog entry.
  2. The payor’s income is 86% (300/350) of the family’s income, so $215,000.00 ($250,000.00 x .86) of the payor’s income applies against the threshold; and $35,000.00 ($250,000.00 x .14), of the payee’s income comprises the rest.
  3. Using the .325 mid-point of the “general” alimony range.

 

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.

 

2013 Child Support Guidelines Preview Part 1: The Good, The Bad and The Huh?

Wednesday, July 10, 2013

Many of us, one of the writers here included, opposed the idea of the Child Support Guidelines (CSG) when first issued in 1987, fearing that a formula would be the end of thinking. The first iteration of the Massachusetts CSG met applause and consternation, each in considerable proportions. Then a funny thing happened: we began to use them every day. While they were far from perfect, two major objectives were met: greater consistency of outcomes (less variance by reason of county or judge) and enhanced predictability, reducing litigation of the “inevitable” (sometimes to a fault).

Then came the mandatory quadrennial reviews of the CSG, as mandated by federal law, leading only to tinkering until 2009, when they were substantially overhauled. Now, we have the result of latest review: the 2013 CSG. This latest effort, neither tinkering nor overhaul, provides numerous clarifications, application of consensus practices where gaps existed, new concepts and plain adjustment of some economic outcome. The result is a maturing CSG that does benefit from its regular re-scrutiny, and by-and-large, the 2013 changes are helpful and sensible. Some, we question.

Over the next several weeks or months, we will explore some of the 2013 CSG that are immediately apparent from our perspective as Greater Boston and Western Massachusetts divorce and family law mediators. Of course, time will reveal new questions, gaps and perhaps, inconsistencies, and we will address them from time to time as they arise or come to our attention.

Our next entry will consider the priority of alimony versus CSG calculations.

 



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