781.708.4445

info@levinedisputeresolution.com

Divorce Mediation Blog

No Country for Old Men, Part 5: The Appeals Court Tells 79-Year Old Alimony Payor “Si, Mas” Muellner v. Muellner

Thursday, September 06, 2018

Levine Dispute Resolution - Alimony

In an unpublished opinion under Rule 1:28, the Massachusetts Appeals Court recently consigned a septuagenarian couple to resumed legal combat in the Probate and Family Court, 14 years after their divorce. The appellate court vacated two modification judgments of the Probate and Family Court, reducing the now 79-year-old husband’s alimony to his former wife, for the judge’s failure to “demonstrate ‘appropriate consideration’” of:

  • the husband’s ability to pay;
  • the wife’s financial need; and
  • the “intent” of the parties as evidenced by their divorce agreement.

Putting aside completely the M.G.L., ch. 208, §49 (f) presumption that alimony terminates upon the payor’s attainment of full social security retirement age - a distant memory for this payor - since this divorce predated the Massachusetts Alimony Reform Act (eff. 3.1.12) (See, LDRC previous blog entries, “No Country for Old Men”, Parts 1 through 4) this decision is problematic for at least two reasons:

  • it appears that the trial judge is faulted for not considering information that the parties didn’t offer him at trial; and
  • the Appeals Court’s inference of the parties’ intent is pure speculation – the kind for which it might well criticize a trial judge.

Ah, Rule 1:28 decisions. The facts are not “fully addressed”, but one fact that the Appeals Court did disclose is that both modification “trials” were decisions entrusted to the Probate and Family Court judge by agreement of the parties, to be rendered on “stipulation[s] of facts in lieu of testimony”. No one gave direct testimony, and no one was cross-examined, no experts opined.

In other words, no trial at all, with all of its glorious inefficiencies and protections.

Then again, this is what the parties signed up for. Competent adults are, or should be, allowed to make decisions, including ones that disadvantage them. These parties were not juveniles – far from it – and they chose the rules by which they would play. No parens patriae, here. Essentially, they put the judge in the position of an arbitrator, limiting the evidence and circumscribing procedure; and accepting that the decision in generally binding.

The specters of 80-year-olds paying alimony, golden years spent in litigation and my self-indulgent blog title totally aside: shouldn’t the Appeals Court have left well enough alone?

 

Alimony and the TCJA: A Common Misconception

Wednesday, August 15, 2018

Levine Dispute Resolution - Jonathan E. Fields

By Jonathan E. Fields

Under the Tax Cuts and Jobs Act of 2017, alimony will no longer tax deductible to the payor and no longer tax includable to the payee, effective Jan. 1, 2019.

The law was a shock to many, particularly divorce lawyers, most whom had gotten used to the way things had been for the last 7 years. There is a saving grace in the Tax Cuts and Jobs Act, or TCJA, however: Qualifying agreements and modifications can be grandfathered into the old taxability treatment subject to certain requirements.

Specifically, unless the parties opt­in to the new law, the TCJA applies to “decree[s] of divorce or separate maintenance or written instrument[s] incident to such ... decree[s]” executed after Jan. 1, 2019.

To unwind this legislative convolution: The old taxability provisions can apply to your qualifying pre­2019 agreem unless you both agree that you don’t want them to. Still a mouthful, but that’s the way Congress wrote it.

The biggest misconception about alimony and the TCJA, frequently repeated in the lay media, and even by legal commentators, is that the qualifying instrument must be a final divorce judgment. It does not. You do not necessarily have to have a final divorce judgment by the end of the year to be grandfathered.

Lawyers, who like to be “better safe than sorry,” may prefer to have a divorce judgment, but when you are fightin this issue out in December of this year without the luxury of time, it’s worthwhile to take a closer look at what is actually required.

Procrastinators can rejoice. The TCJA continued the requirement from IRC s.71 that a payment made to or on be of a spouse or ex­spouse pursuant to a “written instrument incident to [a divorce decree]” qualifies for alimony treatment.

The TCJA further sets forth that such instruments are “as defined in s.71 ... as in effect before” the TCJA.

Presumably, the case law from the past several decades interpreting the clause remains relevant and binding.

So, basically, in many instances, all a couple may need to qualify for grandfathered alimony treatment is a contra by Dec. 31, that is a “written instrument incident to [a divorce decree]” pursuant to the statute. The “contract” h is no more prescriptive than a common law “meeting of the minds” contract — except that, unlike in the common law, it must be in writing. A separation agreement signed by the parties and approved by the court should do; no need to wait for a final judgment of divorce 90 to 120 days later. A separation agreement not yet approved by th court should also suffice.

But it doesn’t even have to be that formal. Two Tax Court opinions illustrate the flexibility of the “written instrume incident to a divorce” requirement.

A Tax Court Memorandum Opinion, Leventhal, T.C. Memo. 2000­92, made clear a “meeting of the minds” requirement, particularly that there be a “clear statement in written form memorializing the terms of the support between the parties.” In this case, one spouse’s written assent to a letter proposal of support by the other spouse was a sufficient writing to bring it within IRC s.71.

Moreover, Leventhal tells us, it was not necessary to articulate a specific amount of support so long as “there is a ascertainable standard with which to calculate support amounts.”

A Tax Court Summary Opinion, Micek, T.C. Summ. Op. 2011­45 (2011), is also instructive for our purposes. Here, the couple separated in 1997 and entered into an oral agreement in 1999 that the husband pay the wife alimony $1,250 per week. Later that year, the husband signed a “spousal support affidavit” agreeing, or reaffirming, the payment of alimony in the same amount.

In 2003, the husband stopped paying because he became disabled and, presumably, was unable to earn income.

The wife’s attorney then wrote to the husband, inquiring as to why the alimony stopped. Think about this: There still no divorce pending at this point, the wife hasn’t signed anything yet, and the wife’s lawyer wrote the letter described above four years after the husband started paying alimony.

A few more years go by. At some point — the opinion does not make clear when — the husband filed for divorce Presumably satisfied that neither party had the means to support the other, the parties’ agreement incorporated the divorce judgment mutual waivers of present and future alimony.

In 2009, the IRS filed a notice of deficiency disallowing the husband’s alimony deductions for the years 2000 to 2003, the period prior to the divorce during which the husband was paying alimony to the wife. All of the paymen at issue were made prior to the filing of the divorce.

The husband took the matter to Tax Court. The issue before the court was whether the alimony was paid pursua to a “written instrument incident to [a divorce decree].”

The Tax Court agreed with the taxpayer, finding that alimony was paid pursuant to such an instrument and, therefore, deductible to him and includible to his ex­wife. The Tax Court reasoned that (1) the so­called “spousal support affidavit” signed by the husband in combination with (2) the letter from the wife’s attorney inquiring as to why he had stopped paying alimony (which evidenced her client’s understanding that alimony was to be paid) wa sufficient to qualify under IRC s.71. That is, a written instrument (the affidavit) signed by one party and the lette from the wife’s attorney was together a sufficient “written instrument” that evidenced the meeting of the minds between the parties.

    ❝ The biggest misconception about alimony and the Tax Cuts and Jobs Act is that the qualifying instrument must be a final divorce judgment. It does no do not necessarily have to have a final divorce judgment by the end of the year to be grandfathered.

Considering the significant time gap between the instrument and the divorce filing, it is striking that Micek did no focus on the requirement that the “written instrument” be “incident to [a divorce decree].” We might deduce from Micek that timing is not dispositive to the “incident to” requirement but that it is, rather, a sort of “totality of the circumstances” analysis.

Indeed, the parties had been living separately and the husband had been paying alimony for several years, and, eventually, they got around to making de jure what had been de facto. From this, it would appear a logical construction that the alimony payments at issue, though made several years before a complaint for divorce, were “incident to” a divorce.

In any event, to play it safe, the practitioner should endeavor to have the contract executed while a divorce is pending or imminent in order to meet the “incident to divorce” requirement — so, unlike Mr. Micek, nobody is rely on the Tax Court to save the day.

Bottom line: a divorce judgment is not the only way, under the TCJA, to get the preferential tax treatment that alimony judgments today can enjoy.

In the context of Micek and the “incident to” discussion above, consider prenuptial or postnuptial agreements. Although there is no case law on the issue, these do not appear to be qualifying agreements pursuant to IRC s.7 They are not, in the same sense as the Micek agreement, “incident to” a divorce decree, even if one of the partie filed for divorce shortly after signing.

Two additional issues merit consideration: (1) Must a 2018 agreement contain a present award of alimony, and (2 How should the practitioner handle 2018 temporary orders of alimony followed by a 2019 (or later) divorce judgment?

As for (1), it is unclear whether a 2018 agreement that contains no present award of alimony but preserves the rights of the parties to future alimony would qualify for preferential retroactive treatment.

On the one hand, the TCJA’s new alimony rules exempt from its application “any divorce or separation instrument executed before 2019. That would suggest that any agreement would suffice, whether or not it includes a presen award of alimony.

On the other hand, elsewhere in the TCJA alimony is defined, subject to other conditions, as payments made to o on behalf of a spouse pursuant to a “divorce or separation instrument.” Arguably, read together, there needs to b present award of alimony — actual payments must be made (or required).

In light of the uncertainty, the cautious practitioner would do well to include a requirement of a present payment alimony, if only a nominal amount, and a statement in the agreement to the effect that the parties intend the agreement to qualify for tax preferential treatment per the TCJA.

As for (2), temporary orders pose challenges when dealing with the TCJA and retroactivity. If there is a 2018 temporary order of alimony followed by a 2019 divorce judgment, the temporary order is extinguished. With that the link to retroactivity may be severed. That is not clear, of course, but it is a possibility.

Therefore, the practitioner may want the judgment to incorporate the temporary order so as to preserve best as possible the benefits of a qualifying retroactive instrument.

This position is generally consistent with the IRS regulations for alimony pursuant to the Tax Reform Act of 1984, which also dealt with the issue of the retroactive application of that law to instruments entered prior to that act’s effective date of Jan. 1, 1985.

Those regulations (which, by the way, have been “temporary” for 34 years) made clear, for example, that if a 198 divorce judgment incorporated without change the terms of a 1984 instrument, that 1985 judgment would be grandfathered under the then pre­existing tax law. 26 CFR s1.71­1T (Q­A #26).

The 1984 regulations do have one caveat that the practitioner may wish to consider: The subsequent judgment must incorporate the terms of the prior instrument “without change.”

Clearly, we don’t know if the IRS will interpret the TCJA’s alimony provisions in the same way, but it may be worthwhile to at least consider these regulations as we venture into uncharted territory. If the IRS were to adopt this position with respect to the TCJA, it would certainly be problematic in the event a 2018 judgment provides fo nominal alimony payment and a post­2018 judgment calls for a larger payment.

In the months ahead, while many labor to complete agreements by year’s end, we can hope for clarifying guidan from the IRS. In the meantime, especially in the gray areas, practitioners would do well to let clients know, in writing, where there are uncertainties as to whether their agreements will be grandfathered.

Jonathan E. Fields is a family law attorney and partner at Fields & Dennis in Wellesley Hills. He can be contacted jfields@fieldsdennis.com.

 

Alimony and the TCJA: Less a Misconception than a Worry, and What to Do About It – A Mediator’s View

Wednesday, August 15, 2018

Levine Dispute Resolution - William M. Levine

By William M. Levine

Call me a skeptic.

I agree with Jonathan E. Field’s excellent essay “Alimony and the TCJA: A Common Misconception” (July 23, 2018), to the extent that he asserts that an alimony agreement that is executed during calendar 2018 should entitle the parties to the continued economic leverage of the alimony deduction, on which many divorcing families have relied since 1942. I wish that I shared Jon’s confidence that what should be will be, but I am less than sure.

Read literally, the 2017 Tax Cuts and Jobs Act permits tax-deductible alimony if contained in “decrees of divorce or separate maintenance or written instruments[s] incident to such decrees…” (my italics). I do not question that tax cases construe “written instruments” liberally, nor do I debate that the “incident to” clause has been applied generously to past taxpayers. But, we live in a time in which political and policy expectations are a wisp in the wind, subject to a profoundly polarized federal legislature and the whimsy of an erratic executive.

Every tax act is a legislative skeleton on which the reigning administration grafts regulations, telling us how the congressional mandate will really work. Witness Jon’s accurately ironic note that the “temporary” treasury regulations of the Tax Reform Act of 1984, that comprise a substantial part of how that set of alimony reforms function to this day, are now 34 years old!

The Internal Revenue Service of Stephen Mnuchin’s Treasury Department is charged with fleshing out TCJA; and it does so in a political/fiscal context. The public face of the alimony deduction repeal was a move to save $6.8 billions of tax revenues over the next decade, to be booked against Congress’ budget reconciliation limit of $1.5 trillion of cuts, to enable passage without Democratic votes. Meanwhile, a deeper problem lurked in the form of the IRS’s indifference or inability to enforce the existing law. In 2010 alone, 47 percent of alimony recipients failed to report any or all of alimony received, resulting in $2.3 billion of losses to federal coffers, according to a 2014 report of the Treasury Inspector General for Tax Administration.

So, we can see that the Trump Administration has incentive, especially in an election year during which the deficit is rising faster than projected, to interpret the alimony repeal in a way that maximizes revenues to offset some of TCJA’s corporate and high-income tax cuts. One contribution that Treasury can make is to promulgate regulations that interpret, or re-interpret, the “incident to” language that Jon cites, by limiting the alimony deduction to those taxpayers whose divorce instruments have actually been made a part of a divorce decree in 2018.

In Massachusetts, that would require the parties to step back from the Probate and Family court bench, with an approved and incorporated agreement, before the close of business on New Year’s Eve if a judgment nisi would suffice. Even worse, if the IRS requires a final divorce judgment (as it does in determining tax return filing status), the parties would need be in court before the end of August or September, given the post-hearing waiting periods of M.G.L., ch. 208, §§ 1, 1A and 1B.

As a divorce mediator, whose job includes providing enough information to assure both parties’ informed consent to divorce settlements, I cannot, despite Jon’s assurances, provide them myself. Rather, I feel obliged to explain the possibilities, even if remote, so that clients do not wake up on January 2d, or April 15th, and learn that some regulation sleight of hand has denied them the benefit of the alimony bargain that they made. It isn’t clear; and it is most surely not easy. But who among us can predict any act the current federal regime – especially with mid-terms looming?

So, what to do in mid-2018? For the dwindling cases that can realistically expect to appear for uncontested divorce hearings in August (§1A) or September (§1B), the question is academic. For the other couples who will be mediating during the balance of this year, I will be raising the issue, and asking them to consider the two-tiered approach of agreeing on an alimony regime that covers both deductibility outcomes; and trust them to make the appropriate decision, for them, in consultation with counsel.

With our alimony statute remaining as written, and 2019 agreements surely precluded from the alimony deduction, we are all going to have to struggle to create equivalencies for taxable and non-taxable spousal support, anyway. There are smart people among us who are studying fast and hard to create mechanical ways of doing that for us, as in, “for income levels of $X, the after-tax equivalent of 32.5% of gross income, fairly balancing the net payor cost versus net payee value gap, is $Y.” Another approach is to prepare case-by-case “old law” and “new law” cash flow analyses, and try, as closely as possible, to translate the net-after-tax shares for the parties with deductibility assumed, to the newer scenario, e.g., if deductibility would result in a 60%-40% sharing of net-after tax income, and then solve to that end result with non-deductible alimony assumed.

The specific approach taken is less important than that we all be aware of the challenge itself, and that we grapple with it in the cause of advancing the parties’ informed consent.

 

Pre-marital Cohabitation in Defining Marital Length Clarified; But, In Rejecting Normalized Income for Alimony & Accepting Early Valuation Date: Why won’t the Appeals Court tell us what they really think?

Wednesday, May 30, 2018

BORTOLOTTI V. BORTOLOTTI - Part 2

Levine Dispute Resolution - AlimonyAfter announcing one useful alimony holding, which we discussed in Part 1, the appellate panel in Bortolotti v. Bortolotti speed-wrote six issues that are common to many divorce cases, and where the bench and bar could use some real direction. In this blog entry, we will focus on two of them:

  1. the trial judge’s decision to use “normalized” salary for business valuation purposes but half that amount for alimony calculation; and
  2. the judge’s acceptance of a 2014 real estate valuation at a 2016 trial.

The Appeals Court upheld both decisions, simply noting that each was within the Probate and Family Court’s discretion, but with the thinnest possible explanation, giving little critical value to the reader.

Bearing in mind that “unpublished” opinions are not formal precedent, but that the Appeals Court invites their use for “persuasive value”, why wouldn’t the appellate bench want to write its opinion persuasively? Why not share their actual analysis?

In our first example, trial court accepted the uncontested adjustments that a valuation expert made to the husband’s salary, in furtherance of an income-based valuation, for which salary “normalization” is an essential component. Normalization is an effort to approximate the owner’s actual economic yield, or more traditionally, that which a hypothetical buyer might fairly expect achieve in the future.

Common adjustments are one-off expenses, personal expenses written off against revenues and S Corporation tax effect. A potential business buyer uses this to measure likely return, so as to rationalize its investment, including acquisition debt. The divorce court does it to determine the value to the business owner who is cashing out the opposing spouse’s marital interest.

The Appeals Court owed no explanation for upholding the acceptance of the normalized salary in the valuation context because no one disputed the substance of the finding at trial. But, then, the panel addressed the trial court’s determination to use only half of the normalized sum for alimony purposes because “there was evidence that [the husband] did not derive any actual income from” his company.

What does this mean? Were the actual earnings zero? Were they normalized to a positive value, more than zero based solely on adjustments? Alternatively, did the expert find positive earnings, but zero salary and/or profit distributions made? If so, did the judge determine that half of the realized but undistributed income was retained for legitimate business purposes?

In short, it matters what the essential facts were, and why the Appeals court found the trial decision to be sound. Discretion is not unbridled; and appellate analysis is, or should be, an explanation of why the judge did not abuse it so that the bench and bar may learn from an elucidated point of view, from which they may analogize with intellectual consistency. Instead, we are left with bare bones, and a conclusory statement, which may create mischief in place of clarity.

Some lawyer soon will assert that Bortolotti supports the proposition that “actual income” and “realized income” are opposites (they are not) and that a rigorous application of JS v. CC is not really required for alimony matters, when a controlling owner does not distribute realized income. Neither is a healthy result.

It is possible the trial court did apply JS v. CC factors comprehensively and well, and this was not reported in keeping with the Rule 1:28 admonition that the opinion does not “fully” address the facts. Yet, the facts that are key to the decision should be discussed or at least identified. Otherwise, what is the point of making the decision publicly available?

Similarly, where the judge applied a two-year-old real estate appraisal value to the marital home, the Appeals Court simply opined that the date was halfway between the date of separation and the date of trial and that the judge was within his or her discretion. This conclusion leaves us wondering: Were all assets valued as of the interim date? Was there intrinsic significance to the halfway point? Was the Court choosing between bad alternatives (2-years-old v. older)? Did only one party offer a value? Was a more recent value offered, but on an infirm basis?

The answers to these questions, and others, matter; and we; and we suspect other curious minds would like to know the why as much as the what.

 

Pre-marital Cohabitation in Defining Marital Length Clarified

Tuesday, May 15, 2018

But, In Rejecting Normalized Income for Alimony & Accepting Early Valuation Date:
Why won’t the Appeals Court tell us what they really think?
BORTOLOTTI V. BORTOLLOTTI - Part. 1


Levine Dispute Resolution - Alimony

We have previously lamented the shortcomings of Massachusetts Appeals Court’s Rule 1:28 opinion practice, and the recent Bortollotti v. Bortollotti has us at it again, but that will have to wait until Part 2.


Today, instead, we focus on the court’s helpful clarification of the legislature’s provision that tasks trial judges with determining if and when a marriage may be construed to begin before its legal registration, for purposes of calculating the length of marriage, and the resulting presumed durational limit calculated under M.G.L., ch, 208, § 48. When we say it is helpful, it is not to say that we agree or disagree with the concept, but rather, that, like a puzzle part, it fills a gap that makes the statute more understandable and, therefore, more predictable in outcome.

The concept of a de facto relationship giving rise to an obligation normally associated with a legal one preceded the Alimony Reform Act (“ARA”), beginning with California cases involving child support by estoppel (obligations arising from unrelated-party voluntary undertakings and resulting reliance), to pre-marital contribution in equitable division cases (see, Liebson v. Liebson and Moriarty v. Stone) and, more recently and directly on point, judges’ grappling with the inequities of same sex couples who were divorcing after long relationships and fact-based economic unions, but to whom marriage was foreclosed until implementation of 2005’s Goodridge decision.

In ARA, the legislature expanded the notion to all marriages in the alimony context.

Section 48 allows the trial court to back-date the start of marriage for a “significant marital cohabitation that includes ‘economic marital partnership’”, per Bortollotti. In this case, the trial judge found that the parties had, in fact, cohabited before legal marriage, but that the wife had not contributed income to the partnership, therefore, an economic marital partnership did not exist.

With logic more parallel to actual marriage, and historic alimony law, the Appeals Court reversed, stating that the wife’s very economic dependence signified that the marital partnership had begun. They reconciled three ARA features: the enumerated criteria for awarding alimony; the “common household” needed to trigger a payor’s post-divorce right to demand redress; and the pre-marital issue, here.

Since economic dependence is one of the enumerated alimony factors, the appellate court reasoned, it will suffice to extend the length of marriage retrospectively, for alimony’s presumed durational limit purposes.

The holding is fairly simple. It will apply to many cases, sometimes with minor, and other time substantial effect. The most extreme, obviously, will be when this metric leads to a finding that a 19 ½-year marriage was preceded by a more than 6-month cohabitation with economic dependency, stripping the payor of any presumed durational limit whatsoever, especially where the payor is more than 16 years shy of full social security retirement age. We can expect that this aspect of those cases to be most hotly contested.

The next time, Rule 1:28 and why the rest of Bortollotti is frustratingly sparse.

 

Why was the GOP out to get Alimony?

Monday, January 22, 2018

Levine Dispute Resolution - Alimony

Well, they did it. In December, Congress repealed the alimony deduction, and as a result, support for divorce families will become more expensive and less generous, beginning in 2019.

Unbeknownst to us, the federal alimony deduction was on Republican chopping block wish list for a long time, with previous failed repeal attempts in 1984 and 2014. Few of us thought it important enough to the president or the GOP caucus to actually make it happen this time, especially when the senate bill did not mention it in its bill. Boy, were we wrong.

The question is: why?

To save majority lawmakers from having to reach actual consensus with Democrats, God forbid, by keeping the red ink caused by the 2017 Tax Cuts and Jobs Act below $1.5 trillion over the next ten years, permitting a budget reconciliation maneuver and permitting passage on Republican votes only?

Whatever happened to simplification and revenue neutrality: watchwords of tax reform and Republican faith, for as long as memory serves? Not this Congress, and not this time.

But, really, how much did it help that cause? According to the House Ways and means Joint Committee on Taxation, repeal of the alimony deduction, upon which divorcing families have relied for three-quarters of a century, will “save” $8.3 billion from the aggregate deficit over 2018-2027. See here.

A drop in the bucket…

… especially in context. When a Fox Business reporter asked Treasury Secretary Mnuchin about the president’s abandonment of his campaign-guaranteed crackdown on carried interest preferences for private equity and hedge fund principals, which would have saved an estimated $100 billion over the same ten years, he blathered that, “…it’s not that much money…”. Really. Listen for yourself here.

So, we come back to “why”, if not budget reconciliation? Was it the moralism of Paul Ryan’s wing of the GOP, punishing divorcing families for their failings? If so, we are dangerously more like the theocratic regimes that our president loves to praise or castigate, depending on his momentary whim, than we like to believe.

In the meantime, families are the collateral damage. So much for family values.

 

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

Monday, November 20, 2017

Levine Dispute Resolution - Alimony

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?

Levine Dispute Resolution - Alimony

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.

 

Just What is a “New Legal Consequence”?

Wednesday, June 07, 2017

Not a Shifting Alimony Presumption, under Van Ardsdale v. Van Ardsdale

Levine Dispute Resolution - Alimony

The crux of the Massachusetts Supreme Judicial Court’s (SJC) recent Van Ardsdale v. Van Ardsdale, is that the retroactive effect of durational limits under the Alimony Reform Act (eff. 3.1.12) (ARA) is constitutional because the imposition of these constraints is “merely” presumptive and, therefore, do not “attach new legal consequences to events completed before its enactment”.

We do not question precedent. While its comparison of a sex offender’s right to contest registration requirement for adjudications that occurred before the registry legislation, in Doe, Sex Offender Registry Bd. 3839 v. Sex Offender Registry Bd., to alimony recipients’ right to seek deviation from the “presumed” durational limits is cringe-worthy, we get the analysis. Because the sex offender and the alimony payee both have some chance of eluding the impact of new legislation, the former by an appeal to the Board, and the latter by an “interests of justice” court deviation from alimony termination, the individual’s jeopardy is not foregone; therefore, it does not rise to the level of a “new legal consequence”.

Presumptions, the SJC reasons, are “simply rules of evidence”.

But, sometimes good legal analysis defies reality, or at least practicality.

Before ARA, the burden of proving changed circumstances to justify the termination of alimony sat squarely on the shoulders of the payor. Retirement? Just one circumstance to consider. Income loss? Well, maybe, but just how did that happen, anyway. Cohabitation of the recipient? Forgettaboutit.

Now, the burden falls just as squarely the recipient, as the secondary holding Van Ardsdale, and the same day’s Popp v. Popp, demonstrate. It is a small sample to be sure, but the appellate scoreboard on reported cases for alimony payees seeking to extend alimony beyond “presumed” time limits is 0-2. In many cases, the answer will be the same for recipients as it used to be for obligors whose alimony check supported the household of not only the ex- spouse, but a new “friend” as well.

We are not at all criticizing that this burden shift has occurred. That is a policy question, and one properly reserved to the legislature. The old alimony system was, in many respects, out of control.

But, calling a major burden shift as a mere rule of evidence trivializes a very real and substantive change in our statutory law. And, it denies the everyday experience of litigants and their counsel, many of whom will not sue for alimony extensions, because presumptions are meant to be hard to overcome. And, expensive. And, risky.

 



Get e-mail notifications of new blog posts! Enter email address below.:



Delivered by FeedBurner

other articles


recent posts


tags

high-risk methodology The Seven Sins of Alimony Act Reforming Alimony in the Commonwealth mediations Massachusetts alimony resolve disputes lawyers private dispute resolution divorce and family law mediators divorce lawyers divorce agreement Levine Dispute Resolution Center self-adjusting alimony Child Support Guidelines alimony family and probate law disputes divorce mediation facilitated negotiations Massachusetts Lawyers Weekly alimony law mediator Levine Dispute Resolution Family Law Arbitration lawyer-attended mediation COLA General term alimony Major League Baseball Arbitration LDRC lawyer family law arbitrators divorce arbitration dispute resolution separation Levine Dispute Resolutions family law arbitrator arbitration Baseball Players annulment health coverage divorce process how baseball arbitration works divorce judgment arbitrator divorce arbitrators Boston Matrimonial Arbitration traditional negotiations Alimony Reform Act child support support orders Same Sex Marriage Cohabitation DOMA arbitrators health insurance fraud Massachusetts alimony and child support family law mediation MLB labor agreement Defense of Marriage Act divorce litigation conciliation litigation divorce mediator alimony reform legislation med/arb Chouteau Levine divorce and family law Massachusetts Alimony Reform Act divorce mediators Baseball Arbitration divorce arbitrator alimony statute Massachusetts divorce mediators Baseball Levine Dispute Resolution Center LLC Divorce family law mediation Divorce Agreements special master alimony orders rehabilitative alimony SJC pre-ARA alimony family support Massachusetts lawyers family mediation divorced Uniform Arbitration Act Self-adjusting alimony orders Massachusetts mediators Obamacare IRC §2704 Massachusetts divorce lawyers medical benefits med-arb disputes divorce mediations