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Divorce Mediation Blog

Spousal Disqualification Still a Good Rule After M.T.J.C. LLC, et als. v. Steven Simon

Thursday, October 11, 2018

Levine Dispute Resolution - Alimony

In the unusual context of a U.S. Bankruptcy Court case, Judge Melvin S. Hoffman examined an evidentiary statute that is daily fodder in family law litigation, M.L.G., ch. 233, §20, known as the “spousal disqualification”. In short, §20 prohibits married or divorced person from testifying to private conversations between them that occurred during marriage.

It is not a waivable privilege, like the right to withhold testimony in a criminal proceeding against one’s spouse. It is a rule that neither party may relax, certainly not unilaterally; and, arguably, a judge should not rely on disqualified testimony, even if neither party is vigilant enough to object to its admission.

There are exceptions to the rule: domestic and child abuse cases, and at issue in M.T.J.C. LLC, et als. v. Steven Simon, cases where the spouses have entered into a contract with each other. Appellate cases have previously addressed construction questions such as: “can a ‘conversation’ be in writing?” (no); and “what is private”? (where a reasonable expectation of privacy exists, which may be negated by the presence of other persons who have the capacity to overhear and understand); and most recently, does the Alimony Reform Act (eff. 3.1.12) definition of marriage length (M.G.L., ch. 208, §48) terminate the period of disqualification? (no, private conversations remain disqualified until absolute divorce, under Balistreri v. Balistreri, Appeals Court 2018).

But, this bankruptcy judge faced a question that neither §20 nor appellate case law have yet addressed, namely, does the contract exemption to spousal disqualification apply in a lawsuit in which a third party is litigating against one of the spouses?

Because of the paucity of authority, Judge Hoffman tasked himself with “… predict[ing] how the Massachusetts Supreme Judicial Court would rule on this issue”. In doing so, he carefully reviewed the statute and interpretive case law, and concluded, soundly, that the contract exemption only applies when the spouses are themselves lawsuit opponents.

In other words, the court could not order Ms. Simon to testify about her private conversations with Mr. Simon about a contract between them, at the demand of someone else suing her husband.

Judge Hoffman’s scholarship is an interesting read, especially for those who encounter the disqualification on a daily basis, and rarely question its premises. He recites history and policy that underlay the statute: that spouses were considered “as one” in common law, that their interests were uniformly aligned, that the “bias of affection” would undermine reliable testimony, that marital peace would be disturbed, and that cross examination of the declarant might cause prejudice to the other spouse.

He concludes that even if many of these reservations “seem quaintly outdated”, they nevertheless ground a statute, which the trial courts are not free to alter.

As a family law arbitratorspecial master and litigating-lawyer-in-recovery, I can’t miss the unavoidable irony in the “bias of affection” justification for spousal disqualification. The divorce court’s problem is in fact, the polar opposite: think, “the bias of disaffection”.

Who among us has not encountered an estranged couple about whom we have thought “they can’t even agree that the sky is blue”? Hell, many of us have been there in ourselves personally…

The fact of the matter is that, quaint or not, spousal disqualification is a good rule. What harmonious couples talk about privately is no one else’s business; and how conflicting spouses remember it, or choose to recount it, clouded by conflation, confusion or convenience, gives rise to inherently unreliable testimony.

Factfinders struggle enough with the quantum of evidence in a field where parties and counsel fear leaving even the smallest pebble unturned. Opening divorce trials to endless “he/she/they said” testimony would be a race to the evidentiary bottom, producing even more heat and precious little light.

As a young litigator I felt the opposite. Age has its privileges, I guess.

 

The SJC Weighs in on Self-Adjusting Alimony Orders and Recipient “Need”: Young v. Young, Part 6

Wednesday, December 27, 2017

“Not everyone can afford a special master”

Levine Dispute Resolution - Alimony

Now, we will consider the role that financial complexity played in undermining the fate of the trial court decision in the Supreme Judicial Court’s (SJC) Young v. Young. The SJC reports that:

    …the [trial] judge found that, because of "the complex nature of [the husband's] compensation over and above his base salary and bonus," and because of "the constantly shifting nature of [the husband's] compensation," "it is reasonable and fair in the circumstances" to award alimony to the wife in the amount of thirty-three percent of the husband's gross income, rather than a fixed amount. (Italics ours)

The husband’s employment income arose from seven different compensation programs, including stock options, bonuses, investor entity units and discount stock purchase program opportunities. The various compensation modes featured differing consistencies, liquidity and transferability attributes, “…both considerable and variable”.

The SJC worried that the trial court’s self-adjusting alimony award (one-third of the husband’s gross pre-tax compensation) would lead to uncertainty of implementation, causing “continued strife” between the parties, citing the potential for inexact drafting and employer-employee collusion (to depress applicable income). The trial judge implicitly recognized the chance of future contention by appointing a special master, to keep the peace. Think: alimony coordinator.

The SJC deadpanned that: “Not everyone can afford a special master.”

If Mr. Young were simply a salaried employee, without the corporate power to manipulate his compensation, might the result have been different?

 

The SJC Weighs in on Self-Adjusting Alimony Orders and Recipient “Need”: Young v. Young, Part 5

Wednesday, December 13, 2017

“What’s a judge to do?”

Levine Dispute Resolution - Alimony

In this entry, we consider a particular challenge that the trial judge will have on remand from the Supreme Judicial Court (SJC) in Young v. Young, in grappling with her assessment of the wife’s “need” for alimony. The trial judge tried to quantify the wife’s “need” by the tangible costs thereof, a common means of doing so. But, it appears that the evidence thwarted the judge in doing so, as she bumped up against a too frequent phenomenon: incredible and incredibly rising expense claims on sequential Rule 401 financial statements during litigation.

During an 11-month span of the Young case, the wife’s claims of weekly expense rose a remarkable 44%, from $453,856 per year to $653,906!

We have seen this movie before, as lawyers, judge, special master and divorce arbitrator. While it is certainly challenging for parties to give dispositive expense information when Rule 410 requires a full statement within 45 days, or when a party files motions, just 10 days. Moreover, uncertainty about just what “need” means, can make presenting financial statement expense claims dicey for the preparer.

Yet, litigation strategy plays an undeniable role. And, strategy evolves..

As a result, the judge critically found that the wife lacked “…personal knowledge regarding her own expenses,” and that her financial statements were not “…an accurate reflection of her need.” The wife’s credibility shot, the judge avoided the quantification of need and, instead opted for an ill-fated percentage-of-income order.

So, where the judge simply disbelieved the wife, and where she did not, apparently, find other, more convincing evidence of the wife’s “need” in the trial record (presumably there was no expert “lifestyle” testimony, or none at least that the court found credible), how will she do so now, on remand?

Don’t bet against a Young v. Young II appellate case, when one of these spouses appeals the judgment after remand.

In our next entry, we will consider the role that financial complexity played in undermining the fate of the trial court decision.

 

“Judicial Restraint” an Interesting Bercume Redux in McClelland v. McClelland

Wednesday, June 21, 2017

Levine Dispute Resolution - Judicial Restraint

Two aspects of the a recent “unreported” decision of a Massachusetts Appels Court panel, are worthy of note, and provide important cautions to judges, family law arbitrators and drafters, alike.

  1. Judicial restraint. We don’t recall ever seeing this phrase about the divorce court’s exercise of broad discretion before. In McClelland v. McClelland, the parties provided in their separation agreement that the husband would pay 75% of the children’s secondary school expense. In a later modification action, they agreed that each parent would pay 1/3 of college costs.

    In a second modification, neither party sought review of either education term, focusing rather on periodic alimony and child support matters. The trial judge terminated alimony, increased child support (more below) and – on her own initiative - loaded the full college burden on the father.

    In reversing, the Appeals Court panel called this a “forceful case for judicial restraint”, cautioning judges against unraveling prior agreements reached by parties when no one is complaining about them.

    As divorce mediators, we certainly understand and support the concept that a court should not undo consensus where it exists (assuming no public policy problems). After all, client empowerment is our calling card.

    Yet, as a family law arbitrator and special master, and as a former judge, we also understand the trial judge’s temptation. After all, education costs are an adjunct to support; and one could easily see how a change in support as compelled by the evidence of changed circumstances, could render a previous college cost arrangement unfair or even untenable.

    It is tempting to think that a failure to address this reality will just beg a follow-on modification action to demand exactly what seems sensible to adjust, now.

    On balance, we think that the Appeals Court’s suggestion is sound. It is the judge’s job to decide pleaded controversies, not create them. If the new judgment does not make sense in the context of matters not pleaded, that does not make the court responsible for the collateral outcome, even if those matters that should have been pleaded. A good pre-trial conference, and with effective divorce mediation, should surface these issues, sometimes causing the parties to broaden their issue lens, and perhaps even amend pleadings. But once adjudication begins – as McClelland suggests - judicial restraint, in the form of fixing what is before the court, and not what should be there, is both prudent and proper.

  2. Parties’ Intent. The divorce agreement and judgment required the husband to pay 19% of his pre-tax income as alimony and 19% as child support. The judge in McClelland, terminated alimony but increased child support to 25% of the father’s gross pay.

    The Appeals Court supported the alimony ruling but vacated the child support, indicating that the judge’s writing did not evidence proper heed to the parties’ perceived intent that child support be limited, on its own merits, to 19%; and Bercume v. Bercume requires special care in trying to observe and make when possible defer to intent, even when the provision under review merged in the previous judgment.

    The Appeals Court remanded the case to the trial judge, simply ordering her to write additional findings in explanation of why respect for the parties’ apparent intent was overcome by other material changes of circumstance, necessitating a support change.

    Negotiators, divorce mediators and agreement drafters should take heed. Frequently, the parties strike support deals with the assumed comfort that a judge would have broad discretion to re-structure a support package to meet changed facts in the future; and that the initial structure, will not unduly hamper a modification judge, when the parties’ financial profile has substantially changed. This should not deter any one from careful and efficient support structuring, but as Huddleston and Bercume taught, the parties spell out their intent where they can.

    For example, a divorce agreement could say that: “The income percentages expressed in this provision meet the parties’ current needs, but the parties do not intend to limit or impair the court’s discretion to modify support in accordance with circumstances existing at the time of any future modification judgment.”

    The law of unintended consequences can hurt a lot, and at other times, it can be a gift. There is a time for strategic ambiguity, but only when it is itself intended. Careful drafting that spells out intent and does not leave it to later inference, or even speculation, from the bench, when someone’s ox will be gored.

    Just ask poor old Dr. Huddleston.

 

Applying Marketability Discount for the Wrong Reason: Wasniewski v. Walsh

Wednesday, April 12, 2017

Over the last year, BV Wire, an excellent publication of Business Valuation Resources, LLC, has been chronicling the New Jersey trial of Wasniewski v. Walsh, in which three Superior Court judges addressed a shareholder withdrawal case, with serial appeals and remands.

The issue presented is if the trial judge acted properly in applying a 15% discount for lack of marketability (“DLOM”) in setting the buyout of the withdrawing 50% shareholder, not because the interest difficult to sell, but rather to redress the plaintiff’s oppression of the shareholder-defendant.

(New Jersey law apparently permits the application of a DLOM in fair value determination in “extraordinary” circumstances).

Since BV Wire first reported the case, various experts have weighed in with critical thinking, including one who observed that:

    If trial courts determine marketability discounts as bad behavior discounts, there is really no way that business appraisers can provide meaningful information to the court. If the court’s concern is one “of the equities” in a matter rather than in determining the fair value…, then there is little that appraisers can do to help.

    (BVWire Issue #161-2, February 10, 2016, quoting a blog post by Chris Mercer at http://chrismercer.net/bad-behavior-marketability-discount-new-jersey/; italics ours.)

BVWire recently reported a New Jersey lawyer’s support of the Mercer view, noting that:

    …the use of the DLOM as a legal penalty voids a long-thought-out valuation measure of its meaning and separates it from its economic basis. The DLOM application should not become contingent on the character of the parties but be based instead on the actual value factors of marketability.

    (BVWire Issue #174-2, March 8, 2017, summarizing Michelle Patterson; italics ours).

While we prefer the conclusion that this trial court’s use of a DLOM was driven by “bad behavior” rather than “character”, there is no question that it was a sanction, and as such it is troubling.

As former trial lawyers, a retired trial judge and a frequent family law arbitrator and special master addressing business issues, we are always alert to the need to recognize (and avoid) implicit bias in fact-finding. Instead, this case seems to validate explicit bias.

Business valuation is meant to be an objective economic exercise. Bad behavior is a fact. Redressing inequity, when relevant, should find its voice in remedy, rather than fact-finding.

It seems to us that Wasniewski v. Walsh encourages a toxic mix.

 



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