More From The Appellate Division On Lifestyle, Formulas And The Concept Of Income Equalization

A few weeks ago, I authored a post on this blog entitled Debunking the Myth That the Percentage Used in the So-Called “Alimony Rule of Thumb” Should Go Down as the Payer’s Income Goes Up. That post reiterated that the Court’s cannot use formulas, but that they are often used and that people have posited a theory that when incomes go up, the percentages should go down. Therein, I showed the ramifications of that theory and juxtaposed it against the part of the alimony statute that says, “…the standard of living established in the marriage or civil union and the likelihood that each party can maintain a reasonably comparable standard of living, with neither party having a greater entitlement to that standard of living than the other.”

Yesterday, in a reported (precedent setting) opinion in the case ofS.W. v. G.M., the Appellate Division weighed in on the use of formulas (there are none), the theory of income equalization (the aforementioned portion of the statute doesn’t mean that), and required that marital lifestyle be quantified. It also gave guidance on what should not be included in a recipient needs. There was also an interesting discussion regarding life insurance to secure alimony which will be part of a separate post on this blog.

In this case, the parties divorced after a long term marriage. The matter was tried to conclusion, previously appealed, and remanded back to the trial court to address the issue of alimony. At the original trial, the court found that the five year average of the husband’s net after tax income was $1,313,000 – a finding that the Appellate Division accepted in the original appeal. The Appellate Division also accepted the prior finding that the parties lived a wealthy lifestyle but did not save. The Appellate Division reversed the prior alimony award of $450,000 per year because the trial judge never quantified the parties lifestyle, and thus, could not determine how the figure was derived.

On the remand, the trial judge increased the alimony to $477,504 per year net, based largely on her pendente lite budget, but again never quantified lifestyle. Accordingly, the wife appealed again and the court reversed again.

In addressing the issue of lifestyle, the Judge Mawla reiterated the importance of quantifying the marital lifestyle, stating:

“The importance of finding the marital lifestyle cannot be overstated. It is at once the fixed foundation upon which alimony is first calculated and the fulcrum by which it may be adjusted when there are changed circumstances in the years following the initial award. …

In Hughes, the parties spent more than they earned and relied on borrowing and parental support to meet the marital lifestyle. 311 N.J. Super. at 34. The trial judge discounted these additional funds and determined the lifestyle using only the family’s earned income, which the judge termed the “real” standard of living. Ibid. We held “[t]he judge . . . confused two concepts. The standard of living during the marriage is the way the couple actually lived, whether they resorted to borrowing and parental support, or if they limited themselves to their earned income.” Ibid.

In many cases, parties live above their means or spend their earnings and assets to meet expenses. In such instances, a finding of the marital lifestyle must consider what the parties spent during the marriage and not merely offer a nod to a bygone, unattainable lifestyle. In this case, the trial judge overlooked the lessons from Crews and Hughes and our instruction to find, numerically, the marital lifestyle. To the extent Crews and Hughes implicitly required that marital lifestyle be determined numerically, we now explicitly state a finding of marital lifestyle must be made by explaining the characteristics of the lifestyle and quantifying it.

In determining the marital lifestyle, trial courts were directed to consider the following:

“In a contested case, a trial judge may calculate the marital lifestyle utilizing the testimony, the CISs required by Rule 5:5-2, expert analysis, if it is available, and other evidence in the record. The judge is free to accept or reject any portion of the marital lifestyle presented by a party or an expert, or calculate the lifestyle utilizing any combination of the presentations.

In this case, the Appellate Division noted that the trial court disregarded the marital budget altogether and instead supplemented the wife’s current budget with some expenses she once enjoyed during the marriage. The Appellate Division found this methodology to be:

“…problematic because it ignored the judge’s own findings that the marital lifestyle “subsumed” the entirety of plaintiff’s earnings. By application of this logic, if the judge determined the net yearly income was $1,520,268 or $126,689 per month, the alimony award allotted defendant disposable income of $36,7925 and plaintiff $89,897 per month without explanation. This was a misapplication of law because it ignored Crews and N.J.S.A. 2A:34-23(b)(4), which requires a judge consider “[t]he standard of living established in the marriage . . . and the likelihood that each party can maintain a reasonably comparable standard of living, with neither party having a greater entitlement to that standard of living than the other.”

As an interesting aside, it appears as though the Court is espousing the theory that the parties’ net income equaled their marital lifestyle. I suspect that this will be fertile ground for future litigation regarding the issue of lifestyle.

In rejecting the notion of either income equalization or the use of formulas to calculate alimony, Judge Mawla held:

“To be clear, N.J.S.A. 2A:34-23(b)(4) does not signal the Legislature intended income equalization or a formulaic application in alimony cases, even where the parties spent the entirety of their income. Had the Legislature intended alimony be calculated through use of a formula, there would be no need for the statutory requirement that the trial court address all the statutory factors. The Legislature declined to adopt a formulaic approach to the calculation of alimony. See Assemb. 845, 216th Leg., 2014 Sess. (N.J. 2014) (declining to enact legislation computing the duration of alimony based upon a set percentage).

The Court then gave instruction regarding what should be considered, and more importantly, not considered, regarding the recipient’s need. The court made clear that it should be the expenses related to that party, as opposed to expenses solely related to the other spouse of the children. Specifically, the Court held:

“The portion of the marital budget attributable to a party is likewise not subject to a formula. Contained in most marital budgets are expenses, which may not be associated with either the alimony payor or payee, including those associated with children who have since emancipated or whose expenses are met by an asset or a third-party source having no bearing on alimony. There are also circumstances where an expense is unrelated to either the payor or the payee but is met by that party on behalf of a child. And, as is the case here with defendant’s photography hobby, there are expenses which only one party incurred during the marriage. Therefore, after finding the marital lifestyle, a judge must attribute the expenses that pertain to the supported spouse. Only then may the judge consider the supported spouse’s ability to contribute to his or her own expenses and the amount of alimony necessary to meet the uncovered sum. Crews, 164 N.J. at 32-33.

This is interesting as it makes clear that you cannot bootstrap the expenses of the other party or the children to come to need. On the other hand, there was no guidance as to how to deal with this added cash flow, at least with regard to child expenses that are no longer in existence. I recently had a case where the parties while living in the same household, lived two completely difference lifestyles – one extravagant (the payer) and the other ultra conservative in terms of spending. Had this case been decided at the time of the trial in that matter, my guess is that it would not have settled because the court may have had to fix the alimony based upon the wife’s actual expenses, as opposed to the husband’s spending- whether or not it seemed fair or squared with the part of the statute that said that neither party is entitled to a greater lifestyle than the other.

In any event, the S.W. case gives trial judges and practitioners more guidance as to how to deal with marital lifestyle. It may also require more work of the forensic accountants who prepare lifestyle analyses as they try to parse out expenses of the payer and the children.

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