The opinion of the court was delivered by: Coleman, J.
On certification to the Superior Court, Appellate Division.
This appeal involves cross-applications to modify an alimony award based on changed circumstances of the supporting spouse. The critical issue raised is whether income should be imputed from a supporting spouse's investments for the purpose of determining his or her ability to pay alimony pursuant to an agreement. The trial court and the Appellate Division declined to impute income from the supporting spouse's investments. We granted defendant's petition for certification. 157 N.J. 541 (1998). We hold that additional income should be imputed from the supporting spouse's investments.
Plaintiff John D. Miller, II, and defendant Margaret C. Miller were married on July 29, 1967. Two children were born of the marriage: Melissa, who was twenty-six years old and emancipated at the time of trial, and John, who was twenty-two years old at the time of trial and attending college. The parties were divorced in 1988.
When plaintiff filed the complaint for divorce in early 1987, he was employed as Manager of Municipal Markets at Merrill Lynch. Defendant was a housewife throughout her marriage to plaintiff. Plaintiff was earning an annual salary of approximately $150,000 when he filed the complaint. As a part of his compensation package, plaintiff also received an annual bonus based on his performance and the overall profitability of Merrill Lynch. In 1987, plaintiff's bonus peaked at $1,100,000. In addition to his salary and bonus, part of plaintiff's compensation package included an expectancy in an unspecified amount of restricted Merrill Lynch stock.
The parties reached a property settlement agreement in 1988 as part of the divorce proceedings. The settlement provided that plaintiff would pay alimony to defendant consisting of half of his monthly take- home salary, which at that time entitled defendant to a monthly payment of $3,750, and half of the first $300,000 of his annual bonus, provided that the alimony would not exceed $200,000 annually. As part of the settlement agreement, defendant waived her right to receive a portion of 10,000 shares of restricted Merrill Lynch stock that plaintiff had already received by way of bonus for work performed during 1987, as well as any other shares plaintiff would receive as a part of his compensation package in the future. All other marital assets were distributed equally, each party receiving approximately $1,000,000 in the equitable distribution. From 1988 through 1992, defendant received close to the maximum alimony payments permitted by the settlement agreement. *fn1
On December 23, 1991, plaintiff became ill and discovered that he had a heart condition. After being out of his office during the first two months in 1992, he assumed a new position at Merrill Lynch as a consultant to Municipal Markets. Plaintiff requested that change of position because his responsibilities as Manager of Municipal Markets were too stressful for him. He was paid the same base salary as before, and he believed that he was eligible for a bonus as well.
Contrary to plaintiff's expectations, he did not receive a bonus for work performed during the years 1992 or 1993. Plaintiff received his last paycheck from Merrill Lynch on May 30, 1994. In November 1994, plaintiff filed a complaint with the Equal Employment Opportunity Commission (EEOC) charging Merrill Lynch with discrimination on the basis of age, disability, and retaliation. In January 1995, plaintiff was terminated by Merrill Lynch.
Plaintiff fell behind in his alimony payments starting in 1993. During that year, defendant sought to compel plaintiff to pay alimony arrearages, to modify the Final Judgment of Divorce, and to discover plaintiff's income. Defendant was permitted to obtain limited discovery of plaintiff's income. After discovery was complete, the trial court conducted a plenary hearing pursuant to Lepis v. Lepis, 83 N.J. 139 (1980), to determine whether plaintiff's circumstances had changed in such a way that would warrant a reduction in plaintiff's alimony obligation.
At the Conclusion of the plenary hearing, the trial court determined that plaintiff's termination from Merrill Lynch was involuntary, constituting changed circumstances under Lepis. The trial court found that there was no proof that plaintiff conspired with Merrill Lynch to receive the restricted stock in lieu of cash bonuses in order to reduce his alimony payments to defendant.
The court also found that under the parties' property settlement agreement, the maximum amount of alimony that defendant was entitled to receive was contingent upon plaintiff's salary and bonuses, capping the alimony at $200,000 per year. The trial court noted that there was nothing in the [original property settlement] agreement that even hints that the defendant had a guarantee of $200,000 per year alimony[,] but rather the inescapable Conclusion from any fair reading of the agreement is that if the plaintiff received no bonus the defendant's alimony would be a maximum of 50% of the plaintiff's net Merrill Lynch salary.
The trial court also found that the agreement was not unconscionable because defendant had more than adequate legal representation during both the original settlement negotiations and throughout the present matter. Defendant acknowledged that the terms and consequences of the agreement, including the alimony provision and her waiver of the restricted stock, were explained to her prior to executing the agreement.
On the issue of plaintiff's ability to pay alimony to defendant, the trial court found that plaintiff had experienced "a substantial change in circumstances which is not temporary in nature." The trial court found that plaintiff had a net worth of $6,561,644, $4.5 million of which was liquid. The trial court also noted that plaintiff had $1.5 million invested in Municipal Bonds, yielding a tax-free income of $87,500 per year. Plaintiff had invested approximately $3,000,000 in various growth stocks, paying interest and dividends of approximately $50,000 per year. Plaintiff's annual income from all of his investments totaled approximately $137,500. The trial court also determined that plaintiff was capable of earning $100,000 per year through self- employment, independent consulting, or regular employment.
In contrast, the trial court found that defendant earned $40,000 in 1994 as an interior decorator. Her assets included a home worth approximately $425,000, a Smith Barney Investment Account containing $723,801, and $14,000 in an individual retirement account (IRA). Defendant's claimed expenses of $173,216 per year were found to be inflated and unreasonable. Because of the changed circumstances, the trial court concluded that "both parties cannot maintain the same standard that they did at the time of the ...