December 30, 2008
CAROL CRAWFORD-FRABLE, PLAINTIFF-APPELLANT,
ALAN J. FRABLE, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Chancery Division - Family Part, Atlantic County, Docket No. FM-01-850-07N.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted December 10, 2008
Before Judges Cuff and Baxter.
Plaintiff, Carol Crawford-Frable, appeals from an April 18, 2008 order that denied her motion to compel the entry of a Qualified Domestic Relations Order (QDRO), which, if entered, would have shifted the responsibility for payment of applicable income tax to defendant, Alan J. Frable. The record amply supports the motion judge's conclusion that, because the $27,500 payment in question was reimbursement to defendant for payments he made for the benefit of the parties' anticipated marriage and was not equitable distribution of marital property, the parties never intended the $27,500 payment to be taxable to defendant. The record likewise supports the judge's conclusion that because the language of the parties' Property Settlement Agreement (PSA) was not ambiguous and the parties' certifications did not create a factual issue, no hearing was required. We affirm.
After a brief marriage, the parties were divorced on September 12, 2007, following a hearing at which both parties, appearing with counsel, placed upon the record the terms of their divorce settlement. The court, after administering an oath to each, took testimony to confirm that: the parties heard the recitations of counsel that comprised their PSA; those terms resolved all issues between them; and they understood and accepted those terms. Pertinent to this appeal is paragraph 4 of the PSA, which reads as follows:
Reimbursement of Defendant - The parties acknowledge that defendant made payments for the benefit of the anticipated marriage between the parties. Plaintiff agrees to pay to defendant the sum of TWENTY-SEVEN THOUSAND FIVE HUNDRED DOLLARS ($27,500.00) as full and final payment of any claim defendant may have for reimbursement [owed] to him. Plaintiff agrees to pay said sum to the defendant no later than 60 days from the entry of this Final Judgment of Divorce from her 401k savings held by her former employer.
Additionally, the PSA specifically provided that each party waived any right or interest which he or she may have had in the pension or 401k Plan of the other.
To fulfill her obligation to pay defendant the $27,500 referenced in the PSA, plaintiff instructed her IRA Plan Administrator to issue a check directly to defendant. In February 2008, even though the Plan Administrator had forwarded the check directly to defendant, plaintiff received a Form 1099 statement from the Plan Administrator indicating that the $27,500 had been sent to her. Plaintiff returned to the Plan Administrator, insisting that the $27,500 distribution had not been made to her, but instead had been sent to defendant pursuant to the terms of the PSA. For the first time, the Plan Administrator advised plaintiff that unless the order was in the form of a QDRO, the Plan would be prohibited from reissuing the Form 1099 to defendant.
In a certification filed in support of her motion, plaintiff asserted:
As a result of the stance taken by my Plan, I consulted with my tax consultant . . . [who] advised me that I would have to go back to court to have the Order for payment to be set forth in a QDRO Order. Otherwise, the funds would be attributed as income to me and I would have to pay taxes on the money even though I did not receive it.
Her certification contains no other facts, but concludes with the statement that "[i]t is inequitable for me to pay the taxes on the funds that were received by [defendant]. I am therefore requesting this court to enter the QDRO Order nunc pro tunc so that the appropriate 1099 can be issued showing the distribution to [defendant]."
In his responding certification, defendant made the following factual assertions: 1) the sum of $27,500 was a "compromised settlement amount" in which he reduced his initial claim by more than $70,000; 2) during the negotiations leading to the PSA, the decision to withdraw the monies from plaintiff's IRA to pay defendant the $27,500 was solely plaintiff's decision; 3) it was plaintiff who "opted to take the monies from her IRA as opposed to borrowing against the equity in the former marital residence, taking a personal loan or some other option available to her"; 4) there was never any discussion during the negotiations suggesting that defendant would be responsible for paying taxes on the $27,500 he received; 5) defendant never agreed that plaintiff's withdrawal of $27,500 from her IRA should be done by the entry of a QDRO; 6) "there [were] absolutely no discussions indicating that [defendant] would receive a 1099 for those monies"; and 7) the applicable paragraph of the PSA contains "no language indicating the payment . . . of those monies would be in the form of a QDRO."
Consequently, defendant argued that an order allowing plaintiff to secure the entry of a QDRO would cause him to incur financial liability, in the form of income tax, which was never bargained for or anticipated by the parties. Were that to occur, he argued, he would be prevented from receiving the full benefit of the bargain he struck, which entitled him to receive the "lump-compromised sum of $27,500, NOT $27,500 taxable to [him] as income." He asserted that had there been an agreement that provided he would be responsible for payment of the applicable income tax, he would have bargained for a higher amount to compensate for the tax liability.
In a written decision, Judge Middlesworth held that because the $27,500 was in satisfaction of defendant's claim for reimbursement of monies he expended prior to the marriage, it is unlikely that the funds he expended were from pre-tax accounts. The judge also held that nothing in the language of the parties' PSA suggests that the $27,500 was intended to be taxable to defendant, nor was there any evidence in the record to support such claim by plaintiff. Concluding that plaintiff's motion improperly sought "to shift her tax burden to defendant," the judge denied plaintiff's motion.
We agree with plaintiff's contention that a court should conduct a plenary hearing whenever the terms of the PSA are ambiguous and the court is faced with divergent contentions regarding the parties' intent. See Tancredi v. Tancredi, 101 N.J. Super. 259, 262 (App. Div. 1968). Here, however, a plenary hearing was not required because none of the certifications created a factual issue. In particular, as defendant correctly argues, plaintiff's certification does not even remotely suggest that defendant ever agreed to accept responsibility for payment of income tax on the $27,500 or that the parties ever discussed the entry of a QDRO. Indeed, it is evident from plaintiff's own certification that the first time the subject of a QDRO arose was after the $27,500 reimbursement had been paid, and plaintiff's tax adviser suggested she return to court to seek a QDRO. Under the circumstances, Judge Middlesworth was entitled to decide the issue without a plenary hearing because the certifications did not create a factual issue.
We agree with Judge Middlesworth's conclusion that plaintiff's motion is, in effect, an after-the-fact attempt to recast the simple payment of a debt into equitable distribution.
Pursuant to the PSA, both parties agreed to waive equitable distribution of the other's retirement fund. However, a QDRO is used to maintain the tax-advantaged position of retirement accounts. Ross v. Ross, 308 N.J. Super. 132, 150-51 (App. Div. 1998). The sum in question was never intended as equitable distribution of marital property. It was merely reimbursement of sums defendant expended prior to the marriage. Therefore, the judge correctly determined that plaintiff should bear the tax consequences of the withdrawal.
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