March 18, 2010
TERRY J. HART, PLAINTIFF-APPELLANT,
WENDY M. HART, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Morris County, Docket No. FM-14-634-97.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 4, 2009
Before Judges Wefing, Grall and Messano.
In this post-judgment Family Part action, plaintiff Terry J. Hart appeals from various provisions of three orders: 1) the July 9, 2008 order (the July order) denying his motion for a downward modification of his alimony obligation and granting other relief to his ex-wife, defendant Wendy M. Hart; 2) the October 30, 2008 order (the October order) denying his motion for reconsideration, and granting defendant further relief; and 3) the December 9, 2008 order (the December order) that followed defendant's motion for reconsideration and that compelled the production of an unredacted copy of plaintiff's 2005 tax return, and granted defendant additional relief. We have considered the arguments raised in light of the record and applicable legal standards. We reverse and remand the matter to the trial court for further proceedings consistent with this opinion.
This is the second time the matter is before us based upon plaintiff's post-judgment request to modify his alimony obligations. We reference the essential background facts as set forth in our earlier opinion. See Hart v. Hart, No. A-5252-05 (App. Div. November 27, 2007).
Plaintiff and defendant were married in 1975 and have two adult children. They separated on October 15, 1996, and were divorced on May 12, 1999 when both were fifty-two years old. Id. (slip op. at 2). "Plaintiff holds an engineering degree from Lehigh University, and masters degrees from MIT and Rutgers University." Id. (slip op. at 3). From 1978 to 1984, plaintiff participated in NASA's astronaut program, and relocated the family to Houston, Texas. Ibid. Upon returning to New Jersey, "plaintiff was employed by Bell Labs/AT&T." Aside from some part-time jobs, "defendant did not work outside the home[,] [and] [i]nstead . . . car[ed] for the home and support[ed] her husband's career." Ibid. "The parties enjoyed a comfortable lifestyle," "lived in a five-bedroom home in Morris Plains[,]" plaintiff was a member at a private country club, and "[b]oth children attended private schools." Ibid.
In 1997, "AT&T sold its satellite company to Loral SpaceCom, [and] plaintiff was hired as president of the new division, Loral SkyNet." Ibid. In 1998, the year before the divorce, plaintiff earned $312,538. Id. (slip op. at 4). In the property settlement agreement (PSA) incorporated in the divorce judgment, plaintiff agreed to pay defendant $6250 per month in permanent alimony until the parties' youngest child graduated from college, and thereafter alimony payments would increase to $8000 per month. Ibid. The marital home was to be sold, and the net proceeds divided. Ibid.
After the divorce, defendant purchased and lived in a condominium, but eventually moved into a rented apartment. Ibid. Plaintiff remarried, purchased and moved to a seven-acre property in Pennsylvania adjacent to a country club, joined the club, and adopted a newborn child. Ibid. "[P]laintiff's income continued to escalate [after the divorce], and he continued to maintain a very comfortable lifestyle . . . above that which he and defendant experienced during their marriage." Id. (slip op. at 5).
In 2004, plaintiff's company filed for bankruptcy and he was terminated from his position; at the time, his salary was $380,000, "and he received an eighteen-month severance package . . . ." Ibid. As the severance package neared expiration in February 2006, plaintiff moved for modification of the PSA to reduce his alimony payments. Id. (slip op. at 8). He set forth his efforts to locate other employment, which were unsuccessful, except that he obtained a full-time teaching position at his alma mater commanding a salary of $80,000. Id. (slip op. at 5-6). Plaintiff's CIS that accompanied the motion demonstrated that he had a net worth of $2.6 million, and gross income for the year 2004 from various sources that approximated $1 million.*fn1
Id. (slip op. at 7). An amended CIS filed by plaintiff indicated that his income for 2005 was more than $525,000. Id. (slip op. at 8).
Defendant opposed the motion, and cross-moved for other relief. Although both parties requested oral argument, the judge decided the issues on the papers. Ibid. The judge concluded plaintiff had sufficient assets to meet his alimony obligations; he denied defendant's requests. Id. (slip op. at 9). Both parties sought reconsideration, once again asking for oral argument; without granting oral argument, the judge denied plaintiff's motion, but granted defendant some limited relief and counsel fees. Id. (slip op. at 10-11).
Plaintiff again sought reconsideration and defendant again opposed and cross-moved to enforce litigant's rights. Id. (slip op. at 12). The judge denied plaintiff's motion, granted defendant's cross-motion, and ordered plaintiff to provide defendant with all the tax information that supported his applications to the court. Ibid. He further ordered plaintiff to pay defendant's counsel fees and found that plaintiff violated defendant's rights by failing to pay alimony. Ibid. Plaintiff appealed.
We found plaintiff's argument supporting a downward modification of the PSA based upon changed circumstances to be "unpersuasive." Id. (slip op. at 14). We further found no basis to set aside the motion judge's conclusion that "considering the substantial assets plaintiff acknowledged owning, the income imputed from these assets, and plaintiff's earned and unearned income, there was a sufficient basis for continuation of the $8,000 per month alimony figure." Id. (slip op. at 15). We affirmed the orders under review. Id. (slip op. at 16). After we subsequently denied plaintiff's motion for reconsideration, the Supreme Court denied his petition for certification.
Less than three weeks later, plaintiff again moved for a downward modification of his alimony obligations under the PSA, specifically seeking a reduction to $3000 per month, retroactive to March 1, 2006. He requested oral argument.
The certification in support of the motion rehashed much of what we have set forth above. Plaintiff claimed to have made $88,961 in 2007 while working as a professor at Lehigh University and a consultant "in the satellite industry." He documented the efforts he had made to find executive positions with various corporations during 2006 and 2007.
Regarding his assets, plaintiff referred to the CIS that accompanied the motion, and claimed a net worth of $1,651,899, the lion's share of which was his "half interest" in the home that he owned with his new wife. There was now no mortgage on the property. Plaintiff argued that defendant "should have no claim" to his home and his pensions, which defendant shared as part of equitable distribution, or his inheritance from his mother. Plaintiff sought a downward modification of his alimony obligations, or, alternatively, a plenary hearing on the issue, and counsel fees.
Defendant opposed the motion and cross-moved for relief, also seeking oral argument. She noted that plaintiff continued to violate prior orders as well as the award of counsel fees we made after plaintiff's unsuccessful appeal. Defendant noted that plaintiff had "unilaterally decided" not to pay the $8000 per month alimony obligations required under the PSA, and, instead began paying only $3000 per month after he lost his position with Loral. Defendant asked the judge to "set arrears at $132,000 as of June 1, 2008 . . . and enter judgment against plaintiff for this amount."
Defendant also asked the judge to "freeze" plaintiff's "retirement plans and garnish the payments [she] [wa]s entitled to receive," as well as plaintiff's salary. Defendant also contended that plaintiff failed to pay her the portion of his military pension to which she was entitled under the PSA, failed to make her the recipient of the pension's survivor benefits, and failed to furnish the 2005 tax return ordered to be provided by prior court order in 2006. Defendant also noted that plaintiff had failed to pay counsel fees of more than $13,000 as a result of the 2006 motion practice and appeal.
Plaintiff's reply certification sought to rebut defendant's claim that he led a "jet-setter" lifestyle. He argued that defendant was not entitled to survivor benefits under his military pension. Regarding his 2005 tax return, plaintiff contended that because it was a joint return and contained his new wife's personal information, he should not be required to provide it to defendant. In sum, plaintiff argued that he was entitled to a "retroactive and/or downward modification of alimony" based upon more than "two years of making a fraction of [his] earnings at the time the [PSA] was entered . . . ."
The motion judge entered an order on July 9, 2008, along with an accompanying written statement of reasons. He explained that he "d[id] not need to conduct oral argument in order to decide the issues in contest[,]" further finding that the "papers submitted present[ed] [no] genuine matter in dispute[,]" and "that oral argument w[ould] [not] . . . assist [him] in reaching a decision." We limit our discussion to those paragraphs of the July order that are the subject of plaintiff's appeal.
In paragraph 1, the judge denied plaintiff's request for a downward modification of alimony, ordered him to "take all steps necessary . . . to pay $8,000 per month[,]" and denied plaintiff's "request for a plenary hearing" (paragraph 3). The judge found plaintiff to be "in violation of litigant's rights for failing to pay alimony pursuant to . . . [the PSA] and post-judgment orders" (paragraph 4), and set "arrears at $132,500, the amount of alimony . . . . plaintiff failed to pay [defendant] through June 2008 . . . ." (Paragraph 5). The judge entered judgment in favor of defendant against plaintiff in that amount (paragraph 6), and granted defendant counsel fees in the amount of $4,266.06 to be paid within thirty days. (Paragraph 15).
The judge reasoned that plaintiff had failed to make a prima facie showing of changed circumstances to warrant a reduction in alimony, concluding that "[a]lthough the supporting spouse's income earned through employment is central to the modification inquiry, it is not the only measure of the supporting spouse's ability to pay . . . ." Based upon the CIS, the judge found that plaintiff had assets totaling $1.65 million and no longer maintained a mortgage on his home. He concluded that "during the period when plaintiff claimed that he was unable to meet his $8,000 monthly alimony obligation . . . [,] he was able to afford mortgage payments of $25,769 per month on average ($670,000 mortgage/26 months)." Citing Miller v. Miller, 160 N.J. 408 (1999), and Stiffler v. Stiffler, 304 N.J. Super. 96 (Ch. Div. 1997), the judge concluded that "[p]laintiff did exactly what our case law provides he cannot do -- he insulated his assets from the alimony calculus by investing those assets in a non-incoming producing manner." The judge was also unconvinced that plaintiff continued to actively pursue other employment, noting "his most recent job search letter was sent in July 2007."
Plaintiff moved for reconsideration on July 31 and again sought oral argument. After noting that his current monthly alimony obligations were $9600 ($8000 $1600 arrears per month), plaintiff reiterated the financial circumstances regarding his "income and earnings history." He argued that the judge had failed to analyze in any detail "the sum total of his assets." Plaintiff contended that any imputation of income available to supplement his significant decrease in earnings should be limited to only certain assets. As a result, plaintiff argued that only $41,175 of additional income per year was available to meet his alimony obligations, making the total available income $173,495, an amount that was forty-five percent less than his income at the time of his divorce. Lastly, plaintiff argued that his decision to use his inheritance and other assets to pay down his mortgage was wise given his unemployed status at the time; additionally, he provided further proof of his fruitless search for an executive position.
Once again, defendant opposed the motion and cross-moved to enforce litigant's rights. She noted that plaintiff's alimony arrearages were $146,000 as of September, and that her continuous need to respond to plaintiff's motions had caused her to incur yet additional legal fees.
Plaintiff filed another reply certification, much of which re-iterated his initial assertions. He advised for the first time, however, that Pennsylvania had commenced enforcement actions against him, and, as a result, he faced incarceration if he failed to pay $15,000 immediately toward the arrears, and $9600 per month towards his alimony obligation.
On October 30, 2008, again without oral argument, the judge entered an order along with his written statement of reasons that essentially concluded plaintiff's arguments were "baseless." We consider only those paragraphs of the October order from which plaintiff appeals: the denial of his motion for reconsideration (paragraph 1); fixing alimony arrears at $146,000, subject to accrual of interest pursuant to Rule 4:42-11(a) (paragraph 2); fixing defendant's counsel fee award at $20,245.87, subject to interest pursuant to Rule 4:42-11(a) (paragraph 3); granting defendant a further award of counsel fees subject to the submission of a certification (paragraph 10).
While denying much of the relief defendant sought in her cross-motion, the judge ordered that plaintiff serve proof within fourteen days of the order that defendant would receive a portion of his military retirement pension. He further ordered both parties "to submit supplemental certifications as well as memoranda to address the legal issue of whether defendant is entitled to survivorship benefits under plaintiff's military pension . . . ."
Plaintiff responded to these aspects of the order by way of a certification and letter brief setting forth his position regarding the military pension. Defendant submitted her counsel's certification of services; in addition, defense counsel, in her accompanying letter, brought to the judge's attention several "issues and errors in the [October] order."
First, defendant took issue with the judge's conclusion that her request for unredacted copies of plaintiff's 2005 tax return was "moot." She noted that defendant had never produced the return as required by prior orders and argued that "the Appellate Division affirmed [the judge's] decision that [plaintiff] had to turn over unredacted income tax returns." Defendant also asked the judge to reconsider his denial of her request to garnish all sources of plaintiff's income, including the income he was deriving from his various pensions. She argued that the judge had the authority to order the garnishment and that this was the only way payment would be made.
Based upon the papers submitted, the judge entered the December order. Plaintiff appeals from those paragraphs that ordered him to produce "a complete, unredacted copy of his 2005 tax return as filed" (paragraph 1); ordered garnishment of his "income from all available sources to satisfy [plaintiff's] alimony obligations, including his AT&T and [Loral] Skynet retirement accounts and his Lehigh University salary" (paragraph 4); and awarded defendant $7,032.01 in counsel fees and costs pursuant to the October order (paragraph 5).
In a written statement of reasons, the judge noted that defendant's request for reconsideration did not conform with Rule 4:49-2, but nevertheless exercised his discretion, pursuant to Rule 1:1-2, to relax the procedural requirements. In this regard, the judge concluded that: "(i) [he] had either misinterpreted certain of the relief sought by defendant in her previous cross-motion as to the garnishment issue; (ii) [or] did not fully comprehend the complete record before [the court] and erred in applying the facts (as to the tax return issue)[;] (iii) part of the relief sought related to enforcement of the October 30, 2008 Order (as to the military pension issue)[;] and (iv) plaintiff availed himself of the opportunity to file a substantive response to [defendant's] letter application."
As to the 2005 tax return, the judge concluded "from a review of the Appellate record that the issue has already been decided in defendant's favor." The passage of time in this regard did not "excuse plaintiff's failure to comply with a prior Court Order." He required plaintiff to furnish an unredacted copy of the 2005 return within fourteen days.
Regarding garnishment of all of plaintiff's available income, the judge concluded that he had "misunderstood" defendant's request "as one to garnish assets . . . ." "[G]iven plaintiff's continuing failure to comply with several Orders enforcing his alimony obligations," the judge ordered garnishment of "all available sources" of plaintiff's income. Lastly, the judge reviewed defense counsel's submissions regarding the fee request, and, after partially deducting some "estimated fees," he ordered plaintiff to pay $7032.01 in fees and costs within fourteen days of the order.
This appeal was filed on December 12, 2008.
Plaintiff argues that the trial judge erred in failing to grant his request for oral argument of the original motion and the motion for reconsideration. Rule 5:5-4(a) provides:
Motions in family actions shall be governed by R. 1:6-2(b) except that, in exercising its discretion as to the mode and scheduling of disposition of motions, the court shall ordinarily grant requests for oral argument on substantive and non-routine discovery motions and ordinarily deny requests for oral argument on calendar and routine discovery motions.
While the court need not grant oral argument if there is a "lack of sufficient merit to warrant" it, Kozak v. Kozak, 280 N.J. Super. 272, 274 (Ch. Div. 1994), certif. denied, 151 N.J. 73 (1997), Judge Pressler has noted that the Rule expresses "a strong presumption favoring argument of motions other than calendar matters and routine discovery applications." Pressler, Current N.J. Court Rules, comment 1.1 on R. 5:5-4 (2010). We have noted that litigants should be permitted oral argument on such motions when requested "as a matter both of due process and the appearance of due process." Filippone v. Lee, 304 N.J. Super. 301, 306 (App. Div. 1997); see also Fusco v. Fusco, 186 N.J. Super. 321, 328-29 (App. Div. 1982).
In this case, plaintiff has sought to argue his motions seeking a downward modification of alimony since 2006. We noted in the first appeal that those requests were denied. Though we thought "it might have been preferable to allow oral argument on the substantive motions," we determined the denial of the request was not a mistaken exercise of the judge's discretion.
Hart, supra, (slip op. at 16). In the present matter, plaintiff again sought oral argument on his motion, as did defendant. The judge denied the requests, concluding argument was unnecessary. When plaintiff moved for reconsideration, he again sought oral argument, which the judge again denied. Neither party was invited to argue defendant's reconsideration application that led to the December order.
As the following discussion reveals, the issues in this case are complex, and the legal implications flowing from the extensive financial information plaintiff supplied would have benefited from elucidation that oral argument can provide. Simply stated, it was a mistaken exercise of the judge's discretion to deny oral argument because he determined it was "unnecessary." The repeated denial of plaintiff's legitimate requests to orally argue his substantive motions would, in and of itself, cause us to reverse the orders under review; we conclude that reversal is also warranted for the reasons that follow.
Plaintiff argues that the judge erred in concluding that he had not demonstrated "changed circumstances in accordance with Lepis v. Lepis*fn2 that warranted discovery and a plenary hearing." He contends that the judge "fail[ed] to consider [his] age and prior employment in the telecommunications industry," that "four years ha[d] passed since [his] employment was terminated," and that his efforts to find a commensurate position had been fruitless. He contends that he "clearly establish[ed] the permanency of [his] change in circumstances[,]" justifying discovery and a plenary hearing on the issue. See Larbig v. Larbig, 384 N.J. Super. 17, 23 (App. Div. 2006) (noting discovery and a plenary hearing is not "required until a movant provides sufficient evidence of a material changed circumstance") (citing Lepis, supra, 83 N.J. at 157).
Plaintiff further argues that the judge conflated the two-step Lepis process by considering his alleged continued ability to pay without determining that his financial circumstances had significantly and permanently changed. In this regard, plaintiff contends that the judge failed to properly analyze the financial underpinnings of his "substantial assets" and failed to properly impute an income stream from which plaintiff could meet his alimony obligations.
"Whether an alimony obligation should be modified based upon a claim of changed circumstances rests within a Family Part judge's sound discretion." Larbig, supra, 384 N.J. Super. at 21 (citing Innes v. Innes, 117 N.J. 496, 504 (1990)). "Each and every motion to modify an alimony obligation 'rests upon its own particular footing and the appellate court must give due recognition to the wide discretion which our law rightly affords to the trial judges who deal with these matters.'" Larbig, supra, 384 N.J. Super. at 21 (quoting Martindell v. Martindell, 21 N.J. 341, 355 (1956)). The trial court's determination of whether the moving party has demonstrated changed circumstances is entitled to "substantial deference" and will not be disturbed unless we are convinced that the findings "'are so manifestly unsupported by or inconsistent with the competent, relevant, and reasonably credible evidence as to offend the interest of justice.'" Walles v. Walles, 295 N.J. Super. 498, 513 (App. Div. 1996) (quoting Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155 (App. Div.), certif. denied, 40 N.J. 221 (1963))).
The two-step Lepis analysis is well-known. First, "[t]he party moving for the modification bears the burden of making a prima facie showing of changed circumstances. [Second,] [u]pon such a showing, a court may order discovery and hold a hearing to determine the supporting spouse's ability to pay." Miller v. Miller, 160 N.J. 408, 420 (1999) (citing Lepis v. Lepis, 83 N.J. 139, 157-59 (1980)) (emphasis omitted). A decrease in the supporting spouse's income is clearly one factor supporting a claim of changed circumstances warranting modification. Lepis, supra, 83 N.J. at 151; see also Crews v. Crews, 164 N.J. 11, 30 (2000) ("A substantial change in the financial condition of the supporting spouse after the entry of the divorce decree would be relevant."); Donnelly v. Donnelly, 405 N.J. Super. 117, 127 (App. Div. 2009) (noting that a supporting spouse's "sworn assertion that [his] income had [significantly] fallen" is "strongly suggest[ive] [of] a substantial change in circumstances").
"In an application brought by a supporting spouse for a downward modification in alimony . . . the central issue is the supporting spouse's ability to pay. A supporting spouse's potential to generate income is a significant factor to consider when determining his or her ability to pay alimony." Miller, supra, 160 N.J. at 420. "That information . . . [is] material in determining whether the . . . supporting spouse can show that changed circumstances have substantially affected his . . . ability to support himself . . . and the supported spouse, as required by the first step in a Lepis review." Crews, supra, 164 N.J. at 30-31 (emphasis added).
The issues posed by this appeal must be considered in light of the resolution of plaintiff's prior appeal. Recently, in Donnelly, supra, we addressed the nature of the trial judge's review when a party seeks modification of alimony obligations under a PSA after recently having been denied the same relief. There, approximately fifteen months after executing a PSA, the defendant husband sought a downward modification based upon an alleged reduction in his income of nearly fifty percent. 405 N.J. Super. at 121-22. After an extended plenary hearing, the judge denied the defendant's motion, finding that since execution of the PSA, he had purchased a new automobile, sold real property and used the proceeds to reduce his debts, purchased an expensive new home with a sizeable mortgage, remarried, and paid for a wedding and honeymoon. Id. at 122-23. The judge also remained unconvinced that the defendant's claimed income reduction was permanent in nature. Id. at 123.
Nine months later, the defendant again moved for a downward modification of alimony based upon changed circumstances. Ibid. In his second motion, the defendant "provided a general recital of his financial situation[,] and . . . asserted a further downward dip in his income[,]" requiring the sale of his law practice, but "reveal[ed] no effort to modify the lifestyle he enjoyed with his new wife and new child despite the alleged deterioration of his law practice." Id. at 123-24. After the judge denied the defendant's second request for a downward modification, he appealed. Id. at 124. In affirming the motion judge's decision, we noted that
[T]he judge was not required to wipe the slate clean and consider a similar contention regarding [the defendant's] earnings less than one year after the prior order as if the earlier hearing had never occurred. To the contrary, the judge was required to consider not whether there was a substantial change since the 2003 PSA but whether there was a substantial change since he rendered his fact findings in December 2006.
[Id. at 127 (emphasis added).]
Thus, in this case, in order to make a prima facie showing under Lepis justifying discovery and a plenary hearing, plaintiff needed to demonstrate that since the denial of his first request for a downward modification in 2006, he had suffered material adverse changes in his financial circumstances resulting in the inability to support both himself and defendant in accordance with the PSA's requirements.
Plaintiff's original motion provided scant information as to a significant change in circumstances since his appeal was denied. His certification focused mainly on the intractable nature of his underemployment, and his continued efforts to find a new position. In this limited sense, plaintiff presented prima facie evidence that he was unable, despite diligent efforts, to obtain executive employment in his chosen profession for more than four years prior to the filing of his latest motion.
Alleged changes in financial circumstances justifying modification cannot be temporary in nature. Innes supra, 117 N.J. at 504. We have noted that there is "no brightline rule by which to measure when a changed circumstance has endured long enough to warrant a modification of a support obligation." Larbig, supra, 384 N.J. Super. at 23. We would agree with plaintiff that he demonstrated an inability to find re-employment in his chosen profession, and it was unlikely, given his age, that he would be able to do so in the future.
However, contrary to plaintiff's assertion, the judge did not fail to consider this undisputed fact. Instead, the judge concluded that defendant had failed to demonstrate, for purposes of a prima facie showing under Lepis, that this particular change in circumstances -- four years of underemployment instead of two -- substantially affected plaintiff's ability to support himself and defendant in light of his other assets.
In his motion for reconsideration, however, plaintiff provided additional financial information that addressed the motion judge's initial determination that these assets, in and of themselves, required denial of the motion without oral argument, discovery, or a plenary hearing. Plaintiff urged the judge to consider not only the source of monies that led to the acquisition of these assets, but also whether the limited income that could be imputed to the assets justified the reduction in alimony. The judge, however, never addressed the additional information, instead noting that he remained "unpersuaded" by plaintiff's analysis in large part because he believed that plaintiff's original motion was "procedurally defective . . . ."*fn3
The judge properly determined "that a supporting spouse's assets may be considered in calculating an alimony award." Miller, supra, 160 N.J. at 422.
Although the supporting spouse's income earned through employment is central to the modification inquiry, it is not the only measure of the supporting spouse's ability to pay that should be considered by a court. Real property, capital assets, investment portfolio, and capacity to earn by "diligent attention to . . . business" are all appropriate factors for a court to consider in the determination of alimony modification. [Id. at 420-21 (citing Innes, supra, 117 N.J. at 503 (quoting Bonanno v. Bonanno, 4 N.J. 268, 275 (1950)).]
See Donnelly, supra, 405 N.J. Super. at 129 (noting "the change in [the supporting spouse's] income . . . [i]s only one part of the calculus to be considered in ruling upon the motion"). "Although some assets may be exempt from those subject to equitable distribution (such as inheritance), income derived from those excludable assets may be considered in the initial alimony decision or modification of an alimony award." Miller, supra, 160 N.J. at 422; see also Aronson v. Aronson, 245 N.J. Super. 354, 363 (App. Div. 1991) (holding that while an "inheritance itself is exempt from" the alimony calculation, "the income generated by it is no different from income generated by any other asset, exempt or otherwise").
In Miller, supra, the Court considered "whether income should be imputed from a supporting spouse's investments for the purpose of determining his . . . ability to pay alimony pursuant to an agreement." 160 N.J. at 413. There, an unemployed husband with an underperforming stock portfolio sought modification of his alimony obligation. Id. at 415-16. The Court concluded that the husband "could invest his substantial capital assets to yield more than the . . . interest he [wa]s currently earning on his growth stock investments." Id. at 423. "Given that both income earned through employment and investment income may be considered in a court's calculation of an alimony award, it follows that there is no functional difference between imputing income to the supporting spouse earned from employment versus that earned from investment." Ibid.
In Stiffler, supra, the supporting spouse invested income he received from an inheritance into a new home, a non-income producing asset. 304 N.J. Super. at 98. The court considered whether income that could have been generated from an alternative investment should be included in the alimony calculus. Id. at 100. The court concluded that the supporting spouse could not "insulate his inheritance from the alimony calculus by transforming it into a non-income producing asset." Id. at 102; see also Connell v. Connell, 313 N.J. Super. 426, 434 (App. Div. 1988) (imputing income when calculating child support obligation to non-income producing real estate purchased by using inherited funds). However, the court also noted that "[w]hether it [wa]s equitable to impute that all of the inheritance should have been invested in a way to generate interest income, some of it or none of it depends upon the circumstances." Stiffler, supra, 304 N.J. Super. at 102-03.
Whether income is derived from a retirement asset that was equitably distributed also factors into the modification analysis. See Innes, supra, 117 N.J. at 514 ("[P]ayments generated by pension benefits that had been previously equitably distributed are not income for purposes of alimony modification.").
As these cases illustrate, and as the motion judge acknowledged, assets acquired by the supporting spouse after the PSA was executed may be considered in determining whether a reduction in earned income requires a downward modification. However, in most instances, it is the potential for those assets to generate income, and whether the supporting spouse has squandered that opportunity, as opposed to the existence of the asset itself, that figures into the calculus.
In light of the foregoing, we conclude that plaintiff established a change of circumstances that entitled him to a hearing on his continued ability to meet his alimony obligations and whether it was equitable, under the circumstances, to modify the PSA. We specifically note, however, that in so holding, we do not reach the merits of plaintiff's claim that a downward modification is warranted.
First, although defendant did not challenge any of the specifics regarding plaintiff's financial claims, she should be entitled to challenge them through discovery and cross-examination. The veracity of plaintiff's claims regarding the assets he currently holds, how they were obtained, as well as the income he generated since the PSA was executed must be tested at a plenary hearing.
Second, as we recently noted in Donnelly, there are equitable concerns regarding plaintiff's conduct, separate and apart from whether his assets can generate the necessary income flow to meet his obligations under the PSA, that the motion judge is entitled to consider after the hearing. For example, in Donnelly, supra, in affirming the denial of plaintiff's motion for a downward departure despite a significant decrease in income, we noted that the trial judge "correctly focused on [the defendant's] inequitable attempt to have [the plaintiff] and their children bear the brunt of the luxurious lifestyle [the defendant] adopted with his new wife in the face of his allegedly dwindling law practice and claimed inability to meet his existing support obligations." 405 N.J. Super. at 129. We concluded:
We agree with the judge's determination that the alleged reduction in income was only part of the overall circumstances he was required to consider in determining whether [the defendant] met the burden of demonstrating a right to either discovery or a plenary hearing on his second Lepis motion. The trial court must consider -- in both fixing and altering a support obligation -- what is equitable and fair in all the circumstances. Lepis, supra, 83 N.J. at 158; see also Smith v. Smith, 72 N.J. 350, 360 (1977). This requires not only an examination of the parties' earnings but also how they have expended their income and utilized their assets. As long as [the defendant] continued to incur monthly expenses in excess of $11,000, the trial judge was entitled to conclude that [his] second motion was disconnected from the type of equitable underpinnings inherent in the right to relief established by Lepis. The trial judge here quite correctly recognized the inequity in [the defendant's] request for a downward modification of his obligations to [the plaintiff] and their three children while he maintained a lavish lifestyle at their expense. [Id. at 130-31 (footnotes omitted).]
Thus, after a plenary hearing, the judge must consider plaintiff's conduct since he lost his executive position, as well as the decisions he made regarding the assets at his command, before reaching a conclusion as to whether or not a downward modification is equitable under all the circumstances.
Plaintiff raises separate challenges to the December order. He argues that the judge mistakenly exercised his discretion and considered defendant's letter response as a motion for reconsideration despite its failure to comply with Rule 4:49-2. Plaintiff further contends that the judge erred in compelling production of his 2005 income tax return; in ordering garnishment of income "from his retirement assets"; and in awarding defendant counsel fees.
Plaintiff's procedural argument lacks sufficient merit to warrant extensive discussion in this opinion. See R. 2:11-3(e)(1)(E). It suffices to say that we discern no mistaken exercise of the judge's discretion in relaxing the requirement of the filing of a formal motion because 1) the judge had invited further briefing on a different issue left unresolved by the October 2008 order; 2) plaintiff responded to defendant's request for reconsideration; and 3) the subject matter of the request for reconsideration was fully briefed in October when defendant cross-moved for the relief. Plaintiff was in no way prejudiced in this regard. We nevertheless reverse the December order.
In light of our earlier decision that plaintiff should have been permitted a plenary hearing on his Lepis application, the award of counsel fees made in the December order must abide the event of that hearing, and the judge's resolution of the issue on the merits.
As to that portion of the December order that garnished "all available sources of [his] income," plaintiff notes that the judge originally denied defendant this relief, citing Biles v. Biles, 163 N.J. Super. 49 (Ch. Div. 1978).*fn4 When he granted defendant's informal motion for reconsideration, the judge simply stated that he had "misinterpreted certain of the relief sought by defendant in her previous cross-motion as to the garnishment issue." He provided no explanation for his decision to order garnishment.
Plaintiff argues that the judge "would have benefited from oral argument." Since defendant sought this relief in her original cross-motion, and since, as we noted above, oral argument should have been granted, we agree that the parties were entitled to oral argument on the question. However, we express no opinion of the merits of the issue, and we hasten to add that we do not foreclose the garnishment of any source of plaintiff's income to meet his obligations pending the plenary hearing on remand. We leave to the trial judge's sound discretion whether garnishment is appropriate under the circumstances presented.
We also reverse that portion of the December order that compelled plaintiff to produce an unredacted copy of his 2005 income tax return. Plaintiff contends that during the 2008 motion practice, he supplied a copy that redacted "only information . . . having to do with [his] current wife." He further argues that this information was corroborated by the W-2 forms he also supplied.
This issue had it genesis in the July 2006 order that first compelled plaintiff to "turn over all tax returns and other documents that were provided to the Court to the defendant's counsel forthwith." Plaintiff did not turn over the 2005 income tax return. A subsequent order enforced the July 2006 order. Although plaintiff raised the issue on appeal, and although we affirmed the orders under review, we did not specifically address the question. Defendant continued to press the issue in both her original cross-motion, and her cross-motion filed in response to plaintiff's motion for reconsideration.
The judge originally determined that defendant's request was "moot." However, after reviewing defendant's letter seeking reconsideration, the judge reversed his earlier ruling and determined that the 2005 tax return should be produced. The judge noted that he was "not prepared to second guess the potential use that defendant may make of this information, especially given plaintiff's continuing claims that he lacks sufficient assets to meet his obligations under the . . . (PSA)."
Although tax returns are not privileged, in camera review is required before a court can compel their production. DeGraaff v. DeGraaff, 163 N.J. Super. 578, 582-83 (App. Div. 1978) (quoting Irval Realty v. Bd. of Pub. Util. Comm'rs, 61 N.J. 366, 375-76 (1972)). In considering production, the judge must determine whether the party seeking the returns has demonstrated "good cause." Ullmann v. Hartford Fire Ins. Co., 87 N.J. Super. 409, 415 (App. Div. 1965). Thereafter, the judge must weigh the privacy interest against the demonstrated need of the party seeking the tax returns. See id. at 417. Even if the judge determines production is warranted, the judge must proceed cautiously:
The disclosure of entire returns should never be ordered if partial disclosure will suffice, and in all but the clearest cases the return should be examined by the judge before any disclosure is ordered. Even then the judge should impose such restrictions and limitations as may be necessary for the protection of the taxpayer. [Id. at 416.]
In light of our determination that plaintiff is entitled to a plenary hearing on his Lepis claim, and the likelihood of some discovery prior to a plenary hearing, we believe the issue should be reconsidered.
Defendant may indeed demonstrate the relevancy of an unredacted 2005 tax return to the issues now presented. We, too, do not second-guess her reasons for needing the full return. However, in light of all that has transpired, we believe it is appropriate for the judge to consider the issue in light of the present posture of the case and the precedent we have cited.
Plaintiff requests that we order another judge to hear this matter on remand. He alleges that because the motion judge "may have a commitment to his findings," Carmichael v. Bryan, 310 N.J. Super. 34, 49 (App. Div. 1998), reassignment would be appropriate. Here, the judge did not resolve disputed facts without holding an evidentiary hearing. See, e.g., Johnson v. Johnson, 390 N.J. Super. 269, 275 (App. Div. 2007) (holding a different judge should conduct the evidentiary hearing in light of the prior judge's resolution of disputed facts without a hearing). Although we disagree with the legal conclusions he reached, we find no basis to remand the matter to a different judge.
In summary, we reverse the July and October orders to the extent that they denied plaintiff's request for a plenary hearing on his Lepis application; a decision as to whether he is entitled to a downward modification of alimony shall abide that event. We also reverse those portions of the orders that fixed plaintiff's alimony arrearages, determined he violated litigant's rights for failing to pay alimony pursuant to the PSA, and reduced the arrearage amount to judgment.
We reverse the award of counsel fees in the July order, the entry of judgment for the total counsel fees then due as contained in the October order, and the award of additional counsel fees in the December order. Determination of counsel fees shall also abide the plenary hearing on plaintiff's Lepis application. Lastly, we reverse those portions of the December order that garnished all available sources of plaintiff's income, and compelled the production of his 2005 income tax return.
Despite our holding, we must express deep concern over plaintiff's apparent willingness to violate prior court orders while pursuing his first appeal and this appeal. We are advised that he has failed to pay any counsel fees that were awarded up to and including the first appeal; those fees are included in the total amount of fees reflected in the October and December orders. Plaintiff unilaterally reduced alimony payments in 2006 and was in arrears during the pendency of the first appeal.
We wish to make it clear that with the exception of producing his 2005 income tax return, our decision today in no way relieves plaintiff of his obligations under prior orders that were reviewed and affirmed by us in the first appeal, or our order awarding defendant counsel fees based upon that appeal. The trial court is specifically empowered to take whatever steps are necessary to enforce those prior orders pending the plenary hearing on plaintiff's Lepis application.
Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.