November 16, 2010
VIRGINIA BUTERA, PLAINTIFF-APPELLANT,
TIMOTHY MICHAEL TOY, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Union County, Docket No. FM-20-1097-98.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted October 14, 2010
Before Judges R. B. Coleman and J. N. Harris.
Plaintiff Virginia Butera appeals from a February 5, 2010 order granting a downward modification of defendant Timothy Toy's obligation to pay Butera permanent alimony. Based upon our review of the record, the arguments advanced and the applicable law, we reverse and remand for discovery and a plenary hearing.
The parties were married on August 23, 1980, and have one child, born February 21, 1987. They were divorced by Final Judgment of Divorce entered on August 4, 1999. That Final Judgment of Divorce incorporated a Property Settlement Agreement (PSA) which provided, in pertinent part, for defendant to pay alimony to plaintiff at the rate of $45,000 per year from January 1, 1999 through December 31, 2004, then at a rate of $75,000 per year commencing January 1, 2005. The PSA specified that the level of alimony payable to plaintiff was based upon an income level for defendant of $350,000 per year and an imputed income of $20,000 per year for plaintiff.
Defendant worked as an attorney with a major New York City law firm, earning approximately $425,000 in 1998 near the time of the divorce proceedings. Following the parties' divorce, in June 2005, defendant left that law firm and started working with a Houston, Texas based firm to assist it in establishing a New York office. In that capacity, defendant earned an annual income of approximately $743,000 for 2006, 2007 and 2008.
Plaintiff is now a tenured associate professor, Chair of the Art and Music Departments, and Director of an Art Gallery at the College of St. Elizabeth. She earned approximately $56,000 total in 2008. During the marriage, plaintiff stayed at home with virtually no income from 1982 until 1997. Her total earnings over the subsequent ten years, 1998-2008, was approximately $384,000.
In early 2009, defendant sent notice to plaintiff by electronic mail indicating that his contract with his law firm would be terminated by June 2009, and that he had no prospects of future employment. He informed plaintiff that he would likely be earning insufficient income to pay the support due and owing to her, until he has an income again. In June 2009, defendant signed a six-month lease on space to establish his own law firm as a sole practitioner. Defendant unilaterally stopped paying his alimony obligations.
On September 29, 2009, defendant filed a pro se notice of motion in the Chancery Division, Family Part, seeking, among other relief, to terminate his obligation to pay alimony effective October 1, 2009. At the time, defendant was two months in arrears for alimony. His motion was based on an alleged change of circumstances as to plaintiff and as to himself since the entry of the final Judgment of Divorce.
Plaintiff filed a cross-motion asking that defendant's motion be denied, that arrearages be entered as a judgment and paid; that proof of life insurance be provided; and that she be awarded counsel fees.
On December 4, 2009, the Family Part judge who heard oral arguments entered an order that (1) denied defendant's motion to terminate alimony without prejudice; (2) ordered the parties to attend mediation with the judge's law clerk; (3) denied plaintiff's request for counsel fees without prejudice; (4) ordered defendant to continue paying life insurance premiums as required by the parties' previous agreement; and (5) ordered defendant to submit to the court and opposing party, a "full and complete" Case Information Statement (CIS) by December 18, 2009. The order also noted that defendant's motion to terminate alimony could be renewed if the mediation failed.
The parties attended mediation on January 12, 2010, but an agreement was not reached. The parties mediated again on January 27, 2010, again without success. Thereafter, defendant refiled his motion, which led to the court's February 5, 2010 order. In that order, the court memorialized its determination that defendant had "undergone a bona fide change of circumstances." Accordingly, the court granted a reduction in alimony from the $75,000 per year or a rate of $6,250 per month established by the original PSA to $1,400 a month, retroactive to September 30, 2009. The order recited that plaintiff "is free to make a motion with respect to this alimony at any time she feels there is a basis and certainly after she has received the information contained in paragraph two," which required defendant to "produce a complete picture of his net worth and his 2010 tax returns to plaintiff on February 5, 2011." The order denied that portion of defendant's motion that sought to terminate life insurance coverage and required defendant to continue to maintain the life insurance policy that has been in effect for plaintiff. Plaintiff's cross-motion for attorney fees was denied, and plaintiff's notice of appeal was filed on February 22, 2010.
"Our courts are authorized to modify alimony and support orders 'as the circumstances of the parties and the nature of the case' require." Halliwell v. Halliwell, 326 N.J. Super. 442, 448 (App. Div. 1999) (quoting the language of N.J.S.A. 2A:34-23). Such obligations are always subject to modification on a showing of "changed circumstances." Lepis v. Lepis, 83 N.J. 139, 146 (1980). Examples of such "changed circumstances" warranting modification include:
(1) an increase in the cost of living;
(2) increase or decrease in the supporting spouse's income;
(3) illness, disability or infirmity arising after the original judgment;
(4) the dependent spouse's loss of a house or apartment;
(5) the dependent spouse's cohabitation with another;
(6) subsequent employment by the dependent spouse; and
(7) changes in federal income tax law.
[Id. at 151 (internal citations omitted).]
On the other hand, a change in circumstances must be found to be permanent and continuing before a court can consider a modification of support and cannot be justified if only temporary. Lepis, supra, 83 N.J. at 151-52 (citing Bonanno v. Bonanno, 4 N.J. 268, 274 (1950)); see also Innes v. Innes, 117 N.J. 496, 504 (1990) (citation omitted). We have recognized that the existence of changed circumstances is a discretionary determination:
There is, of course, no brightline rule by which to measure when a changed circumstance has endured long enough to warrant a modification of a support obligation. Instead, such matters turn on the discretionary determinations of Family Part judges, based upon their experience as applied to all the relevant circumstances presented, which we do not disturb absent an abuse of discretion. [Larbig v. Larbig, 384 N.J. Super. 17, 23 (App. Div. 2006).]
Thus, we acknowledge that "[t]o vacate a trial court's findings in a proceeding modifying alimony, an appellate court must conclude that the trial court clearly abused its discretion[.]" Rolnick v. Rolnick, 262 N.J. Super. 343, 360 (App. Div. 1993) (citing Avery v. Avery, 206 N.J. Super. 155, 163 (App. Div. 1956); Gugliotta v. Gugliotta, 164 N.J. Super. 139, 141 (App. Div. 1978)). Stated differently, for this court to vacate a trial court's findings and decision in a proceeding to modify alimony, it must conclude that the trial court: (1) "clearly abused its discretion"[;] (2) "failed to consider 'all of the controlling legal principles'"[;] (3) was mistaken in its findings of fact; or (4) could not reasonably have reached its determination "on sufficient credible evidence present in the record after consideration of the proofs as a whole." Ibid. Here, plaintiff asserts that the trial court mistakenly exercised its discretion by modifying defendant's support obligations because defendant failed to carry his burden of demonstrating a permanent reduction in income. We agree.
It is well settled in New Jersey that "[i]n 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 v. Miller, 160 N.J. 408, 420 (1999) (citing Mahoney v. Mahoney, 91 N.J. 488, 505 (1982); Stern v. Stern, 66 N.J. 340, 345 (1975)).
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 421 (citing Innes, supra, 117 N.J. at 503).]
Further, "[t]he party moving for the modification bears the burden of making a prima facie showing of changed circumstances." Id. at 420 (citing Lepis, supra, 83 N.J. at 153). Where the supporting spouse applies for a downward modification of alimony a substantial change in the financial condition of the supporting spouse after the entry of the divorce decree would be relevant. That information would be material in determining whether the moving party, there the supporting spouse, can show that changed circumstances have substantially affected his or her ability to support himself or herself and the supported spouse[.] [Crews v. Crews, 164 N.J. 11, 31 (2000).]
Here, the motion judge found changed circumstances even though, until shortly before the motion to terminate alimony, defendant's earnings were above the threshold income on which the alimony was based at the time of the divorce. The original alimony award entered in 1998 for $75,000 per annum was based on defendant's income of $350,000.*fn1 According to defendant's updated CIS, his 2008 income was approximately $725,000. Defendant's financial documents illustrate that he earned over $400,000 in 2009. Although defendant's certification describes the circumstances under which he asserts that he felt compelled to attempt to establish a law office as a sole practitioner in New York City, no where in the record is there evidence that defendant's current ability to pay alimony, considering his assets and liabilities, have permanently dropped below the $350,000 basis on which the original alimony obligation was predicated.
Next, the trial court relied on inconsistent and unsubstantiated information to support its findings. In granting defendant's motion for a termination of his alimony obligation, the trial judge determined:
[Defendant] notified [plaintiff] well in advance, as things were unfolding, that things were changing rapidly and he was trying to deal with it. And he made a very clear and fair statement about what was unfolding in front of him as the months came forward
Now I am not disputing the past earnings because they're not in dispute. But, you know, there's a reality which is that people, particularly in the high-end area where [defendant] was at one time, the bottom falls out. The gravy trains [sic] ends. And the gravy train ends for both people that were part of the divorce.
Then, based on "plenty of evidence in all of [the parties'] certifications," the motion judge found the requisite change of circumstances pursuant to Lepis. Close scrutiny of the record, however, does not reveal the existence of "plenty of evidence" to support this conclusion.
Defendant submitted his two CISs and three certifications explaining his changed circumstances due to, but not limited to: the termination of the job contract with his last firm; his startup costs as a sole practitioner; his efforts to mitigate the change in circumstances; a projected assessment of revenues for his solo practice; and plaintiff's improved ability to support herself. There are unexplained inconsistencies between the first CIS and second CIS. The September 2009 CIS had monthly Schedule C expenses of $18,891 and the January 2010 CIS had monthly Schedule C expenses of $7,463.50 for the same year. Also, defendant's reply certification stated that his "net income for the last seven months of 2009 was just over $3000 per month," yet there were no tax returns nor business records directly supporting this statement. Finally, defendant projected his gross revenues for 2010 to be $130,000 and net revenues of $100,000. These projections lack any sound documentation to substantiate this claim and must be viewed as speculative.
The trial court also failed to consider defendant's after acquired assets, including defendant's 401K rollover account in its analysis of whether a downward modification was appropriate. Defendant notes that plaintiff expressly waived in the PSA all claims to his 401K, but such assets may be relevant to defendant's current ability to satisfy his alimony obligation. We held in Steneken v. Steneken, 367 N.J. Super. 427, 438 (App. Div. 2004), that "a supporting spouse's pension may be considered for purpose of alimony to the extent that post-divorce earnings enhance its value." At the time of the divorce, defendant's 401K was $60,000*fn2 and is currently well in excess of that amount. Defendant claims he cannot access his IRA since it is "jointly titled" with his current wife. Even if that is so, there has been no sufficient exploration of defendant's available assets or of the tested viability of his upstart law firm. In light of Steneken, the motion judge erred when failing to consider that defendant may have substantial assets in assessing his ability to pay. See also Mallory v. Mallory, 179 N.J. Super. 556, 562 (Ch. Div. 1981) (holding that IRAs are not meant to be a "totally controllable vehicle for the contrived avoidance of family support responsibility").
Whether circumstances have really changed so as to warrant modification requires a court to study the parties' financial condition at the time of the divorce, as well as at the time of the application. Where the change is involuntary, all that is required is an analysis of the alterations in the parties' financial circumstances. [Deegan v. Deegan, 254 N.J. Super. 350, 355 (App. Div. 1992) (internal citation omitted).]
The motion judge's review of inconsistent CISs and defendant's certifications does not constitute an adequate "study" of defendant's financial condition.
Next, we address the issue of permanency. The examination of the record below reveals that the motion court's finding of permanency was not based on sufficient credible evidence in the record. For example, the timing of the filing of defendant's two motions illustrate that the circumstances were not permanent. Defendant's first motion for modification was based on a reduction in income due to the terminated contract with the Texas based firm. That contract ended only three months before he filed the first motion. He filed the second motion four months later. The lapse of seven months in total since his terminated contract is not a sufficient amount of time to demonstrate a permanent changed circumstance pursuant to Lepis, supra, 83 N.J. at 151-52. See Larbig, supra, 384 N.J. Super. at 22 (holding that even if defendant's income had decreased significantly, the timing of the motion to reduce alimony indicated that the change could not be "anything other than temporary" where it was filed twenty months after the execution of the parties' judgment of divorce); see also Donnelly v. Donnelly, 405 N.J. Super. 117, 128 (2009) (affirming the trial judge's decision to deny a motion for downward alimony modification after only nine months from the first motion since he "had returned to court far too soon . . .").
In essence, the motion judge accepted defendant's arguments articulated in his certifications that because of the "steep downturn of the New York City legal market"; because large law firms will no longer compensate him for his seniority and skills; because his "income has dropped by over 90%"; and because his projected revenues for 2010 as a sole practitioner are $130,000, he suffers a permanent change in financial circumstances. "Courts have consistently rejected requests for modification based on circumstances . . . which are expected but have not yet occurred." Lepis, supra, 83 N.J. at 151 (citing Bonanno, supra, 4 N.J. at 268). Thus, the motion judge's determination of changed circumstances was premature. Defendant did not adequately carry his burden of showing permanency.
Next, plaintiff argues the court below should have held a plenary hearing. We agree. Although a plenary hearing is not required in an application for modification of alimony "when the material facts are not in genuine dispute," when a party "clearly demonstrate[s] the existence of a genuine issue as to a material fact," a hearing should be held. Lepis, supra, 83 N.J. at 159. Conclusory allegations are to be ignored in determining whether a material fact is in dispute. Ibid.
Plaintiff claims she informally requested discovery from defendant but had no way to enforce compliance to her demand. At oral argument, the judge addressed this issue by stating that "[plaintiff] had an obligation to exchange information" and should have applied for discovery after the failed mediation. Plaintiff responded that she requested three years of income tax returns, never received them, yet did not have enough time between the mediation and the February 5 oral argument to make an application for any additional discovery.
Lepis holds that financial information should be ordered to determine the status of both parties after a prima facie showing of changed circumstances is made. Lepis, supra, 83 N.J. at 157. Here, the court concluded that a prima facie showing had been made. Hence, the court reduced the amount of the alimony obligation and reserved to plaintiff the right to "make a motion with respect to alimony at any time she feels there is a basis and certainly after she receives the information the court directed defendant to disclose in another part of the court's order." The modification should have awaited the financial disclosures and verifications. A plenary hearing would have been appropriate after additional financial discovery had allowed the parties to develop the record more fully. Id. at 159. We have recognized that "without knowledge of the financial status of both parties, the court will be unable to make an informed determination as to 'what, in light of all the [circumstances] is equitable and fair'". Lepis, supra, 83 N.J. at 158 (quoting Smith v. Smith, 72 N.J. 350, 360 (1977)). Since there were genuine issues of material fact relevant to whether defendant's changed circumstances were permanent and as to the extent of defendant's available assets and his ability to generate revenues in his new law firm, the trial judge should have granted a plenary hearing to make an "informed determination" as to the financial status of the parties. Lepis, supra, 83 N.J. at 158.
Finally, plaintiff asserts that she was entitled to counsel fees since defendant acted in bad faith as he came to court with "unclean hands," terminated alimony without permission of the court, and violated the mediation clause in the PSA. In any matrimonial action, an award of attorney's fees rests within the sound discretion of the court. Williams v. Williams, 59 N.J. 229 (1971) (citations omitted). Rule 4:42-9 authorizes an award of legal fees and refers to Rule 5:3-5(c), which lists factors to be considered in awarding legal fees in a matrimonial matter. To the extent relevant here, in determining such an application, the court must consider the requesting party's need, the other party's ability to pay, the good and bad faith of each party, and the reasonableness of the positions advanced by each. R. 5:3-5(c). Bad faith includes (1) unwillingness or intransigence during litigation to negotiate equitable distribution of marital property, (2) pursuit of relief to which one knew or should have known that he or she was not reasonably entitled under the facts or the law, (3) intentional misrepresentation of facts or law to avoid or unfairly limit equitable distribution, and (4) vexatious or wanton acts or acts initiated to oppress one's opponent. Borzillo v. Borzillo, 259 N.J. Super. 286, 293-94 (Ch. Div. 1992).
While "[a]n allowance for counsel fees and costs in a family action is discretionary," Eaton v. Grau, 368 N.J. Super. 215, 225 (App. Div. 2004), the court must nevertheless consider the above factors in making the award. See Pressler and Verniero, Current N.J. Court Rules, Comment 4 on R. 5:3-5 (2011). In the case at bar, we perceive no basis to disturb the motion court's denial of counsel fees since the court "evaluated all the factors under Rule 5:3-5  [and] find[s] [defendant]'s motion was very credible . . . ." We do not disagree with the court's conclusion that there was a credible basis for defendant to seek relief, but we are convinced the record on the motion did not establish a sufficient basis for the determination of the reduction. To the extent the proofs were unsettled, the modification should have awaited the exchange of discovery. Similarly, the determination regarding the award of counsel fees may be reconsidered in light of the resolution of the issues on remand.
Any of plaintiff's arguments that are not specifically addressed in this opinion lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
In summary, the case is remanded to the trial court for discovery and a plenary hearing to determine whether, and to what extent, alimony should be modified based on the financial status of the parties. At this juncture, however, the order modifying alimony is vacated, and the matter is remanded for a more fully developed record in accordance with Lepis. The "goal of a proper alimony award is to assist the supported spouse in achieving a lifestyle that is reasonably comparable to the one enjoyed while living with the supporting spouse during the marriage." Crews, supra, 164 N.J. at 16.
Reversed and remanded.