September 15, 2011
WILLIAM E. RAINS, PLAINTIFF-RESPONDENT,
CAROLE A. RAINS, DEFENDANT-APPELLANT.
On appeal from Superior Court of New Jersey, Chancery Division, Family Part, Morris County, Docket No. FM-14-583-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 1, 2011
Before Judges Parrillo and Espinosa.
Defendant Carole A. Rains appeals from an order that terminated the obligations of plaintiff William E. Rains to pay alimony and maintain life insurance. We reverse and remand.
Plaintiff and defendant were married in 1984 and had two children. At the time of the subject motions, plaintiff had worked for AT&T for twenty-seven years and was the Director of Finance; defendant had a Bachelor of Science degree in communications but was unemployed.
The parties participated in mediation and were represented by counsel throughout the process. Among the issues raised was defendant's expected inheritance. By letter dated May 4, 2006, plaintiff's counsel set forth her client's positions following the Early Settlement Panel and stated:
[M]y client advises that Mrs. Rains has the potential of receiving a substantial inheritance. Upon receipt of the inheritance, it is expected that my client will be provided a statement of same as it may impact on the quantum of alimony. Defendant's counsel responded,
With regard to your issue about any inheritance my client might receive, while she does not anticipate any significant inheritance, I am sure that you are aware that an inheritance can be utilized for purposes of adjusting her alimony only to the extent that we could impute income to her.
The parties reached an agreement, memorialized in a property settlement agreement (PSA), and were divorced in July 2006. For purposes of this opinion, it is unnecessary to discuss provisions other than alimony and plaintiff's obligation to maintain life insurance. Plaintiff agreed to pay defendant alimony of $50,000 for the period from June 1, 2006, through May 31, 2007. Thereafter, defendant would receive permanent alimony of $40,000 per year. Beginning in 2007, defendant would also receive 50% of plaintiff's annual bonus from AT&T, with a cap of $10,000 net after taxes. The PSA required plaintiff to maintain a life insurance policy with defendant named as beneficiary as long as plaintiff had an alimony obligation. Plaintiff was required to maintain $500,000 worth of life insurance in years one through five; $400,000 in years six through ten; $300,000 in years eleven through fifteen; and $150,000 in years sixteen through eighteen.
In 2007, defendant's parents passed away within months of each other. In December 2009, plaintiff filed a motion seeking termination or modification of his alimony and life insurance obligations based on defendant's inheritance. Sam Stein, Esq., a tax attorney retained by plaintiff, calculated the inheritance to be $1,455,451.97. Plaintiff requested an employment evaluation of defendant or the imputation of $45,000 in income.
Defendant opposed plaintiff's motion and filed a cross-motion to direct plaintiff to continue to pay alimony and maintain life insurance as required by the PSA.*fn1 Each motion included a current case information statement (CIS). Both parties requested an award of counsel fees in their motions.
The parties presented different pictures of their marital lifestyle. In his certification, plaintiff stated the parties lived "a conservative marital life style," taking annual one-week vacations at Ocean City, Maryland, rather than extravagant vacations, and buying the majority of family clothing at Kohl's. In the CIS he submitted in conjunction with his motion, plaintiff claimed the monthly marital expenses were $6,300 per month. In contrast, defendant reported $9,558 in total monthly marital lifestyle expenses. While defendant's CIS almost invariably gave higher expense numbers for each category, the differences for certain expenses most closely associated with lifestyle were notable. Defendant reported a monthly vacation expense of $535, more than twice the $170 listed by plaintiff. She listed monthly expenses of $375 in gifts and $230 in contributions, while plaintiff listed only $50 per month for gifts and a monthly expense of $150 for contributions.
Defendant reported a monthly marital clothing expense that was double that reported by plaintiff. Her expense for entertainment was 50% higher than plaintiff's. Finally, there were sharp contrasts for the expenses reported for domestic help and savings. Defendant claimed $184 for domestic help while plaintiff only listed $15 per month. And, while defendant stated the family saved $650 per month, plaintiff listed no savings.
Because the motions required a determination of the rate of return defendant would receive on her inheritance, each also submitted proposed rates of return.
Stein submitted a certification in support of plaintiff's motion in which he reviewed interest rates available on various investments. Annual percentage rates available for five-year, FDIC insured, certificates of deposit ranged from 3.25% to 3.3%. Based upon his opinion that it would be reasonable for defendant "to pursue a slightly more aggressive portfolio" than investing solely in certificates of deposit, Stein also provided rates of return for other conservative investments. Stein stated that, based upon a report published by Wells Fargo, the average yield for ten-year Triple-A municipal bonds as of December 28, 2009, was 3.22%. Finally, the same source reported an average yield of 5.06% for ten-year AA corporate bonds. Stein concluded that if defendant invested equally in certificates of deposit, municipal bonds, and corporate bonds, her portfolio would have an expected average weighted yield of 3.84%. Plaintiff independently proffered a lower rate, of 3.5%, as appropriate under the then current market conditions based upon his own independent work.
In opposition, defendant contended that it was not realistic to expect a 3.5% rate of return and that the investments plaintiff had suggested for her were all illiquid. She stated that she had a Merrill Lynch account composed of 47% fixed income investments, 45% in equities, and the balance in cash or money market funds. That account had an approximate rate of return of 3.0% in 2009. Given her age of fifty-one, defendant stated a more conservative approach would be appropriate. She provided a spreadsheet prepared by her Merrill Lynch financial advisor that provided for conservative investments with a projected yield of 2.2%.
Although both parties requested oral argument, the motion judge denied the request for oral argument and entered an order that, in part, terminated plaintiff's obligations to pay alimony, share his annual bonus, and maintain life insurance. The order was accompanied by a detailed, written statement of reasons.
In the statement of reasons, the court noted it had considered the request for oral argument and stated, "After a review of the papers submitted and after consideration of the procedural history of the case and applicable court rule, the Court in its discretion has determined that it does not need to conduct oral argument in order to decide the issues in contest."
The court agreed that it was appropriate to impute a reasonable rate of return on defendant's inheritance but rejected the rates proposed by both parties, stating,
The Court finds, however, that the rate of return for defendant's inheritance should be based upon the average five-year historical rate of return as reflected in Moody's Composite Index on A-rated long-term corporate bonds. See Miller v. Miller, 160 N.J. 408, 425 (1999). While the Court was unable to access Moody's Corporate Index (as it is a subscription service), it was able to obtain information from Bloomberg on thirty (30) year U.S. Industrial Bonds. According to the Court's research, the average rate for the last five calendar years based upon this Index was 5.4%. Under this rate of return, defendant's inheritance of $1,294,400.53 would generate an annual income of $69,897.63.
In short, without giving the parties an opportunity to be heard, the court adopted a rate of return higher than that proposed by either party, based upon an index for a less conservative investment that neither party had proposed.
The court then imputed income to defendant based upon this amount, adding $15,000, the amount of earned income consented to by defendant, to arrive at a total of $84,897.63 in annual income imputed to defendant. The court reasoned that since this amount exceeded the $50,000 it had previously concluded was necessary for defendant to maintain the marital lifestyle,*fn2 she no longer required alimony or a share of plaintiff's annual bonus. The court therefore terminated those obligations as well as the obligation to maintain life insurance. However, the order specified that these determinations were "without prejudice to defendant submitting proof to the Court that the rate of return as reflected in Moody's Corporate Index results in income less than $35,000 per year."
Defendant appealed and raises the following issues for our consideration:
THE TRIAL COURT ERRED IN TERMINATING PLAINTIFF'S ALIMONY OBLIGATION TO DEFENDANT WITHOUT ORAL ARGUMENT OR A PLENARY HEARING[.]
THE TRIAL COURT ERRED IN MAKING A FACTUAL FINDING AS TO THE MARITAL LIFESTYLE BASED UPON THE ALIMONY AWARDED AT THE TIME OF THE DIVORCE WHEN THERE WAS INSUFFICIENT EVIDENCE BEFORE THE COURT TO DETERMINE THAT THE INITIAL AWARD WAS REFLECTIVE OF THE MARITAL LIFESTYLE[.]
THE TRIAL COURT ERRED IN TERMINATING PLAINTIFF'S ALIMONY OBLIGATION TO THE DEFENDANT WITHOUT CONSIDERATION OF THE STATUTORY CRITERIA SET FORTH IN N.J.S.A. 2A:34-23 AND EQUITABLE PRINCIPLES.
THE TRIAL COURT ERRED IN UNILATERALLY ASSESSING A 5.4% RATE OF RETURN ON THE DEFENDANT'S INHERITED MONIES BASED UPON ITS OWN INDEPENDENT RESEARCH; THE DETERMINATION WAS ARBITRARY AND CAPRICIOUS.
THE TRIAL COURT INAPPROPRIATELY UTILIZED JUDICIAL NOTICE IN THE FORM OF OUTSIDE SOURCES TO ESTABLISH THE "APPROPRIATE" RATE OF RETURN.
THE TRIAL COURT ERRED IN NOT GRANTING COUNSEL FEES TO THE DEFENDANT FOR BEING FORCED TO RESPOND TO PLAINTIFF'S APPLICATION[.]
Rule 5:5-4 states that "the court shall ordinarily grant requests for oral argument on substantive and non-routine discovery motions . . . ." The motions here clearly involved significant substantive issues, the termination or modification of alimony and plaintiff's obligation to maintain life insurance and, we note, each of the parties complied with the requirements of the pertinent Rules, see R. 5:5-4(a); R. 4:49-2. Therefore, the motions appeared to fall within the category of motions where requests for oral argument are "ordinarily" granted.
The court retains discretion "as to the mode and scheduling of disposition of motions." R. 5:5-4. That discretion is designed to give the judge "the option of dispensing with oral argument . . . when no evidence beyond the motion papers themselves and whatever else is already in the record is necessary to a decision." Fusco v. Fusco, 186 N.J. Super. 321, 328-29 (App. Div. 1982). However, the Rule has generally been interpreted to require oral argument "when significant substantive issues are raised and argument is requested," because the denial of oral argument "deprives litigants of an opportunity to present their case fully to a court." Mackowski v. Mackowski, 317 N.J. Super. 8, 14 (App. Div. 1998); see also Palombi v. Palombi, 414 N.J. Super. 274, 285 (App. Div. 2010).
In this case, the parties disagreed on the appropriate investment strategy for defendant and on what reasonable rate of return to impute to her investments. In rendering a decision as to appropriate investment strategy and rate of return, the court rejected the data submitted by the parties as well as their conclusions as to what rate of return should apply. Instead, the court concluded that the rate of return should be based upon Moody's Composite Index on A-rated Corporate Bonds, a basis determined to be appropriate in Miller, supra, 160 N.J. at 424-425, and conducted its own research to determine the rate of return for such investments. This position was not advanced by either party. Although the order was without prejudice to defendant submitting proof that the rate of return for this investment was lower than $35,000, neither party had the opportunity to argue for or against the use of that rate of return or an index based upon A-rated corporate bonds. We note that Miller does not prescribe the use of this index for all cases. Rather, the Court stated its conclusion that the Moody's index provided "the fairest solution for imputing income to plaintiff's investments under the present circumstances[.]" Id. at 424 (emphasis added). The Court's holding was intended "to require the imputation of a more reasonable income" id. at 426, than the approximately 1.6 percent interest the supporting spouse was earning on the growth stock investments he had elected to make. Id. at 423. The Court instructed that imputed investment income was to be considered "in the same way as income from salary and bonuses earned from employment" in considering requests to modify alimony. Id. at 426. Miller therefore does not support the application of the A-rated corporate bond index without regard to the factors relevant to a determination of a reasonable rate of return in a specific case. Just as various factors will be relevant to an assessment of a spouse's ability to earn income in determining what income should be imputed, see Storey v. Storey, 373 N.J. Super. 464, 472-74 (App. Div. 2004), so too, factors such as age, education, and other sources of income will be relevant to a determination of a reasonable rate of return.
This was, then, not a case where "no evidence beyond the motion papers themselves and whatever else is already in the record [was] necessary" to the court's decision. See Fusco, supra, 186 N.J. Super. at 329. Therefore, it was error for the court to exercise its discretion to deny oral argument. Id. at 328-29.
Because a remand is required, we note the following as matters to be considered. First, at oral argument, the court should determine whether there is a genuine dispute as to a material fact requiring a plenary hearing, see Lepis v. Lepis, 83 N.J. 139, 159 (1980); Whitfield v. Whitfield, 315 N.J. Super. 1, 12 (App. Div. 1998); Hallberg v. Hallberg, 113 N.J. Super. 205, 208 (App. Div. 1971). Among the issues to be addressed is the marital standard of living. Although no finding was necessary at the time of the parties' divorce by virtue of their settlement, Weishaus v. Weishaus, 180 N.J. 131, 144-45 (2004), their standard of living remains "the touchstone" for subsequent motions for modification of the alimony award based upon a claim of changed circumstances. Id. at 141; Crews v. Crews, 164 N.J. 11, 16 (2000); Tannen v. Tannen, 416 N.J. Super. 248, 275 (App. Div. 2010). Because a property settlement agreement reflects a settlement and compromise of the parties' claims, the amount of alimony agreed upon, although relevant, is not necessarily dispositive of the amount of money needed by defendant to maintain the marital lifestyle in the absence of an expression of that standard by the parties or a finding by the court. Further, the statutory factors set forth in N.J.S.A. 2A:34-23(b) should be considered in making any determination regarding the modification or termination of alimony. See Crews, supra, 164 N.J. at 26.
Finally, defendant argues that the trial court erred in not awarding her counsel fees. The decision to award counsel fees "in a matrimonial action rests in the discretion of the court[,]" Addesa v. Addesa, 392 N.J. Super. 58, 78 (App. Div. 2007), and will be disturbed on appeal "only on the 'rarest occasion,' and then only because of clear abuse of discretion." Strahan v. Strahan, 402 N.J. Super. 298, 317 (App. Div. 2008) (citing Rendine v. Pantzer, 141 N.J. 292, 317 (1995)). We discern no abuse of discretion here.
Reversed and remanded for further proceedings consistent with this opinion.