December 16, 2011
DOLORES MCPHILLIPS, PLAINTIFF-RESPONDENT,
STEPHEN MCPHILLIPS, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Mercer County, Docket No. FM-11-0719-00B.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 29, 2011
Before Judges Fisher, Baxter and Nugent.
Defendant Stephen McPhillips appeals from a December 13, 2010 Family Part order that denied his motion to terminate his permanent alimony obligation. We agree with defendant's contention that the judge's refusal to treat defendant's retirement as a change of circumstances was error. We reverse and remand for a plenary hearing.
On December 14, 2000, a Family Part judge issued a dual judgment of divorce (JOD), terminating defendant's marriage to plaintiff Dolores McPhillips. In relevant part, the JOD specified that based upon defendant's then-current annual income of $88,000, he would be obligated to pay $300 per week as alimony to plaintiff. The JOD also awarded plaintiff the sole title to the former marital home in Hamilton Township. In return, the parties agreed that defendant would retain "as his sole and exclusive property, free from all claims of the plaintiff," the "past, present and future value of his pension plan" held by the New Jersey Public Employees Retirement System (PERS). Finally, the JOD specified that after awarding plaintiff the sum of $9200 from defendant's deferred compensation plan, the balance of the deferred compensation plan proceeds would be divided equally. Various stock portfolios and money market accounts, as well as two certificates of deposit, were also divided equally.
On January 1, 2009, eight years after the parties' divorce, defendant retired at the age of sixty and one-half, which was nearly five years after he was eligible to do so. Defendant's retirement income consisted of a Social Security retirement benefit of $1581 per month, a Veteran's Administration (VA) pension of $243 per month, and his PERS pension of $5227.66 per month. Because defendant's PERS pension was his sole property as a result of the divorce, and because N.J.S.A. 2A:34-23(b)(13) provides that an asset already subject to equitable distribution as part of a divorce shall not be considered an available resource for purposes of the payment of alimony, defendant asserted that he had experienced a seventy-five percent reduction in his income since retiring.
He moved to terminate his alimony obligation. He argued that apart from his exempt PERS pension income, his monthly income from Social Security and the VA totaled only $1826 per month, which was a mere twenty-five percent of the $88,000 annual income he was earning at the time of the parties' divorce. He further argued that if he were required to continue to pay alimony at the rate of $1290 per month, he would be forced to live on $536 per month, which was the remaining balance after the monthly alimony of $1290 was deducted from his non-exempt monthly income of $1826.
Relying on N.J.S.A. 2A:34-23(b)(13), the judge held, in an August 21, 2009 order, that pursuant to the divorce decree, defendant's monthly PERS pension could not be considered an asset or a source of income for the purpose of paying alimony to plaintiff. The judge further ordered the parties to attempt to resolve the dispute for a thirty-day period, after which, if they were unsuccessful, defendant would be obliged to provide plaintiff and the court with information concerning his post-retirement income.
The parties were unable to resolve the dispute, and on September 3, 2010, defendant again moved to terminate his alimony obligation. A second judge conducted a motion hearing that began seven weeks later, on October 22, 2010. Treating the August 21, 2009 order as the law of the case, the judge held that defendant's pension could not be attached, or in any way used, to satisfy his alimony obligation. The judge further held that defendant had retired in good faith, and that his decision to retire was not motivated by a desire to frustrate or impede plaintiff's right to receive alimony. In reaching that determination, the judge considered the fact that defendant worked for more than thirty-four years, paid alimony for more than eight years after the divorce, and had worked for nearly five years after he initially became eligible to retire. The judge concluded there was "no problem with [defendant's] decision to retire under the circumstances."
Nonetheless, although the judge recognized that defendant's PERS pension could not be utilized for the payment of alimony, he refused, at the conclusion of the December 10, 2010 motion hearing, to terminate defendant's alimony obligation. The judge reasoned that although plaintiff's current annual income of $35,000 was $10,000 greater than it had been at the time of the parties' divorce, the termination of alimony would result in an unfair hardship to her. The judge also concluded that even though defendant's "$57,000" annual pension income was unavailable "as a source of payment of alimony, . . . the fact he receives $57,000 is something we have to consider, even though it's not a source of payment for alimony."*fn1
The judge held that defendant had sufficient income to enable him to pay $300 weekly alimony to plaintiff, even without counting his PERS pension benefits. Ultimately, the judge concluded that defendant's retirement did not constitute a change of circumstances because his aggregate income in retirement, including his PERS pension, was barely less than he had been earning while still employed.
The December 13, 2010 order contained the following additional statement of reasons:
The court finds that defendant's retirement was done in good faith; however, the advantage of the defendant's retirement does not substantially outweigh the disadvantage to the plaintiff to warrant termination. The court finds that defendant's retirement has no impact on his financial ability to still meet this obligation and therefore defendant's retirement is not a change of circumstances. Notwithstanding that defendant's State of New Jersey pension shall not be attached, withheld, or used in any way to satisfy the defendant's [alimony] obligation, consistent with the court's orders of August 21, 2009 and October 25, 2010, the court finds that the defendant can continue to meet this obligation through other sources of income.
The judge signed a confirming order on December 13, 2010 denying defendant's motion to terminate his permanent spousal support obligation.*fn2
The order specified that defendant's $300 per week alimony obligation would be paid via garnishment of his Social Security check. Finally, the order provided that if the parties were unable to establish a mechanism for the payment of alimony arrears, plaintiff would be permitted to file an enforcement motion.
On appeal, defendant argues he is entitled to the reversal of the December 13, 2010 order because the order in question accomplishes indirectly what N.J.S.A. 2A:34-23(b)(13) prohibits the court from accomplishing directly, namely, satisfying an alimony obligation from an asset that was already equitably distributed during the divorce. Defendant maintains that his post-retirement income -- excluding his exempt PERS income -- is so small in relation to his pre-retirement income as to constitute a change of circumstances that warranted the termination of his alimony obligation.
Plaintiff urges us to affirm the order under review, arguing that defendant's retirement is not a change of circumstances. She maintains the judge was correct when he, in plaintiff's words, refused to "pretend th[e] . . . [PERS] pension does not exist." She asserts that defendant's non-exempt income is sufficient to satisfy his alimony obligation, because after paying alimony, he is left with $536 per month of non-exempt income; and he can supplement that $536 sum by using his PERS pension to satisfy his living expenses.
The duty to pay alimony is always subject to modification or termination upon a showing of changed circumstances. Lepis v. Lepis, 83 N.J. 139, 146 (1980). The right to a modification based upon changed circumstances is also established by statute. N.J.S.A. 2A:34-23 provides:
Pending any matrimonial action . . . brought in this State or elsewhere, or after judgment of divorce . . ., the court may make such order as to the alimony or maintenance of the parties, . . . as the circumstances of the parties and nature of the case shall render fit, reasonable and just[.] . . . Orders so made may be revised and altered by the court from time to time as circumstances may require. [(Emphasis added).]
Among the "changed circumstances" that warrant modification of an alimony obligation is a "decrease in the supporting spouse's income." Lepis, supra, 83 N.J. at 151. Changed circumstances "are not limited in scope to events that were unforeseeable at the time of divorce." Id. at 152. If the party seeking modification or elimination of the payment obligation establishes a prima facie showing of changed circumstances that has "substantially impaired the [obligor's] ability to support himself or herself," the court should require both parties to make "full disclosure" of their financial status, including tax returns, and thereafter determine the extent of any modification of the alimony obligation. Id. at 157.
When an obligor asserts that retirement constitutes a change of circumstances, the court must also evaluate the age and health of the retiring party, the motives behind and timing of the retirement, the ability to pay maintenance after retirement, and the dependent spouse's ability to provide for himself or herself. Deegan v. Deegan, 254 N.J. Super. 350, 357 (App. Div. 1992). Even if the payor spouse advances rational reasons for retiring, the crucial determination is whether the advantage to the retiring payor spouse outweighs the disadvantage to the payee spouse. Id. at 358. If that question is answered affirmatively, then retirement will constitute a change in circumstances sufficient for a modification of a spousal agreement. Ibid. As such, where the payor spouse "has substantial reasons for retiring . . . and the effect on the payee spouse is minimal (due, for example, to other available income, qualifying for social security, or new employment) the balance will be struck in favor of the payor." Ibid.
If the obligor establishes a prima facie change of circumstances, and demonstrates that the advantages to him of retiring substantially outweigh the disadvantages to the payee, the court must determine whether, and to what extent, the obligor's alimony obligation should be modified. Innes v. Innes, 117 N.J. 496, 504 (1990). In making that determination, the court is prohibited from considering the obligor's pension income as a source for the payment of alimony if that pension has already been subject to equitable distribution in the parties' divorce. Id. at 505-06. In Innes, the Court relied upon a portion of N.J.S.A. 2A:34-23, which provides:
When a share of a retirement benefit is treated as an asset for purposes of equitable distribution, the court shall not consider income generated thereafter by that share for purposes of determining alimony. [Innes, supra, 117 N.J. at 505 (citation omitted).]
The Court determined that N.J.S.A. 2A:34-23 codified existing judicial precedent establishing that pension benefits that had been subject to equitable distribution could not subsequently be used to calculate available income when determining whether to modify an alimony award. Id. at 506. The Court observed that the plaintiff's "entire pension was treated as an asset for purposes of an immediate offset equitable-distribution award . . . . [and] [n]othing in the record suggests that merely a portion of [the obligor's] pension was considered marital property subject to equitable distribution." Ibid. For that reason, the Court held that N.J.S.A. 2A:34-23 "immunize[d]" the obligor's pension "from consideration in alimony-modification determinations." Ibid.
The prohibition on such double-dipping found its origins in D'Oro v. D'Oro, 187 N.J. Super. 377 (Ch. Div. 1982), aff'd, 193 N.J. Super. 385 (App. Div. 1984). In that case the trial court determined it would be unfair if the dependent spouse were able to assert what amounts to a double claim on the spouse employee's pension. Id. at 378. See Steneken v. Steneken, 367 N.J. Super. 427, 440 (App. Div. 2004), aff'd, 183 N.J. 290 (2005) (refusing to extend the prohibition on double-dipping to other assets). Stated differently, it would be inequitable for the dependent spouse to surrender the right to share in the other spouse's pension for purposes of equitable distribution, and then subsequently be able to obtain access to that same asset by having it included "in [the] cash flow for determination of an alimony base." D'Oro, supra, 187 N.J. Super. at 379.
Here, the judge recognized that N.J.S.A. 2A:34-23 was applicable and that defendant's pension benefit could not be used as a source of income for payment of alimony. We agree, however, with defendant's argument that the judge's December 13, 2010 order had the net effect of accomplishing the very double-dipping that N.J.S.A. 2A:34-23 prohibits. In particular, it is undisputed that after the payment of alimony, defendant is left with only $536 of monthly income if his monthly PERS pension benefits are disregarded. Plaintiff acknowledged at oral argument that it would be unreasonable to expect defendant to survive on the sum of $536 per month. She insisted, however, that defendant could maintain a comfortable standard of living by using his pension benefits. She argued, "his PERS pension benefit should not be ignored."
We agree with defendant that plaintiff's argument, and the judge's December 13, 2010 order, accomplish indirectly what N.J.S.A. 2A:34-23 forbids. Stated differently, defendant can only afford to continue paying $1290 monthly alimony if his PERS pension benefit is considered an available source of income, for if his PERS benefit is excluded, as the judge determined it was, then defendant would be forced to live on the sum of $536 per month, which even plaintiff concedes is virtually impossible. We thus conclude the judge incorrectly considered defendant's PERS pension benefit as an available source of income for the payment of alimony.
The flaw in the judge's reasoning is clear from a portion of the judge's December 10, 2010 statement of reasons in which he stated that defendant's "retirement . . . has no impact on his financial ability to still meet this [alimony] obligation . . . . His retirement is not a change in circumstance. He has other income to meet this obligation and it's not dispositive of the issue as to whether or not the alimony obligation continues" (emphasis added). Such a conclusion runs afoul of the double-dipping prohibition contained in N.J.S.A. 2A:34-23.
We recognize that the judge also based his denial of defendant's motion on consideration of one of the Deegan factors: whether the advantage to the retiring payor spouse substantially outweighs the disadvantage to the payee spouse. Deegan, supra, 254 N.J. Super. at 358. The judge answered that question in the negative, finding that the disadvantage to plaintiff in receiving diminished, or no alimony, outweighed any benefit to defendant from reducing or eliminating his alimony obligation. While we are ordinarily obliged to defer to that finding, Innes, supra, 117 N.J. at 504, the record demonstrates that the judge's resolution of the advantage/disadvantage issue was influenced by the double-dipping that we have already held improper. For that reason, the judge's resolution of the Deegan issue cannot stand.
We reverse the order of December 13, 2010 and remand for further proceedings. On remand, the judge shall first consider whether the advantage to defendant in retiring "substantially outweighs" the disadvantage to plaintiff. Deegan, supra, 254 N.J. Super. at 358. In conducting that analysis, the judge shall not consider the availability of defendant's PERS benefits in the evaluation of defendant's post-retirement standard of living. If the judge's resolution of the Deegan issues favor plaintiff, then defendant's retirement -- even though accomplished in good faith -- does not constitute a "legitimate change of circumstances" entitling defendant to the modification or elimination of his alimony obligation. Ibid.
If, in contrast, the judge's analysis of this Deegan factor on remand favors defendant, then the judge shall proceed to an analysis of each party's income and assets -- with the exception of defendant's PERS benefits -- to determine whether defendant is entitled to the elimination or modification of alimony, and if so, the extent of any modification. Innes, supra, 117 N.J. at 504. That determination shall, of course, be made only after an analysis of each party's case information statement. See R. 5:5-2.
Reversed and remanded. We do not retain jurisdiction.