February 16, 2012
MELISSA MORALES, PLAINTIFF-RESPONDENT,
JULIO MORALES, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Sussex County, Docket No. FM-19-0181-11.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 31, 2012 - Before Judges Messano and Espinosa.
Defendant Julio Morales appeals from two provisions of the Family Part's May 4, 2011, post-judgment order granting retroactive alimony and child support to his former wife, plaintiff Melissa Morales, n/k/a Melissa Mattei, and requiring defendant to distribute additional funds from his 401K retirement account to plaintiff. Defendant raises the following points on appeal:
POINT I: THE WIFE'S EX PARTE [ORDER TO SHOW CAUSE] SHOULD NOT HAVE BEEN CONSIDERED AS IT FAILED TO COMPLY WITH THE PROCEDURAL REQUIREMENTS . . . FOR SUBMISSION.
POINT II: THE TRIAL COURT DID NOT HAVE JURISDICTION TO RENDER A DECISION AS TO PARAGRAPHS 1 AND 7 OF THE MAY 4, 2011 ORDER. POINT III: THE WIFE DID NOT SHOW A CHANGE IN CIRCUMSTANCE TO WARRANT A MODIFICATION OF THE [PROPERTY SETTLEMENT AGREEMENT] TO DIRECT THE HUSBAND TO MAKE CHILD SUPPORT AND ALIMONY PAYMENTS RETROACTIVE TO JANUARY 3, 2011.
POINT IV: THE TRIAL COURT ERRED IN MAKING THE CHILD SUPPORT PAYMENTS RETROACTIVE TO JANUARY 3, 2011.
POINT V: AS TO PARAGRAPH 7 OF THE MAY 4, 2011 ORDER, THE TRIAL COURT ERRED WHEN IT PROVIDED THE WIFE AN ADDITIONAL $4,000 FROM THE HUSBAND'S 401K.
POINT VI: THE TRIAL COURT ERRED IN MODIFYING THE [PROPERTY SETTLEMENT AGREEMENT] WITHOUT THE SHOWING OF EXCEPTIONAL AND COMPELLING CIRCUMSTANCES AND WITHOUT THE BENEFIT OF A PLENARY HEARING.
We have considered these arguments in light of the record and applicable legal standards. We reverse.
On October 8, 2010, after twenty-seven years of marriage, plaintiff and defendant entered into a property settlement agreement (PSA) that was incorporated into the final judgment of divorce (JOD) entered on January 3, 2011. Article 8.1 of the PSA provided in pertinent part: "The Husband shall pay to the Wife as unallocated, tax-free alimony, the total monthly sum of $100 per week . . . commencing upon the sale of the marital residence." Article 9.1 of the PSA provided: "[T]he Husband shall pay to the Wife as unallocated, tax-free child support, the total monthly sum of $200 per week . . . upon the sale of the marital residence."
Regarding equitable distribution, Article 13.10 of the PSA provided:
Until the time that the marital residence is sold, the Husband agrees to maintain 100% responsibility for the maintenance and upkeep of the marital residence with respect to the mortgage, taxes, homeowner's insurance, cleanliness of his personal items, cleanliness and maintenance of the front and backyard and any repairs which may be required. This shall include the payment of any outstanding costs associated with the sale of the home and owing as of the signing of this Agreement. The Husband and Wife mutually agree that they will continue to maintain responsibility for their respective obligations at the current status quo until the time of the sale of the marital residence. Both parties further agree that they will not hinder the sale of the home or in any way attempt to delay or prevent the immediate sale of the marital residence.
Article 13.16 dealt with equitable distribution of defendant's 401K retirement plan and provided:
The Husband and Wife acknowledge that the Husband has a 401K balance of $77,987.85 as of June 30, 2010 and the Wife has a balance of $57,909.91 as of June 30, 2010. They further acknowledge that, in order to equalize these plans, the Husband would have to transfer $10,039 to the Wife within ten (10) days upon Entry of the Final Judgment of Divorce via [a] Qualified Domestic Relations Order ("QDRO"). In consideration of the Husband's agreement to be responsible for 100% of his credit card debt, the Wife has agreed to accept . . . an amount totaling $6,039 to be rolled over into her 401K account and therefore settling her marital debt.
After entry of the JOD, the parties and their children continued to reside in the marital home pending its sale.*fn1
On February 11, 2011, defendant filed for bankruptcy in the United States Bankruptcy Court for the District of New Jersey. On April 11, plaintiff filed a pro se application for an order to show cause alleging defendant's failure to pay certain obligations under the PSA. The judge converted the request to a motion returnable on short notice, and defendant filed a certification in opposition. Plaintiff filed a reply.
In support of her order to show cause, plaintiff certified that Beneficial, which provided a home equity line of credit, informed her that defendant listed the credit as a debt in his bankruptcy petition, and she was now responsible as a co-signer. As of March 16, 2011, the credit line was cancelled. Plaintiff also certified that she was doubtful defendant was making the monthly mortgage payments on the marital residence as required by the PSA, although she attached no financial documentation, and sought, as part of the relief, that defendant furnish accurate statements of the mortgage account.
Plaintiff contended that defendant was preparing to file for bankruptcy as early as December 2010. She further stated that defendant "purposely delayed the sale of the marital home by blatantly, purposely and intentionally refusing to communicate to [her] the status of the documentation required for the short sale" of the property, and maintaining his personal belongings "in a deliberate, disorderly, and unclean manner," thereby inhibiting prospective purchasers from making offers on the property.
Additionally, plaintiff alleged that defendant misrepresented the balance of funds in his 401K plan when the PSA was negotiated. She alleged that the actual amount was nearly $11,000 more than the amount stated in the PSA. She requested the judge to enter the QDRO in an amount that equally distributed the excess amount in defendant's 401K without the adjustment contemplated by the PSA. Plaintiff alleged defendant filed for bankruptcy "in bad faith."
In reply, defendant certified that he was served with foreclosure notices during the marriage, and he blamed plaintiff's "disregard for bills and lack of budgeting" for the family's financial difficulties. Defendant claimed it was "never his intention to file for bankruptcy," and he was left with "no financial alternative" because of plaintiff's refusal to pay "her share of the bills."
On the motion return date, April 29, 2011, the judge began by announcing his preliminary decision. Thereafter, the judge heard from both plaintiff and defendant, although neither party was placed under oath. He indicated he would "re-look at some of these things" and file an order within one week. He did so on May 4.
In paragraph one, the judge ordered defendant to immediately make child support and alimony payments retroactive to January 3, 2011, reasoning, "[i]f defendant is not going to pay the marital residence mortgage, taxes, etc. then he must pay support as the tradeoff because defendant was to pay carrying costs until sold." The judge further ordered defendant to provide proof of mortgage payments from October 2010 through April 2011 because "[i]t appears defendant is in arrears possibly back to [the] beginning of the year . . . ."
In paragraph seven of the order regarding the 401K distribution, the judge noted the request was "stayed by [the] bankruptcy filing," and he did "not find any fraud" by defendant. Nonetheless, the judge ordered defendant to distribute the full $10,309 to defendant, along with certain adjustments for accumulated growth, noting that plaintiff agreed to a $4000 adjustment "in consideration of defendant's agreement to be responsible for 100% of his credit card debt," which she would not have done if she had known the debt "would be eliminated through bankruptcy."
On May 24, the court entered the QDRO, and, on June 1, the Bankruptcy Court entered an order lifting the stay pursuant to 11 U.S.C.A. §362(d). Defendant filed his notice of appeal on June 17, and, on July 8, the judge granted plaintiff's motion for an order enforcing litigant's rights following defendant's noncompliance with the May 4th order.
We need not address the merits of defendant's procedural arguments raised in Point I. For reasons that follow, they are irrelevant to our decision.
Defendant argues in Point II that because he filed for bankruptcy in February 2011, the automatic stay provisions of 11 U.S.C.A. § 362(a) prohibited the judge from rendering a decision on plaintiff's motion. However, the automatic stay provisions do not apply to
(A) . . . the commencement or continuation of a civil action or proceeding
(i) . . .;
(ii) for the establishment or modification of an order for domestic support obligations;
(iii) . . .;
(iv) . . .; or
(v) . . .; (B) . . . the collection of a domestic support obligation from property that is not property of the estate; (C) . . . the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute.
[11 U.S.C.A. § 362(b)(2) (emphasis added).]
We have also said that the Bankruptcy Code "prohibits the discharge of a debtor's alimony, maintenance or support obligations to his or her former spouse and children[,]" while "debts . . . assumed as part of the equitable distribution scheme are dischargeable." Loyko v. Loyko, 200 N.J. Super. 152, 155-56 (App. Div. 1985). "What constitutes alimony, maintenance or support, however, is determined under federal bankruptcy law." Id. at 156. "[W]hether an obligation is in the nature of alimony, maintenance or support, as distinguished from a property settlement, depends on a finding as to the intent of the parties at the time of the settlement agreement." Winegarden v. Winegarden, 316 N.J. Super. 52, 60 (App. Div. 1998) (quoting In re Gianakas, 917 F.2d 759, 762 (3d Cir. 1990))(internal quotation marks omitted).
In determining the parties' intent, the court examines "(1) 'the language and substance of the agreement in the context of the surrounding circumstances;' (2) 'the parties' financial circumstances at the time of the settlement;' and (3) 'the function served by the obligation at the time of the divorce or settlement.'" Ibid. (quoting Gianakas, supra, 917 F.2d at 762-63). In Loyko, supra, 200 N.J. Super. at 157-58, we found the defendant's obligation to pay a second mortgage under the agreement incorporated into his final judgment of divorce to be "in the nature of support and thus nondischargable by defendant's bankruptcy" where "defendant's assumption of the mortgage debt was essential to the preservation of plaintiff's ownership in the former marital home and the continued maintenance of adequate shelter for the children during their minority."
Here, defendant's alimony and child support payments were not to commence until the marital residence was sold. In the interim, he was responsible for most expenses associated with the marital residence. That obligation arguably constituted support and was not subject to the automatic stay provisions of the Bankruptcy Code.
However, the distribution of defendant's 401K is not in the same category, and clearly implicated issues of equitable distribution, not spousal or child support. Thus, the stay provisions of the Bankruptcy Code applied, and the judge could not modify the PSA as contained in paragraph seven of the order under review.
But as our discussion suggests, the judge was required to make certain findings regarding the terms of the PSA and the intent of the parties, both in deciding whether plaintiff's action was cognizable and in fashioning an appropriate remedy. In other words, assuming arguendo that plaintiff demonstrated grounds for the enforcement or modification of the terms of the PSA, was the remedy provided -- an award of retroactive alimony and child support -- appropriate and fair under all the circumstances presented?
"The basic contractual nature of matrimonial agreements has 'long been recognized.'" Sachau v. Sachau, 206 N.J. 1, 5 (2011) (quoting Massar v. Massar, 279 N.J. Super. 89, 93 (1995)). The party seeking modification must demonstrate a change in circumstances warranting relief. Lepis v. Lepis, 83 N.J. 139, 147-48 (1980). Plaintiff contends that the judge was only enforcing the terms of the PSA, and, indeed that is how the judge viewed the issue.
But, the judge's reasoning compels a different conclusion. Plaintiff requested that defendant be immediately ordered to pay the carrying charges of the marital home, relief that clearly implicated enforcement, rather than modification, of the PSA. However, the judge denied that request, reasoning that payment of the carrying charges was "the tradeoff for the [alimony and child] support not commencing immediately," and "[i]f I'm going to require [defendant] to pay the support then he's not going to pay the mortgage . . . ."
Perhaps such a resolution was fair and equitable in light of the judge's attempt to construe the PSA as an integrated document that resolved all of the marital issues between the parties. See Glass v. Glass, 366 N.J. Super. 357, 373-74 (App. Div.), certif. denied, 180 N.J. 354 (2004). Nevertheless, the decision could not have been reached on the paucity of information contained in the motion record and the conflicting claims of both parties. For example, neither party supplied the necessary financial information upon which such a decision, at the least, must be grounded. Moreover, when deciding the issue regarding modification of defendant's distribution under the 401K, the judge specifically determined that defendant had not fraudulently filed for bankruptcy, a central argument plaintiff made in seeking relief in the first instance.
In short, we are compelled to reverse paragraph one and seven of the order under review. As to paragraph seven, the court lacked jurisdiction to modify equitable distribution of the asset because the bankruptcy stay was in place at the time, something the judge specifically referenced in the order. Furthermore, we note in this regard that plaintiff alleged she was entitled to an even greater distribution, regardless of any adjustment, because the PSA was based upon an erroneous balance in the account. The judge failed to address this aspect of plaintiff's claim.
Regarding paragraph one, the existing record was insufficient to permit the conclusion that plaintiff was entitled to a modification of the PSA's terms regarding spousal and child support. Plaintiff is free to pursue enforcement of the PSA's terms or seek modification by filing an appropriate motion in the Family Part. We leave to the judge's sound discretion whether a plenary hearing is required based upon plaintiff's submission.
Lastly, in light of our decision, we decline to consider the merits of defendant's argument, raised in Point IV, that the judge could not order retroactive child support pursuant to N.J.S.A. 2A:17-56.23a (providing that "[n]o payment or installment of an order for child support . . . shall be retroactively modified by the court except with respect to the period during which there is a pending application for modification"). We have said, "Nothing in the legislative history suggests that the law was enacted to protect 'parents' from retroactive modifications increasing support obligations where equitable." Keegan v. Keegan, 326 N.J. Super. 289, 294 (App. Div. 1999). And, despite the mutually agreed-upon provisions of the PSA, the judge was empowered to ensure that under the particular facts presented, the couple's children received the necessary support to which they were entitled from both parents. See Patetta v. Patetta, 358 N.J. Super. 90, 94-95 (App. Div. 2003).