August 16, 2012
ANNA KING, F/K/A ANNA GERSTENSCHLAGER, PLAINTIFF-RESPONDENT,
DAVID J. GERSTENSCHLAGER, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Passaic County, Docket No. FM-16-820-02.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued June 5, 2012 - Before Judges Simonelli and Hayden.
Defendant David Gerstenschlager appeals from the February 4, 2011 Family Part order, which granted plaintiff Anna King a retroactive cost of living adjustment (COLA) for child support, permitted plaintiff to claim the children as dependents for tax purposes, required defendant to continue paying a proportionate share of the cost of the parties' children's extra-curricular activities, and awarded plaintiff counsel fees and costs. Defendant also appeals from the June 6, 2011 order, which denied his motion for reconsideration. We affirm in part, reverse in part, and remand for further proceedings.
The parties were married on August 14, 1993. They have four children, who live with plaintiff in Indiana.
The parties entered into a Marital Settlement Agreement (MSA), which was incorporated into their April 15, 2002 final judgment of divorce. The MSA set defendant's child support obligation at $2500 per month, based on his "expected guaranteed income" of $175,000 for 2002. The parties acknowledged that this figure was above the New Jersey Child Support Guidelines (Guidelines) and did not include expenses related to the children's extracurricular activities, which the MSA defined, without limitation, as "ballet lessons, swimming lessons, hobbies, clubs, school trips and all other expenses associated therewith." The MSA required defendant to pay seventy-five percent of those expenses, and plaintiff to pay twenty-five percent.
The MSA recognized that defendant's future income may increase beyond $175,000, and thus provided for a recalculation of child support using the Guidelines. In order to recalculate the amount, the MSA required defendant to provide documentation of his income for the prior year by August 15 of each year. If the recalculation revealed that the actual Guidelines amount exceeded the $2,500 per month, defendant had to pay the difference to plaintiff in a lump sum by September 1. The MSA also provided that at "such time as child support is recalculated," the parties would divide the cost of extracurricular activities "in proportion to their relative after tax income."
The MSA also contained a COLA provision:
In accordance with [Rule] 5:6B, the Husband's child support obligation shall be adjusted every two (2) years to reflect the cost of living. The cost-of-living adjustment shall be based on the average change in the Consumer Price Index for the metropolitan statistical areas that encompass the Wife's regional area and shall be compounded.*fn1
In addition, the MSA permitted plaintiff to claim the children as dependents for income tax purposes in all tax years after 2001. Further, if either party failed to cure a breach of the MSA or a default thereunder, that party would be liable for the other party's attorney's fees, "resulting from or made necessary by the bringing of any suit or other proceeding to secure such payment or enforce any such obligation, provided" that such suit or other proceeding resulted in a favorable "[judgment], decree, award or order."
In February 2010, plaintiff filed a motion, seeking to compel defendant to produce income documentation for the years 2006 to 2009, a retroactive increase in child support for the years 2006 to 2009, and a COLA for child support on a bi-annual basis for the years 2004 to 2009, based on new Consumer Price Index (CPI) rate "every other year (commencing in 2004) as required by the . . . [MSA]," meaning that 2005 was deemed to have the same rate as 2004 just as Rule 5:6B(a) prescribed, and similarly for 2007 and 2009. Plaintiff also sought counsel fees and costs.
Defendant filed a cross-motion, seeking to claim the children as dependants in alternating tax years, among other requested relief not relevant to this appeal. He argued that he had agreed in the MSA to have plaintiff claim the children as dependents for tax purposes because his income level fully phased out that deduction; however, a recent change in the relevant tax law gave the deduction some value to him, and was thus a change in circumstances. He also claimed that he had tried, unsuccessfully, to contact plaintiff prior to the motion to resolve the issues she raised in her motion.
The parties eventually agreed to the amount of the retroactive child support increase. However, they continued to disagree as to whether plaintiff was entitled to a COLA for child support and as to the amount of the COLA arrearage, which plaintiff calculated at $32,239.47, and defendant calculated at $9,481.30.
In a February 4, 2011 order, without explanation, the trial judge granted plaintiff a retroactive COLA of $32,239.47 ending with the year 2009, based on the CPI for plaintiff's region of residence, not the Guidelines. The judge also granted plaintiff's request to continue claiming the children as dependents in all tax years, ordered defendant to continue paying his proportionate share of the costs of the children's extracurricular activities, and awarded plaintiff $6,697.50 for counsel fees and costs.
Defendant filed a motion for reconsideration, arguing that plaintiff was not entitled to both a retroactive Guidelines child support increase and a COLA for child support. The judge denied the motion in a June 6, 2011 order, finding that the MSA permitted both a Guidelines child support increase and a COLA for child support, and "[Rule] 5:6B provides [that a COLA] does not affect either party's right to seek a modification of the support obligation based on changed circumstances." The judge also found, without explanation, that "[a] cost-of-living award is based upon increased financial need due to inflation[,]" and "[a] review under the Guidelines is based upon a change in the financial circumstances of the parties. The review is to determine the proper equity child support proportion based upon income, parenting time and other financial factors." This appeal followed.
Defendant contends that the court erred in awarding a COLA for child support because it is contrary to Rule 5:6B and the MSA, and plaintiff provided no competent evidence of the amount of the retroactive COLA. Relying on a comment to Rule 5:6B that "the support guidelines take precedence over the [COLA,]" he argues that because plaintiff received an annual Guidelines adjustment in child support, albeit retroactively, she is not entitled to a COLA. Defendant also argues that plaintiff's COLA calculation was inadmissible hearsay, as it was not based on personal knowledge, it mistakenly incorporated both a Guidelines adjustment and Rule 5:6B-based COLAs, and it improperly imposed a COLA every year instead of every two years.
We begin our analysis with a review of the law applicable to this case. "An agreement to settle a lawsuit is a contract which, like all contracts, may be freely entered into and which a court, absent a demonstration of 'fraud or other compelling circumstances,' should honor and enforce as it does other contracts." Pascarella v. Bruck, 190 N.J. Super. 118, 124-25 (App. Div. 1983) (quoting Honeywell v. Bubb, 130 N.J. Super. 130, 136 (App. Div. 1974)), certif. denied, 94 N.J. 600 (1983). "Settlement agreements in matrimonial matters, being 'essentially consensual and voluntary in character, . . . [are] entitled to considerable weight with respect to their validity and enforceability' in equity, provided they are fair and just."
Dolce v. Dolce, 383 N.J. Super. 11, 20 (App. Div. 2006) (quoting Petersen v. Petersen, 85 N.J. 638, 642 (1981)); see also Lepis v. Lepis, 83 N.J. 139, 153 (1980); Berkowitz v. Berkowitz, 55 N.J. 564, 569 (1970); Schlemm v. Schlemm, 31 N.J. 557, 581-82 (1960)).
Marital settlement agreements "'are generally favored by the courts as a peaceful means of terminating marital strife and discord so long as they are not against public policy.'" Dolce, supra, 383 N.J. Super. at 20 (quoting Konzelman v. Konzelman, 158 N.J. 185, 194 (1999)); see also Weishaus v. Weishaus, 180 N.J. 131, 143 (2004)). While incorporation of a marital settlement agreement into a divorce decree "does not render it immutable, nor its terms solely governed by contract law, nevertheless, if found to be fair and just, it is specifically enforceable in equity." Eaton v. Grau, 368 N.J. Super. 215, 224 (App. Div. 2004) (citations omitted).
Child support is calculated pursuant to the Guidelines up to a certain level of income, while awards of further child support based on additional income are discretionary. Caplan v. Caplan, 182 N.J. 250, 270-71 (2005). The trial court's factual findings relating to child support are discretionary and receive deference if supported by substantial credible evidence in the record. Gonzalez-Posse v. Ricciardulli, 410 N.J. Super. 340, 349-50 (App. Div. 2009).
Rule 5:6B requires COLAs for child support to be made at least biannually:
(a) All orders and judgments that include child support entered, modified, or enforced on or after September 1, 1998 shall provide that the child support amount will be adjusted every two years to reflect the cost of living.
(c) The cost-of-living adjustment shall be based on the average change in the Consumer Price Index for the metropolitan statistical areas that encompass New Jersey and shall be compounded.
(d) . . . An obligor may contest the adjustment . . . if the order or judgment provides for an alternative periodic cost-of-living adjustment. . . .
Prior versions of Rule 5:6B contained a provision that "the child support guidelines shall take precedence over cost-of-living adjustments[;]" however, this provision was eliminated in September 2009, but was mistakenly retained in the comment until 2011. Pressler & Verniero, Current N.J. Court Rules, History and Analysis of Rule Amendments to R. 5:6B (2012) (www.gannlaw.com). The current comment has deleted reference to the prior provision. Compare Pressler & Verniero, Current N.J. Court Rules, comment on R. 5:6B (2011) to Pressler & Verniero, Current N.J. Court Rules, comment on R. 5:6B (2012). Thus, defendant is incorrect that Rule 5:6B and the MSA prohibit both a Guidelines adjustment and a COLA.
In any event, the elimination of the provision removed any suggestion that Rule 5:6B viewed a Guidelines adjustment as an "alternative periodic cost-of-living adjustment," or as a duplication of the mandated COLA and otherwise so inherently unfair that un-coerced parties must be prevented from adopting both of those mechanisms, even to settle a disagreement involving the best interests of their children. As long as the use of both mechanisms was permissible, which it was here according to the MSA, the judge's use of them in this case was consistent with Rule 5:6B and the MSA, which plainly made both the child support adjustment and the COLA mandatory, with no indication that either mechanism might be optional in any circumstance, let alone for the simple reason that the other was being used. The use of both mechanisms was the methodology in plaintiff's submission, as the judge implicitly recognized.
In addition, we disagree that Rule 5:6B allows a COLA only in every second year. If child support was adjusted only every second year, it would decrease in real dollar terms every year that the adjustment was not made. The resulting steady decline in child support would be inimical to the policy of basing support on the best interests of the child. See Pascale v. Pascale, 140 N.J. 583, 594 (1995). More specifically, Rule 5:6B(a) does not expressly prevent a biannual adjustment from addressing the entire period since the last adjustment or before the next one. In that light, the judge correctly read Rule 5:6B as allowing a COLA for each year, but as limiting the frequency of COLA proceedings simply to spare parties the expense of annual motion practice.
We discern no impropriety in plaintiff's submission regarding the COLA calculation. The methodology used in the calculation was not an historical occurrence, but rather a legal question for the judge to decide as a matter of contract interpretation and Rule application. Plaintiff's figures were based on a base rate equivalent to the $2500 per month stipulated in the MSA, the CPI figures for her region, and the Guidelines figures for weekly amounts. All of those figures were ascertainable without recourse to anyone's personal knowledge. The judge was therefore able to assess the appropriateness and accuracy of plaintiff's calculation in every regard.
However, the judge made no factual findings or legal conclusion as to why he accepted plaintiff's figure, rather that defendant's figure, or why a Rule 5:6B bi-annual COLA should use the actual CPI for each of the two years in a bi-annual period, or use the CPI at the time of the adjustment for both years as plaintiff did, either of which are permissible under the Rule. Thus, we affirm plaintiff's entitlement to both a Guidelines adjustment and COLA for child support, reverse the amount of the COLA award, and remand for factual findings and legal conclusions on and setting of the COLA amount. R. 1:7-4.
Defendant contends that the judge erred by denying his motion to claim the children as dependents in alternate tax years. He argues that the court failed to consider the changed circumstance of new tax laws that now makes the deduction of value to him.
Modification of a child support obligation is within the Family Part's "sound discretion." Larbig v. Larbig, 384 N.J. Super. 17, 21-22 (App. Div. 2006). The party seeking a modification has the burden of proving changed circumstances sufficient to justify it. Martindell v. Martindell, 21 N.J. 341, 355 (1956). Among the changes that may "warrant" modification are "changes in federal income tax law[.]" Lepis, supra, 83 N.J. at 148-51.
For federal income tax purposes, only a "qualifying child" may be claimed as a dependent. 26 U.S.C.A. § 152(a)(1). There are several tests to be satisfied, one being that the child had "the same principal place of abode as the taxpayer for more than one-half of [the] taxable year[.]" 26 U.S.C.A. § 152(c)(1)(B). However, there is a "special rule" for divorced parents, which allows the parent who has the greater period of custody during the tax year to "release" the exemption for dependent children for the other parent's use. 26 U.S.C.A. § 152(e).
Indiana courts have the power and discretion to compel such a release, after considering several factors including "the tax consequences of divesting the custodial parent of the exemption, . . . guided primarily by the goal of making the maximum amount of support available for the child." In re H.M.H., 691 N.E.2d 1308, 1309-10 (Ind. Ct. App. 1998). See also Ind. Code Ann. § 31-16-6-1.5. There is no statutory authority in New Jersey explicitly referencing the "special rule" or its release. Our courts nonetheless have the equitable power to order the same result for a similar goal, namely, maximizing the parents' combined net income. Heinl v. Heinl, 287 N.J. Super. 337, 352-53 (App. Div. 1996); Gwodz v. Gwodz, 234 N.J. Super. 56, 61-62 (App. Div. 1989).
Here, the judge did not explain why he denied defendant's request to claim the children as dependents in alternate tax years, nor did he analyze the possible effects on the parties' combined net income. Thus, we remand for factual findings and legal conclusions on this issue. R. 1:7-4.
Defendant contends that the judge erred in ordering him to pay both child support and his share of the children's extracurricular activity expenses, and in failing to provide him a credit for extracurricular expenses he paid for 2005 to 2009. He argues that the MSA required him to pay those expenses only because the increased child support amount was not set pursuant to the Guidelines, and the use of the Guidelines to adjust child support makes that provision inapplicable because such costs are expressly included in the Guidelines schedules.
The Guidelines "shall be applied when an application to establish or modify child support is considered by the court," and they "may be modified or disregarded by the court only where good cause is shown." Rule 5:6A. The court must identify a relevant factor making the Guidelines inapplicable, which may include "the considerations set forth in Appendix IX-A," and it must find "that injustice would result from the application of the guidelines." Ibid. Nonetheless, "the determination of good cause shall be within the sound discretion of the court." Ibid.
Defendant is correct that the Guidelines identify several categories of expenses that are included in the schedules, one of which is "entertainment." See Pressler & Verniero, Current N.J. Court Rules, Appendix IX-A to R. 5:6A at 2500 (2012). The Guidelines define "entertainment" as the costs of sporting, recreational, and social events, lessons and instructions, hobbies, games and amusements, and the equipment that an individual may use to participate in them. Id. at 2502. That definition is substantially identical with the MSA's delineation of "extracurricular activities," and plaintiff does not argue otherwise.
However, the Guidelines do not prohibit parties from agreeing to a Guidelines-based weekly child support amount and an additional provision for "entertainment" or any other category named in the Guidelines. That is exactly what the parties did in the MSA. They agreed to a monthly base child support amount and specified that extracurricular activities were an additional expense that would not be paid from the base child support amount, but rather by the parties themselves. They also made the base child support amount subject to a Guidelines adjustment, while specifying that the only effect of an adjustment would be to change the allocation of extracurricular expenses between them from the initial percentages in the MSA to percentages reflecting "their relative after tax income."
We therefore affirm the judge's implicit findings that extracurricular activity expenses were an additional expense and in accord with the plain language and intent of the MSA. However, the judge made no factual findings or legal conclusion about the parties' "relative after tax income" and the amount of their "proportionate share" of the expenses. We thus remand for factual findings and legal conclusions on these issues. R. 1:7-4.
Defendant contends that the judge erred by awarding counsel fees to plaintiff. He argues that only one retroactive adjustment would have been necessary if she had not failed to cooperate when he tried to contact her to resolve the child support issues, which made the subsequent motion practice her fault. He also argues that plaintiff had ample assets from which she could have paid her counsel fees.
A trial court has the discretion to award counsel fees "on any claim" relating to divorce, including child support and enforcement of the parties' separation agreement. R. 5:3-5(c). Such fees may also be awarded on a motion for modification. See Lepis, supra, 83 N.J. at 144-45, 162; Welch v. Welch, 401 N.J. Super. 438, 447-48 (Ch. Div. 2008). The amount awarded should reflect several factors:
(1) the financial circumstances of the parties; (2) the ability of the parties to pay their own fees or to contribute to the fees of the other party; (3) the reasonableness and good faith of the positions advanced by the parties both during and prior to trial; (4) the extent of the fees incurred by both parties; (5) any fees previously awarded; (6) the amount of fees previously paid to counsel by each party; (7) the results obtained; (8) the degree to which fees were incurred to enforce existing orders or to compel discovery; and (9) any other factor bearing on the fairness of an award.
The judge did not address any of the Rule 5:3-5(c) factors, other than to implicitly give conclusive weight to the fact that plaintiff prevailed. As in Salch v. Salch, 240 N.J. Super. 441, 443 (App. Div. 1990), the trial judge's opinion "addressed none of these issues [concerning a matrimonial counsel fee award] in any meaningful way and fell far short of his obligation under R. 1:7-4." Accordingly, we reverse the fee award, and remand for "a full review" of plaintiff's fee application. Id. at 445.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.