New Case Law: Marital Estate and Business Value, Pension Plans, and Inheritances

Marital property is often at the center of contention in a divorce case. Among the many types of property that may be considered part of the marital estate are retirement accounts and pension plans, business assets, and inheritance assets—and these assets are often litigated in a seriously contentious manner.

A recent Massachusetts appellate case, Dilanian v. Dilanian, addressed the issues of business assets, inheritances, and pension plans as part of the marital estate. In that case, the parties were married for thirty-one years, living a comfortably upper-middle-class lifestyle. The wife stayed home, while the husband ran a successful business, which he originally started with his father, but of which he was the sole owner by the time of the divorce proceedings. The parties filed for divorce, and while they amicably resolved issues regarding some of the marital property, including the marital home, much of the trial centered around the value of the husband’s business and the husband’s share in various assets, including pension plans.

The trial judge reviewed the husband’s income from his business, noting that in order to avoid double taxation, the husband paid himself a salary and a year-end bonus each year, leaving little funds in the company’s account as retained earnings. The husband’s financial statement reported significant income increases between 2008 and 2010, but his income was drastically reduced in 2011 and 2012, after the divorce proceedings started—yet at the same time, the amount of cash left in the business accounts increased by over $294,000, contrary to the husband’s prior practice.

The judge found that the husband had artificially lowered his income, and that the husband’s real annual income was approximately $325,000, ordering alimony to be paid to the wife in the amount of $2,000 per week. In valuing the marital estate, the judge did accept the husband’s valuation of the business, only adding in the amount of a promissory note payable to the husband for a personal loan made to the company. The husband was allowed to keep the business.

At issue were also two pension plans that the husband had contributed to during the marriage, along with an inheritance from his father, which occurred very late in the course of the marriage. The judge found that the inheritance was received so late as not to be “woven into the fabric of the marriage” and belonged to the husband. However, the judge also ordered the husband to transfer 60% of both pension plans to the wife.

The husband appealed, claiming that the trial judge abused discretion in both the judge’s valuation of the business and in giving the wife 60% of the pension plan benefits. He argued that the company’s defined contribution plan belonged partially to his now-deceased father, and thus to his sister, who received part of the father’s estate after the father died.

The Appeals Court disagreed. The Court explained: “contrary to the husband’s argument, the judge’s order will not adversely affect the interests of third persons. The plan documents establish that the beneficiaries of any portion of the defined contribution plan that belonged to the husband’s father are the husband and his sister, in equal shares. The sister, as coexecutor of the estate, signed an estate tax return taking the position that $663,961 of the plan belonged to the father. Accordingly, half of that amount ($331,981) could be claimed by the sister. Once sixty per cent of the plan is transferred to the wife, the remaining amount will be well in excess of the amount the sister claimed in the estate tax return and appears able to claim.”

The Appeals Court also found no issue with the trial judge’s valuation of the business as part of the marital estate, holding that there was nothing unreasonable in considering the $150,000 note payable to the husband part of the value of the company. The Court also disagreed with the husband on his assertions that the income imputed by the judge to the husband at trial was incorrect. “[C]ontrary to the husband’s assertion, the evidence supported the finding that the husband’s reported income was increasing until he filed for divorce in 2011, and that the husband intentionally reduced his own salary while amassing corporate earnings usually directed toward his personal income,” the Court held. “Given this evidence and the husband’s furtive financial disclosures, including his failure to prepare a 2012 financial statement for [the company], the trial judge could reasonably conclude the husband artificially reduced his income to alter his financial condition in light of the impending divorce.”

It is important to hire a competent family law lawyer to handle your unique case or answer your personal questions. If you have any questions about property distribution, alimony, divorce, or family law issues, please call our offices at 978-225-9030 during business hours or complete a contact form on our website. We will respond to your phone call or submission with prompt attention.

Reimbursement Alimony in Massachusetts

In Massachusetts, judges of the Probate and Family Court may award alimony to one of the spouses during the divorce process. Alimony is payment by one former spouse towards the maintenance of the other spouse. Under the Massachusetts alimony law, there are four types of alimony: (1) general term; (2) rehabilitative; (3) reimbursement; and, (4) transitional. One form of alimony is called reimbursement alimony. The aim of reimbursement alimony is to pay one spouse back for the support (financial or otherwise) that spouse provided during the marriage.

Couples embarking on the divorce process in Massachusetts should hire competent legal counsel for this process. Divorcing couples must understand the various forms of alimony that a spouse in a divorce could receive from the payor spouse. The type of alimony that a Massachusetts judge awards to a person is based upon various factors and the length of the marriage.

For example, suppose that Jessica and Tim met during college. Soon after their graduation from school, they were married. Jessica worked as an entry-level technical writer, on a track to eventually be promoted to a senior-level technical writer or director of technical writing, with a dream of going to law school to become an attorney. Tim was an entry-level financial analyst. Jessica earned more than Tim. After one year of marriage, Tim and Jessica decided that Tim would attend graduate school for business. The two-year business program was intensive, but Jessica supported her husband’s dream to become a business mogul. During their discussions about whether Tim should attend business school, the couple decided that Jessica would wait to pursue her dreams of law school until her husband finished his two-year business program. Additionally, Jessica would not work while he was in graduate school, so that she could support him. After his graduation, Tim found a job that offered a significant pay increase, and Jessica continued to support Tim as a homemaker. She never went to law school, so she did not have the chance to pursue a law degree and eventually a wonderful and arduous career as an attorney. A few months later, Tim asked Jessica for a divorce. Jessica has many questions for her attorney: first, is she entitled to reimbursement alimony?

Reimbursement alimony is intended for marriages that are shorter in length of time, five years or less. The purpose of reimbursement alimony is to compensate the payee, or recipient, spouse for all that the spouse did to support his or her spouse. The payee spouse receives reimbursement alimony to compensate for time, money, and effort spent in enhancing the other spouse’s earning capacity.

Jessica would likely be the person in the marriage entitled to alimony, because Tim earned more money and because Jessica would need to be compensated for all that she did to support Tim. Because their marriage was shorter in length–less than five years–the form of alimony that a justice would likely award to Jessica would be reimbursement alimony. A Massachusetts Probate and Family Court judge may decide to award Jessica reimbursement alimony to compensate her for her time, money, and effort in enhancing Tim’s earning capacity. The spouses had decided that Tim would pursue an education to support his career. Because of this, Jessica was unable to advance in her career. This decision boosted Tim’s earning capacity and not Jessica’s as an individual. Because of this, a Massachusetts judge would award Jessica an alimony amount to reimburse her for all that she did to support Tim as a spouse, such as her staying at home to support Tim as a homemaker and also her foregoing her dreams to support his.

Suppose that Tim and Jessica had been married for longer than five years. Could Jessica receive alimony? The answer is that Jessica could receive alimony, but not reimbursement alimony, because reimbursement alimony is for marriages that lasted five years or less. A Massachusetts judge would likely award Jessica one of the other forms of alimony, such as general term alimony, to make her whole and comfortable as she was during the marriage. Reimbursement alimony is not designed to support longer marriages.

It is important to hire a competent family law lawyer to handle your unique case or answer your personal questions. If you have any questions about reimbursement or other forms of alimony, divorce, or family law issues, please call our offices at 978-225-9030 during business hours or complete a contact form on our website. We will respond to your phone call or submission with prompt attention.

Post-Divorce Agreement Without Court Approval: Is It Valid?

It is no secret that, in order for a divorce to be legally binding, court approval and judgment must be rendered. What happens, however, where the former spouses reach a post-divorce agreement between themselves without court approval? Do those types of agreements have any legal effect?

This question was addressed in a recent case by the Massachusetts appeals court. In Smith v. Smith, the court addressed the case of spouses who originally entered into a divorce agreement that set alimony at $650 per week. The agreement also provided that all matters regarding alimony merged into the divorce judgment. Subsequently, the husband reduced the amount of alimony he paid nine separate times, ultimately reducing it to $800 per month. At trial, the judge found that the husband and wife agreed to those reduced rates without filing any complaint for modification. In total, over a four-year period, the husband paid $87,400 less in alimony than what the divorce agreement called for.

The wife filed a complaint for contempt. She also sought the $87,400 in arrearage that she claimed the husband owed to her. The husband, in return, claimed that the wife had agreed to the alimony reductions, and that he made various other payments to cover costs for their emancipated children in exchange. The husband claimed that he otherwise would not have made those payments to the children. At trial, the husband was found not to be in contempt. The trial judge also ordered the parties’ alimony payments to be retroactively modified. The wife appealed.

On appeal, the Court noted that “not every violation of a clear order will constitute contempt, and thus that the requirement to prove “clear disobedience” has teeth.” The Court stated that contempt cases must be judged under the totality of circumstances. In this case, not only did the wife agree to the modified amounts, but “in reliance thereon, the husband had made the payments agreed upon and also had changed his behavior, to his detriment, by assuming “additional financial responsibilities” with respect to the parties’ emancipated children. It was within the judge’s discretion to conclude there was no “clear and undoubted disobedience” on these facts.”

Next, the Appeals Court took up the issue of whether the retroactive modifications should have been ordered by the trial judge. The Court pointed out that it is possible for a party not to be in contempt, yet still owe alimony. “The judge’s analysis and findings in this case were not sufficient to justify the retroactive modification of alimony,” the Court held, because the trial judge failed to address the factors mandated by G. L. c. 208, § 34, such as those dealing with the age of the parties, the length of the marriage, and the parties’ respective income and estates.

In order for an alimony judgment to be modified, those factors must be considered by the judge, the Appeals Court stated—and because they were not so considered here, the retroactive modification should not have taken place. “On remand, the judge should consider and evaluate the factors enumerated in § 34, including whether there has been a “material change in circumstances” with respect to those factors since the divorce judgment entered,” the Court explained. “In this connection the appropriate circumstances for consideration may include postdivorce conduct of the parties such as are present here, where a former spouse made certain statements and the other spouse detrimentally changed position in reliance thereon. Those facts, however, should be considered in the broader context of all the relevant § 34 factors, and any other material postdivorce changes to same. In so ruling, we do not mean to suggest, or to foreclose, any particular outcome after further consideration.”

If you have questions or concerns about issues involving family law, alimony, custody, child support, and more, you should contact a competent attorney. Our divorce, family, and domestic relations attorneys may be able to work on your behalf to handle your case. Contact our offices by phone at 978-225-9030 during business hours to schedule a free consultation. We will respond to you as soon as possible.

 

The New Tax Laws & Your Alimony – How Will You Be Affected?

If you are beginning the divorce process, there are many questions you may have for your divorce attorney regarding your finances. You many find yourself in a situation where you could be paying your former spouse alimony, or you could be the individual receiving alimony from your ex-spouse. In 2017, the GOP-run legislature enacted new tax laws that will greatly impact alimony payments and separation agreements. This article will explain to you some of the impacts the bill will have on your divorce and the financial implications you may face.

First, it is important to understand the fundamentals of alimony. When divorcing, a former spouse can ask for alimony, a form of financial maintenance to assist the other spouse in becoming financially stable once the marriage has ended. There are many factors that are considering in order to determine alimony payments. These include the length of the marriage, health of the parties, socioeconomic status of the ex-spouses, financial contributions to the marriage, age, education, profession, and a variety of other factors. Depending on the situation, alimony payments can last for a certain duration or an extended period of time. According to an IRS report, in 2015, over $12 billion dollars of alimony was paid in the United States. 

First–and the most important thing to know–is that alimony payments will no longer be tax deductible for any separation or divorce agreement signed after 2018. As the alimony will be treated like child support for new alimony recipients, these payments will not be reported as income. However, if alimony payments are already being made prior to the end of 2018, there will still be tax deductions for these payments.

 Also, if these payments are already in effect, you will not be affected by any of the new tax laws to be enacted in 2019. Any prior divorce agreements will remain valid, and the IRS will uphold prior alimony agreements.  However, if agreements are modified in the future, they must comply with the new tax code.

The new tax bill likely will impact both you and your ex, as alimony payments are generally given to those in a different socioeconomic status than their ex-spouse. For example, let’s assume you are the payor, and you are now receiving a tax deduction for your payments to your ex-spouse in a lower tax bracket than you are. If you were to divorce in 2019, as the payor, you may have a better chance of no longer paying as much, since there would be no tax deduction. Due to the lack of deductions, monthly payments would inevitably be more expensive. These deductions have been so important because if a former spouse is having difficulty with payments, they were given a bit of a break due to the deduction. If tax relief is given to the payor as part of the divorce agreement, this could be one option to alleviate some of the stress that these new tax laws bring.  

It is likely that many will not be able to afford as much in alimony, as these new tax laws are a deterrent to paying as much alimony as possible. Many have assumed that divorce proceedings will increase this year, as some people attempt to get ahead of the new tax laws. If both parties agree on these modifications, their old alimony agreement can be updated to conform with the new tax code. Since there will be no further tax deductions due to alimony, many payers will be rushing to divorce attorneys to deal with these agreements as soon as possible. It is inevitable that finances in a divorce could become a lot more cumbersome and messy.

If you are going through a divorce and are concerned about how the new tax laws will impact your current or future alimony payments, please contact a family law attorney to discuss your options. If you need more information about family law or this issue specifically, please feel free to schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form and we will respond to your phone call or submission promptly.

 

How are Social Security benefits and pension/retirement plans treated for purposes of property division and alimony payments?

Robert and Mary, a Massachusetts couple, have been married for ten years and now want to proceed with obtaining a divorce. During the marriage, Robert worked and Mary took care of the home. They had no children. Because Robert has a pension plan, the question comes up: how does a court handle Social Security benefits and pension/retirement plans in property division and alimony?

In Massachusetts, the property in a divorce is subject to an “equitable division.” This does not mean that each party to the marriage receives an equal share of property in the marriage. Rather, each party to a marriage receives fair and equitable amounts of property, so that each party can experience a similar lifestyle to which he or she grew accustomed during the marriage.

A pension earned during the marriage is generally considered to be a joint asset of both parties, and would likely be equitably divided via a qualified domestic relations order. This is an order that is filed with the Massachusetts Family Court and if approved is given to the administrator of the pension, so that the pension maybe divided between the parties. The division of a pension may be a complex issue because pensions, also including IRA or 401(k) accounts, are not always equal in a dollar for dollar manner, as there may be penalties and taxes associated with them. A family law attorney can help evaluate and value the numerical amounts to handle this complexity on your behalf.

Retirement accounts are also considered to be marital assets in a divorce. As such, retirement accounts would be divided on an equitable basis. This issue becomes complex, however, because the parties must look to the length of the marriage. For example, in the case above, Robert and Mary were married for ten years. Suppose, therefore, that Robert continues to work for another 30 years. His payment to Mary would be one half of the quarter of the account, because his payment is one half of his working life during the marriage.

Alimony is different from property division in a divorce. Alimony is court-ordered support from one spouse to another and is separate from the equitable division of property. In Massachusetts, there are four types of alimony: (1) General Term alimony (provides regular support for a length of time based on the length of the marriage); (2) Rehabilitative alimony (provides regular support until the ex-spouse is able to be self-sustaining); (3) Reimbursement alimony (provides regular or one-time support for a shorter marriage to make up for costs that the ex-spouse paid in supporting the other spouse); and (4) Transitional alimony (provides regular or one-time support).

If a judge decides to award alimony under the common General Term alimony standard, then he or she will review the following factors when deciding whether or not to award alimony or for how much the alimony award should be assigned: the length of the marriage; age of the parties; health of the parties; income, employment and employability of both parties, including employability through reasonable diligence and additional training, if necessary; economic and non-economic contribution of both parties to the marriage; marital lifestyle; ability of each party to maintain the marital lifestyle; lost economic opportunity as a result of the marriage, and other factors the court considers relevant and material.

Robert and Mary were married for ten years, and the facts indicate that Robert was the sole working person in their family unit. As such, alimony payments would likely be awarded to Mary from Robert. Depending on the type of alimony that the Court determines that Mary would receive, Mary would likely be able to receive alimony payments until Robert’s retirement age. The Massachusetts family court may review several factors in awarding alimony payments to Mary, such as her health and disability (if she has issues such as these), marital lifestyle (she was able to stay at home), and her contribution to the family unit (lost opportunity to work, for example).

If a Massachusetts Justice decides to use this equitable factors approach under General Term Alimony, then the Justice would likely order that Mary receive alimony for seven years, unless Mary remarries or if Robert passes away or if Robert reaches full retirement age. If Mary cohabitates with someone else and has maintained a common household with another person, then Mary’s alimony payments could be ordered to be ceased. It is important that a payor spouse, like Robert, not arbitrarily discontinue payments without the approval from a Massachusetts Justice.

If you are seeking a competent family, pension, retirement, or alimony law lawyer or domestic relations attorney, please contact our offices by phone at 978-225-9030 during business hours or complete a contact form on our website. We will respond to your phone call or submission promptly, and you may schedule a free consultation with us.

Durational Limits on Alimony: New Case Law

As we explained previously, the Massachusetts Alimony Reform Act of 2011 prescribed durational limits for alimony payments. These limits cap alimony based on the length of the parties’ marriage. The limits are imposed at the time the marriage is over—but what exactly does that mean? In the case of multiple filings and counter-filings, for example (as tends to be the case with many divorces) just when is the marriage “over”?

The Appeals Court addressed this issue in a recent case, Sbrogna v. Sbrogna. In that case, the parties were married in 1973. The husband first filed a complaint for divorce in 1990 on the ground of irretrievable breakdown of the marriage; however, no record of service of process on the wife existed. A few months later, the husband filed some motions related to the case. Those motions were never acted on, and two years later, the case was marked “inactive,” though not dismissed or otherwise formally closed by the court.

In 1994, the parties filed a joint motion to amend and a joint petition for divorce based on the irretrievable breakdown of the marriage. The motion to amend was allowed, and the case proceeded as a joint action for divorce. The judgment of divorce was entered in 1994.

In 2016, the husband filed an action seeking to modify his alimony obligations. To do so, he attempted to use the 1990 filing date as the end date of the marriage, as opposed to the 1994 filing date of the joint petition. The husband argued that because of the 1990 filing, the parties were married more than fifteen years but less than twenty years, making his alimony obligation modifiable. The wife filed a motion to dismiss, which was granted. The husband appealed.

The Appeals Court explained the durational limits imposed by the Alimony Reform Act of 2011. Under those limits, a marriage lasting more than 15 but less than 20 years is capped at 80% of the duration of the marriage for purposes of alimony payments. However, those caps do not apply to a marriage lasting more than 20 years—hence the husband’s argument regarding the original 1990 filing date signifying the end of the parties’ marriage.

The Appeals Court then explained that for purposes of alimony, the length of the marriage is defined as the number of months from the date of legal marriage to the date of service of a complaint or petition for divorce. However, the Court noted, the relevant pleading is that which results in a valid judgment of divorce. “To read the statute otherwise would lead to the nonsensical result that service of a pleading that leads neither to a valid divorce nor to an alimony award could nonetheless serve as the basis for calculating the length of the marriage and the duration of alimony, even if the parties reconciled and lived together for decades before ultimately divorcing,” the Court stated.

Because it’s common to have multiple complaints and petitions in divorce cases, any other reading of the statute would be difficult, if not impossible, to enforce, the Court said. As a result of this interpretation, the Court noted that for alimony purposes, the 1994 joint petition must be used as the date for calculating the length of the Sbrognas’ marriage. As such, the husband was not entitled to modification of his alimony payments, because the marriage lasted longer than twenty years, thereby falling outside of the Act’s durational limits on general alimony.

If you have any questions about alimony or any other issues regarding family law, please contact our firm. You may schedule a free consultation with an experienced family law lawyer today. Call our offices at 978-225-9030 during business hours or complete a contact form online. Do not hesitate to call our offices today.