Income Imputed Where a Party Left a Well-Paying Position Due to Unfortunate Circumstances

Under some circumstances, there may be income imputed to a party for purposes of calculating alimony and child support. For example, if a party voluntarily changes careers to a less lucrative or takes an early retirement, the court may impute income to that party to reflect his or her potential and demonstrated earning capacity. But what if the party left his or her job – though voluntarily – reluctantly and due to unfortunate circumstances? Should the court impute income? The Massachusetts Appeals Court recently addressed this issue.

In the case, 1 the husband had a high-paying position as head of a private school: including his base salary, bonuses, and other benefits, his compensation package equaled approximately $450,000 annually. However, after engaging in an affair with one of his subordinates, the husband resigned from his position. The parties separated, and the husband engaged in an extensive job search—he applied for dozens of comparable positions, traveled frequently to meetings and interviews, worked with recruiters, and honed his professional skills to increase his marketability. After eleven months, the husband received one job offer, which he accepted. However, his new position paid him considerably less. In fact, he was making about a third of his previous salary.

Meanwhile, the parties divorced. The trial judge ordered the husband to pay child support and alimony and based the respective calculations on the husband’s previous income, with income imputed to the husband. After accepting his new offer of employment, the husband petitioned the court for a modification of his child support and alimony payments. He noted that his income was substantially less than it had been at the time of divorce. The wife, meanwhile, filed several complaints for contempt, alleging that the husband owed her back alimony and child support.

During the trial proceedings, the divorce judge concluded “that no material change in circumstances had occurred because the husband’s ‘actual earnings…are less than his potential and demonstrated earning capacity,’ and the reduction in the husband’s income was caused by ‘his voluntary decision to resign from [his job.]’” 2

On appeal, the Appeals Court disagreed with the divorce judge’s decision. “The facts of this case are distinguishable from the voluntary career change line of cases. The husband did not take an early retirement, nor did he resign from [his job] to pursue a less lucrative career in a completely unrelated field. Moreover, while the judge found that ‘[t]he [h]usband’s position…remained available to him, but for his resignation.’ there was no evidence demonstrating that the husband’s employment with [his previous employer] would continue indefinitely,” the Appeals Court stated. 3

The Appeals Court also noted that the trial judge failed to give proper consideration to the efforts of the husband to find higher-paying employment. “not only did the judge fail to make a specific finding that the husband could earn more with reasonable effort, it is apparent that such a finding cannot be made on this record.” 4

If you have any questions about issues of divorce, custody, or support, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete our contact form online, and we will get back to you at our earliest opportunity.

1 Emery v. Sturtevant, No. 16-P-443 (December 2, 2016 – May 12, 2017).
2 Id., at 6.
3 Id., at 15-16.
4 Id., at 19.

Intellectual Property Counts As Marital Property During Divorce

In what ways is intellectual property important during a divorce? Is it something that may be divided by the court between the parties?

Intellectual property and domestic relations

Intellectual property includes patents, trademarks, copyrights, trade secrets, and trade dress. Each of those categories may present property to be considered by the court as part of a couple’s marital estate. Therefore, during a divorce, it is important to consider any intellectual property holdings in property assignment.

The Massachusetts Probate and Family Courts use a process called equitable distribution to divide marital property in general. Here, the term “equitable” means “fair,” and not necessarily equal: the court will determine how best to divide marital property in the fairest manner in each particular case. Intellectual property, like all other property, will be divided in this manner.

Future income from intellectual property

In addition to present property values, future income must also be considered. For example, royalties from copyrighted work or licensing fees from patents and trademarks may present considerable future income opportunities.

In one 2015 case, 1 the Appeals Court held that future royalties derived from a wife’s tremendously successful novel should be divided equitably between the parties. In that case, the trial judge noted that the husband supported his wife financially and emotionally while she wrote the novel. The judge also noted that the wife’s earnings from the novel neared $3,000,000 at the time of the divorce, and he ordered that she pay the husband a lump sum of $570,000. As for future royalties, the trial judge held that because they were too speculative, the husband was not entitled to them.
The husband appealed, seeking equitable distribution of future royalties obtained by the wife.

The Appeals Court agreed with the husband, holding that the wife’s “contractual rights to future royalty and other payments do not, in our view, involve mere expectancies as described in the foregoing cases. While the amount of the royalty and other payments to be received by [the wife] in the future cannot yet be ascertained, the right to receive those royalties and other payments was contractually established at the time of the divorce. Indeed, [her] interests in the present case are, in certain respects, analogous to a party’s interest in the payment of pension rights which has been recognized as marital property subject to division.” 2

The Court suggested that future royalties were particularly suited to “division on an “if and when received” basis, with the judge determining the percentages of any future payments to be assigned to [wife and husband.]” 3

Valuing intellectual property during a divorce

In many cases, it may be possible (whether through past royalties or payments or expert valuation) to establish the value of intellectual property. In those cases, the court may use those reasonable values in calculating marital property division.

If the value of intellectual property is too speculative to consider, however, the judge may opt to exclude the property from marital property calculations. In one case, for example, 4 the court considered the invention of the husband, who held patents on artificial skin. The trial judge held that future income from those patents was so speculative that they did not need to be included as part of property assignment. The Supreme Judicial Court agreed that the judge did not abuse his discretion in his division of the marital assets.

“He was not obliged to place a value on the husband’s royalties, patents, or copyrights. He was warranted in declaring uncertain the value of the husband’s patents on artificial skin,” the high Court noted. “The judge could have concluded on the evidence that the present value of the husband’s future income from this source was too speculative to consider. The asset was not one which obviously has current value but is difficult to appraise (such as a close corporation).” 5

1 Canisius v. Morgenstern, 87 Mass. App. Ct. 759 (2015).
2 Id., at 767.
3 Id., at 771.
4 Yannas v. Frondistou-Yannas, 395 Mass. 704 (1985).
5 Id., at 714.

Future Income and Property Acquisition in Dividing Marital Property

Zelda and Zack have been married for ten years and are undergoing a divorce. Zack recently found out two things: first, that Zelda has won a professional award which will likely allow her to increase her income substantially in the future; and second, that Zelda is likely to come into a large inheritance from her mother, of which Zack had no idea. Zack wants to know if the Massachusetts Family Law Court is likely to take these two things into consideration when dividing the marital property and ordering alimony.

The Massachusetts Probate and Family Courts use a process called equitable distribution to divide marital property in general. Here, the term “equitable” means “fair,” and not necessarily equal: the court will determine how to best divide marital property in the fairest manner in each particular case. There are many factors that the Court considers as part of this process. Massachusetts General Laws, chapter 208, section 34 defines the factors the Court will use in determining how marital property should be divided. Under the statute, the Court may include in its analysis the opportunity for the parties to acquire future income and property.

The opportunity to acquire future income and property is a comprehensive factor: it includes the likelihood of earning future salaries, bonuses, royalties, and other sources of income. It also includes family trusts, inheritances, and other property which may befall one of the parties in the future.

In one Massachusetts case, the Court considered the effect of the husband’s Nobel prize on his future acquisition of assets. As the Appeals Court explained upon appeal:

In explaining her division of assets, the judge relied “heavily” upon the statutory factor of the “ability of the parties to acquire future income and assets.” The judge concluded that the husband’s ability is excellent, as he retains a retirement asset in which his employer “matches his future contributions dollar for dollar,” and his “receipt of the Nobel prize opens wide new horizons for his income potential.” The wife’s future prospects were found to be “paltry and stagnant by comparison.” The judge found that the wife had “no likelihood of acquiring significant future assets or increasing her earned income.”

The Appeals Court affirmed, holding that the trial court properly considered the above factors in computing the parties’ opportunity to acquire future income. “The husband’s and wife’s ability to acquire future income and assets are therefore strikingly different and justify the judge’s heavy reliance on this factor,” the Court noted.

In the case of future property acquisition, however, the Court will carefully consider whether there is a realistic prospect of receiving the future income or property, or whether future acquisition is merely expected. If it’s the latter, the Court may not include it in its consideration of assets. In one case, the courts considered a husband’s future interests in many different family trusts and other property. In some trusts, the husband was deemed to have a present, enforceable right, and those trusts were ordered by the court to be considered as opportunity for future acquisition of capital assets and income in determining alimony and child support. In some other trusts, however, the husband’s interest was deemed too remote or speculative, and those trusts were not considered to be part of the marital estate.

If you have any questions about issues of divorce, custody, or support, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete our contact form online, and we will get back to you at our earliest opportunity.