The Massachusetts Appeals Court recently decided Duval v. Duval. This case deals with the modification of an unallocated support order. While a court may order alimony to support a former spouse and order child support for the care of the parties’ children, unallocated support does not specifically provide for either. Instead, unallocated support financially provides for the family as a whole (i.e. former spouse and children). Notably, the tax consequences of child support, alimony, and unallocated support differ, making unallocated support more favorable for some parties.
Brief Summary of the Case
In Duval, the former spouses executed a separation agreement, which was incorporated into the divorce judgment. The agreement gave the wife primary physical custody of their two children, required the husband to pay unallocated support, and required the parties to each contribute to their children’s future college expenses as able. The separation agreement did not define the term “unallocated support.”
Nearly a year later, the husband sought a downward modification of the unallocated support given his increased parenting time and the wife’s increased income since the divorce judgment entered. The husband’s income had remained relatively the same since the divorce. A judge can modify a prior judgment if the judge determines that there has been a material change in circumstances since the entry of the prior judgment. The Probate and Family Court judge in the modification action, however, treated the unallocated support as purely alimony. Accordingly, the judge only considered the wife’s change in circumstances (her increased income) and reduced the unallocated support. The trial judge did not account for child-related changes that would have been considered if the unallocated support order had a child support component.
On Appeal, the central issue in Duval is: Is the unallocated support order a hybrid of child support and alimony (i.e. not purely alimony)? Looking at language in the separation agreement as a whole, the Appeals Court in Duval disagreed with the trial court judge. The Appeals Court decided that the unallocated support in the case is both alimony and child support. Given the child support component, the trial court judge should have considered (but did not) child-related changes, not just the wife’s increased income.
In December 1998, the husband and wife were married. They had two children.
In December 2015, the wife filed for divorce. At the time, the wife was working as a substitute teacher, earning a minimal income. Meanwhile, the husband was the primary income earner, receiving a salary and dividend income from his business, Brighter Horizons Environmental Corporation (“BHE”). The husband founded BHE in 2005 with a business partner.
On May 19, 2017, the parties executed a six-exhibit separation agreement. Three of the six exhibits are relevant in this case: exhibits B, C, and D. The agreement was incorporated into the divorce judgment.
Exhibit B: Property Division
Regarding the division of the husband’s fifty percent shareholder interest in BHE, the parties agreed to the following. The parties agreed that the husband would keep his interest in BHE. In exchange, in order to equalize the property division, he executed a promissory note that required him to make a series of payments to the wife.
Exhibit C: Custody
The parties agreed that the wife would have primary physical custody of their two children.
Exhibit D: Unallocated Support Payments and College Funds
The parties agreed that the husband would pay the wife $850 per week in “unallocated support.” They further agreed that the payments would continue until the earliest of three scenarios: the death of the husband; the death of the wife; or, January 1, 2031. The separation agreement did not define the term “unallocated support.”
The parties also agreed to each contribute to their children’s college education costs “to the extent each is able.”
Complaint for Modification
In December 2017, shortly after the divorce, the parties’ oldest child began living primarily with the husband. At the time, the oldest child was almost 18 years old and was about to graduate high school.
Accordingly, in April 2018, the husband filed a complaint for modification. In his modification complaint, the husband sought: 1) joint physical custody of the parties’ younger child; and, 2) the reduction, recalculation, or termination of his unallocated support obligation.
Regarding the latter, the father argued that the court should modify his unallocated support obligation for three reasons. First, the parties’ oldest child was residing primarily with him. Second, the wife’s income had increased. Third, the husband filed the modification action seeking a change to the custody arrangement for the parties’ younger child.
The wife filed a counterclaim seeking child support from the husband.
In 2019, the wife and husband reached a partial agreement in the modification case. This agreement became part of the modification judgment. The partial agreement established a parenting plan for the younger child giving each parent approximately equal parenting time. However, the younger child’s primary residence would continue to be the wife’s house.
At the time, the eldest child had completed his first year of college and lived primarily with the husband when he was not at school. The husband paid for the eldest child’s out-of-pocket college costs without contribution from the wife.
Having resolved the issues above, two disputed issues remained at trial: 1) the amount and type of support (alimony or child support) that the husband was to pay to the wife; and, 2) what each party should be contributing to the children’s college expenses.
To modify a judgment, the judge must find that there has been a material change in circumstances since the entry of that judgment. In August 2019, the trial court judge issued the modification judgment and findings as follows.
1. The husband’s unallocated support obligation was treated as alimony and reduced.
Regarding the definition of “unallocated support” in this case, the trial court judge first determined that the parties intended for the “unallocated support” to be “in the nature of alimony” only, not a hybrid of alimony and child support. In doing so, the trial court judge stated that exhibit D of the parties’ separation agreement expressly lists circumstances under which the unallocated support obligation would end: the death of either party; or, a specified date. Those circumstances, noted the judge, mirror reasons to terminate alimony under the alimony statute. Furthermore, the parties’ separation agreement did not list an event related to the children–ex. emancipation–as a reason to end the unallocated support. So, the trial court judge concluded that the wife received “‘her division of property and alimony, termed unallocated support, in the amount and duration that she did in exchange for not receiving child support.'”
Having first determined that the unallocated support was essentially alimony, the judge then had to determine whether a material change in circumstances warranted a change to the unallocated support amount. Because the judge applied alimony principles here, he found that an increase in the husband’s parenting time and financial responsibility for the children did not constitute a material change in circumstances warranting a modification.
The judge did find, however, that the wife’s income had significantly increased since the divorce. Meanwhile, the husband’s income remained essentially the same (although his net worth had somewhat decreased). This represented a material change in circumstances warranting a reduction in the husband’s unallocated support obligation.
In calculating the husband’s new support obligation, the trial court judge considered both the husband’s salary and dividend income from BHE.
Treating the unallocated support as a hybrid of child support and alimony would have most likely led to a greater reduction.
Had the judge determined that at least part of the unallocated support was child support, then the judge would have had to consider the changes in the parenting arrangement, i.e. the elder child was in college and primarily living with the husband when not in school as well as any potential change in the custody arrangement for the younger child. Doing so would have most likely led to a further reduction in the husband’s support obligation.
2. The children’s future college expenses were divided between the parties.
Regarding the children’s college expenses, the trial court judge ordered the husband to pay one-third and the wife to pay one-sixth of said expenses. The judge did not order the wife to contribute to the elder child’s first year of college expenses, however.
Massachusetts Appeals Court
Both parties challenged the modified unallocated support order on appeal. The husband also challenged the college expense provision.
The first question before the Massachusetts Appeals Court was whether the trial court judge was right in concluding that the parties intended the unallocated support order to be in the nature of alimony (not a hybrid of both alimony and child support).
The wife contended that the trial court judge interpreted the agreement correctly.
Conversely, the husband argued that the judge ignored other language in the separation agreement that demonstrated that the support obligation was, in fact, a mix of alimony and child support. Accordingly, the husband also argued that the trial court judge should have further reduced his support obligation to account for the change in the parenting arrangement.
Appeals Court Decision
The Appeals Court agreed with the husband. Firstly, the parties intended for the unallocated support obligation to be a hybrid of child support and alimony. Secondly, the lower court judge should not have analyzed the husband’s modification request solely under alimony principles, in turn disregarding changed circumstances relating to the children.
In so concluding, because the separation agreement did not explicitly define “unallocated support,” the Appeals Court looked at the surrounding language in the agreement to determine its meaning.
The Appeals Court found that exhibit D of the separation agreement, when read in its entirety, clearly indicates that the parties meant for the unallocated support to be for the entire family, not just for the wife (i.e. not just in the nature of alimony, but a hybrid of alimony and child support).
Surrounding Language in the Separation Agreement Referencing Child Support
To begin, the first paragraph of exhibit D references child support with unallocated support:
“’1. [The] [h]usband and the [w]ife each acknowledge that s/he has been made aware of the criteria set forth in [G.L.] c. 208, §§ 48 through 55 governing alimony as well as [G.L.] c. 208[,] § 28 governing child support.”
Similarly, the Appeals Court notes that exhibit D expressly refers to the children’s future college expenses and tax dependency exemptions. Both of these concepts relate to child support, not alimony.
Events Leading to the Termination of Unallocated Support
Regarding events that would result in the termination of the unallocated support, the Appeals Court found that exhibit D did not list the remarriage of the wife. The Appeals Court stated the parties would have listed this as a support termination event if they had intended for the unallocated support to be purely alimony (since that would be consistent with the Alimony Reform Act).
Unallocated Support Tax Deductibility
Moreover, the Appeals Court found that the parties excluded child-related termination events in the separation agreement for tax reasons. Exhibit D of their separation agreement provides that “’all payments made pursuant to said paragraph 2 of this [e]xhibit D qualify as unallocated support payments for income tax purposes…As such, these payments shall be entirely deductible to the [h]usband and taxable to the [w]ife‘” (emphasis added). These tax consequences are different from those for child support. Child support is neither taxable to the recipient nor deductible by the payor.
Further illustrating this point, the Appeals Court cited the Massachusetts Child Support Guidelines. The Guidelines recognize that child support is not tax-deductible and recommend unallocated support orders in cases involving parties with disparate income levels who seek to achieve a “‘significant tax benefit'”–in this case, a tax benefit for the husband.
Parents Cannot Bargain Away a Child’s Right to Support
Lastly, the Appeals Court rejected the lower court’s conclusion that the wife waived child support, instead opting for alimony. Citing a recent case, Cavanagh v. Cavanagh, the Appeals Court said such a waiver would be inappropriate because parents cannot bargain away the right of their child to receive support. In fact, public policy requires parents to financially support their dependent children as much as possible.
Statutes and Case Law
Notably, case law and statutes provide further insight into the meaning of “unallocated support.” In its decision, the Appeals Court explains that both statutes and previously decided cases describe or treat “unallocated support” as some combination of alimony and child support.
Regarding the children’s college expenses, the lower court judge ordered the husband to pay one-third and the wife to pay one-sixth of such expenses. Without explanation, the lower court judge did not order the wife to retroactively contribute to the elder child’s first-year college expenses (remember, only the husband paid for those expenses).
Appeals Court Decision
The Appeals Court agreed with the husband that the lower court judge abused his discretion in so ordering. Firstly, the lower court needed to offer its reasoning for its decision. Secondly, the lower court needs to redetermine the issue of college contributions as they are intertwined with child support (as the Appeals Court determined that part of the unallocated support obligation is child support).
The Appeals Court’s Final Conclusion
Ultimately, the Appeals Court held that the trial court judge should not have treated the unallocated support order as only alimony–instead, it should have been treated as a hybrid of alimony and child support. This error impacted the judge’s analysis regarding: 1) the existence of a material change in circumstances warranting a change in the support order; and, 2) contributions towards college expenses.
The Appeals Court, therefore, vacated the parts of the modification judgment having to do with unallocated support and college expenses, and remanded the case back to the Probate and Family Court for further proceedings.
Issues on Remand
The Appeals Court addressed issues that could arise on remand.
Husband’s Dividend Income
Briefly stated, the husband argued that the lower court should not have included his BHE dividend income when it modified the unallocated support order. According to the husband, doing so was in violation of the separation agreement and the Alimony Reform Act. The husband further argued that the wife waived her interest in the husband’s BHE dividend income.
In response, the Appeals Court first noted that the child support guidelines require the automatic inclusion of dividend income in the child support calculation. Secondly, the Appeals Court did not find any language in the parties’ separation agreement indicating the wife waived her interest in the husband’s BHE dividend income. The Appeals Court added that, even if the wife did waive her right to an interest in the dividend income, such a waiver could not also waive her children’s right to child support from that income.
Since the unallocated support order here consists of both alimony and child support, the judge may consider the dividend income available for child support purposes.
Unallocated Support Calculation
Both parties contend that the lower court erred in how it calculated the modified unallocated support amount. The lower court based the amount on a percentage formula to which the judge deduced the parties had previously agreed.
The Appeals Court found that the percentage formula the lower court judge used does not appear, neither explicitly nor implicitly, in the parties’ separation agreement. The Appeals Court noted that the parties could have easily included language regarding such a formula for the calculation of support if they so chose, but they did not. Further, the percentage formula is not based on any relevant child support or alimony principles. The Appeals Court also noted that the lower court judge did not make findings regarding the needs of the wife or the children’s needs.
The Appeals Court suggests that the Probate and Family Court judge consider the needs of the wife and children on remand, along with other criteria for the modification of child support and alimony.
Essentially, because the Appeals Court decided that the unallocated support order includes alimony and child support (not only alimony), the modification analysis cannot simply focus on changes and needs related to the wife. It must also include a determination as to whether or not a material change in circumstances related to the children exists.
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