In a decision to be released next week, Keller vs. Keller, the Connecticut Appellate Court has overturned a hefty order of alimony and support entered by a Superior Court judge.
The Defendant husband held a law degree from Columbia University and was licensed to practice in two states. After a brief practice, he had gone into finance and most recently had owned a hedge fund that had , at first, done very well but had later turned sour. At the time the order entered, the fund was closed. The evidence showed that Attorney Keller had no income and the family was living on borrowed money and the last of their liquid assets.
In Connecticut and elsewhere, judges may make orders of alimony and support based on a finding that the payor has earning capacity even if he or she is unemployed or underemployed. Tn the Keller case, the judge did just that, finding that Attorney Keller had a gross earning capacity of $25,000 per month. Based on that finding, the court ordered him to pay combined alimony and support of $9,000 per month during the pendency of the case.
The Appellate Court overturned the order, not because the lower court did not have discretion to consider earning capacity but because the court failed make a finding as to Attorney Keller’s net earning capacity. Under Connecticut law, orders of alimony and support must be based on net income whether that income is real or merely imputed.
The lesson for litigants hoping to obtain orders against their unemployed or underemployed spouse is to present evidence specifically on the subject of what they believe their spouse could earn after taxes.
A new Connecticut Appellate Court case provides us with a window into what may be a shift in judicial attitudes on the issue of whether to look at earning capacity vs. actual or reported earnings in alimony and support cases.
In 2009 when Sandy and Scott McRae — both small business owners — were divorced, the trial court entered an alimony award based not on the couple’s respective financial affidavits, but instead on what the court estimated their real earning capacities to be — a higher number for both husband and wife. Based on those assumptions, the court entered an order that, in theory at least, equalized their incomes.
Mr. McRae wasted no time petitioning the court to reduce the award. On his third attempt in 2011, he finally met with success. Judge Trial Referee Herbert Berall reduced Mr. McRae’s weekly alimony obligation from $250 to $150 per week. Better still, from Mr. McRae’s point of view, the court allowed one half of that amount, $75 per week, to be treated as payments toward a substantial arrearage Mr. McRae had accumulated by unilaterally reducing his alimony payments without the benefit of a court order. At that rate, Mr. McRae’s arrearage would not be fully paid for approximately 7 years and, meanwhile, even the remaining $75 — the new current order — would drop away before long under the terms of the original decree.
Sandy McRae appealed the order on a number of grounds. The question that interests us the most was whether the court erred by comparing apples to oranges — 2009 earning capacity to 2011 reported earnings. The court made it clear on the record that it considering Mr. McRae’s financial affidavit and tax returns in deciding whether to modify the 2009 alimony rather than looking beyond those numbers as the first court had done to consider, instead, Mr. McRae’s earning capacity.
The point is a technical but important one. Under Connecticut law and the law of most other states as well, courts cannot modify alimony without first finding, as a matter of fact, that there has been a substantial change in the financial circumstances of one or both of the parties. There were two sides to Ms. McRae’s argument. If the trial judge had looked at earning capacity rather than his actual reported earnings, then the judge hearing the motion for modification should have done the same thing.
Conversely, she argued, if the court was considering Mr. McRae’s reported income in 2011, it should compare it, not with his 2009 earning capacity, but with what he had reported his real earnings to be in 2009 — about the same number he reported in 2011. Effectively, her argument was that if the court had compared apples to apples — reported earnings with reported earnings — it should not have modified her alimony because Mr. McRae was reporting about the same level of income in 2011 that he had reported in 2009.
The appellate court disagreed even though the judge who modified the order clearly said that he was basing the new order on Mr. McRae’s financial affidavit and recent tax returns. The judge said this about the 2009 finding that Mr. McRae had higher earning capacity than his real earnings suggested: ” Well reality set in … [s]o much for predictions. I will tell you, this court, certainly in the last year and a half, has made no decisions finding people’s earning capacity.”
The appellate court rejected Ms. McRae’s arguments finding essentially that the modifying judge based his decision on an assumption that Mr. McRae’s earnings and earning capacity were one and the same so the order was still based on a comparison between past and present earning capacity. This despite the lower court judge’s own words.
So what does all this mean? In part that depends on how many other judges agree that lower incomes are more likely to be the result of economic reality than of divorce game-playing. The case-law in Connecticut makes it clear that courts have the right to consider a person’s earning capacity if they believe that the individual is under-employed. We often encounter clients who insist that their spouses are deliberately under-reporting income or keeping his or her earnings artificially low in order to achieve better results in divorce court. Now it seems, convincing the court of that may be harder in a bad economy than it has been in years past.
This does not mean that earning capacity is lost as a concept in divorce law, but it does mean that the standards of assembling proof, including the use of expert witnesses where appropriate, are higher than ever.
According to an article published this summer in the Wall Street Journal, there is an increasing trend among divorce lawyers to market their practices specifically to men.
As a marketing tool, from the perspective of the lawyer, this makes perfect sense. There is nothing new about niche marketing and boutique divorce firms have been all the rage for years. A lawyer who can convince his or her demographic that he or she is a champion of men and understands the injustices that too often befall them in divorce court, can gain a leg up on colleagues who trust clients to understand that experience representing both men and women benefits clients of both genders.
Jennifer Smith, the author of the WSJ article entitled “Lawyers Carve out ‘Divorce for Men’ Niche”, makes it clear that the trend is about marketing and not about law. The article discusses packing lawyers’ websites with SEO rich keywords and phrases appealing to men’s fears and concerns. There are plenty of plausible reasons for this, none having to do with outcomes for clients. Lawyers who limit their practices in this way may believe that any focus in advertising is a good thing, or may have a personal bias that male clients are generally in a better position than women to finance divorce.
The question for men facing divorce, by contrast, is whether the fact that their lawyer markets exclusively to men will make a difference in the outcome of their cases. When pressed for answers on what kind of special advice such firms offered, self-described men’s lawyers reported advising clients not to get into arguments with their wives which might result in false claims of abuse, and not to relocate to distant places if they planned to seek joint custody of their children. Hardly profound insights or advice different from that which any experienced divorce lawyer would offer.
There is no doubt that at least some of the lawyers, who limit their divorce practice to men, genuinely believe that men tend to be short-changed in divorce court. Many might be proponents of alimony reform — a hot issue across the country.
Query, though, whether any judge is likely to be swayed in his or her decision by the politics of the husband’s lawyer as opposed to by the facts of the case. To the extent that gender biases exist in any jurisdiction, count on the fact that the experienced lawyers in that jurisdiction are aware of them and are prepared to address them on behalf of their clients. All of us are bound by Rules of Professional Conduct that require us to represent our client’s zealously.
Before selecting a lawyer who touts himself or herself as a man’s divorce lawyer, men should first ask: does it cost extra, and, if so, exactly why?
Yesterday, the Huffington Post reported on a new study by sociologists Wendy Manning and Jessica Cohen concerning the relationship between cohabitation prior to marriage and the risk of divorce down the road.
As it turns out, the divorce rates among couples who did cohabit and those who did not are fairly equal.
While the authors of the study looked at factors such as gender, and level of committment — whether or not the couple planned to marry from the start — nothing in the report suggests that the authors considered whether the cohabitation took place before a first marriage or a second or subsequent marriage.
In Connecticut and many other states, the decision to cohabit before a second marriage carries an added risk — the prospect of losing alimony whether or not the new relationship works out.
In most cases, alimony terminates on the remarriage of the recipient. Under the so-called Connecticut cohabitation statute, things are not so clear-cut.
The Connecticut cohabitation statute uses peculiar language. Most importantly, it does not include the word ‘cohabit’. Instead it allows a court to suspend, reduce or terminate alimony if it finds that the recipient is living with another person under circumstances that alter his or her financial needs.
While the language is broad enough to include roommates, relatives, and even long-term guests, the courts have generally interpreted the statute to be focused on couples living together without the benefit of marriage.
As broad as the language of the cohabitation statute is, cohabitation can be tricky to prove especially when the couple separates in reaction to a motion by an ex-spouse to terminate alimony.
Still, the cost of cohabitation for anyone receiving alimony can be loss of a stream of income that might otherwise have continued for years. While courts have the option to suspend or reduce alimony on a finding of cohabitation, termination is far more common. Once alimony has been terminated, it cannot be reinstated.
So if the Manning/Cohen study tells us that cohabitation prior to marriage doesn’t reduce the incidence of divorce, at least for second-timers whose existing alimony is at risk, it might be wise to test a new relationship from a safe distance.
A recent decision of the Connecticut Appellate Court in the case of Felicia Pierot Brody vs. Cary Brody illustrates what can happen when the focus of a divorce case shifts from the issues in the marriage to the credibility, or lack thereof, of one of the parties to the case. In the Brody case, one thing that happened was that a lot of personal information became public – e.g., the husband’s awkward excuse for stashing condoms in his travel bag. Another consequence: Brody was ordered to pay $2.5 million in lump sum alimony even though his prenuptial agreement was meant to prevent that and even though the court was unable to ascertain his income. The trial took place in 2010. Recently the Appellate Court has ruled against Brody on all six issues he raised in his appeal.
For all most of us know, Mr. Brody might have told the truth from start to finish. However, the judge found him not to be credible which, as the finder of fact in a civil case, she was privileged to do.
Any judge will tell you that the best way to appear to be truthful is simply to tell the truth. Still, any divorce lawyer who’s practiced as long as I have, has encountered more than one client who is shocked to learn that their lawyer expects them to be honest.
What kind of lawyer wouldn’t help you hide your assets, understate your income or cover up your extramarital affairs? The answer: any good one. Yet, despite our best efforts, there are plenty of folks who remain unconvinced that honesty is the best policy even when the truth isn’t pretty.
The fact is, there isn’t much that happens in a marriage that the judge hasn’t heard before. Also, there can be two very different sides to every story even when the story is told by honest people. Your secret spending or infidelity might have led to enormous drama in your household, but in divorce court, might barely cause a ripple. Unless, that is, you deny the deed and the judge isn’t buying it.
Brody was not a divorce between members of the 99% although the basic issues were fairly universal. There was an issue of irresponsible spending — in this case buying one too many Ferrari automobiles , a wine cellar, and an airplane. There was an issue of suspected infidelity with no proof other than a few unused condoms. There was a business purportedly in decline — in this case the Defendant’s hedge fund. There were some “he-said-she-said” claims of verbal abuse. All matters divorce judges deal with day in and day out.
No case in Connecticut goes to trial without first going through at least one formal attempt at settlement usually with the assistance of a judge or court-appointed Special Master. Most cases settle before trial. Of the small percentage that do not, only a handful are appealed and those few find little success in overturning the decision of the trial judge.
In this case, the Defendant raised a number of issues that might have served him well during settlement negotiations. His business really had been embroiled in litigation with the SEC, for example, and the prenuptial agreement arguably offered him protection from a lump sum alimony award that would have to be funded by liquidating personal assets.
At trial, however, the judge found him not to be a credible witness. For one thing, he had admitted testifying falsely under oath in an earlier divorce proceeding that his wife had commenced but later dropped. Back then he had denied removing his wife’s jewelery from a safe, but had later come clean. Added to that was the finding that the Defendant had stonewalled during the discovery phase of the trial pretending that certain documents sought by the Plaintiff didn’t exist. With those two strikes against him, the case was pretty much over. The Plaintiff, whose personal net worth at the time of the marriage had been 29 million, and whose dividend income from her separate property was approximately $100,000 annually was awarded alimony and, tacitly, the designation of honest litigant.
According to a recent article published in USA Today, a study of over 7000 individuals conducted by researchers at the Ohio State University found that 79% of marital separations end in divorce.
The study found that the average length of separations that resulted in reconciliation was two years, while the average of those ending in divorce was three years. Surprisingly, the chances of reconciliation virtually disappeared among this group beyond the three-year mark. While many couples who lived apart for three or more years eventually divorced, others simply continued the separation indefinitely.
The study found that women with children under 5 years old were more likely to separate from their husbands rather than to divorce immediately.
All of this means that a great number of couples either delay or forego altogether the protection of laws designed to shield them financially in the event their marriage comes apart. These include laws governing the division of marital assets as well as laws regarding spousal and child support.
In a relatively new trend, some couples seriously contemplating trial separation begin the experiment by negotiating a formal post-marital agreement that sets out their respective financial obligations while still legally married and also in the event of an eventual divorce. In this way, they are able to enter into a trial separation — or in some cases even continue living under the same roof — with the security of an agreed-upon set of rules. This provides each of them with a degree of certainty about their financial future that would not otherwise be possible absent divorce litigation. With financial issues resolved, they are better able to understand the choices they face and to focus on other issues in their relationship.
Just like prenuptial agreements, post-marital agreements must meet certain standards in order to be enforceable. These standards are governed by the laws of individual states, but certain features are universal. First, they must be accompanied by full mutual disclosure of financial information. Second, they must be entered into voluntarily and both parties must have had at least the opportunity to have the agreement reviewed by independent counsel. All courts reserve the right to review both prenuptial agreements and post-marital agreements for fairness, but, provided there are no egregious flaws in the contract, courts generally support and enforce them as a matter of public policy.
Impending separation is not the only reason to consider a post-marital agreement. Events such as the birth of a child, a return to school, or the launch of a business can be good reason for couples to consider adding a post-marital agreement to their financial plan.
According to a recent article in USA today, Connecticut groups have joined a growing movement to revamp alimony statutes that some consider out-dated and punitive toward the payors of alimony.
Advocacy groups, such as New Jersey Alimony Reform, cite anecdotal reports of onerous orders under which individuals have been forced to pay lifetime alimony despite job loss, failing health, or improvements in the financial circumstances of the recipient.
Reform proponents want, above all, to limit the duration and to cap the amounts of alimony by creating formulas tied to the income of the parties and the length of the marriage.
Opponents argue that strict formulas are likely to cause more injustice than they cure especially since judges already consider a range of equitable factors when fashioning alimony orders and need to be able to tailor awards to the needs and circumstances of each family.
In September of 2011, Massachusetts Governor, Deval Patrick, signed into law a new act that provides, among other things, specific term limits for alimony. The Massachusetts law also limits the amount of alimony to no more than 30% to 35% of the difference between the parties’ gross incomes at the time the order is issued. Under the statute alimony can be set below these caps especially if the recipient does not establish sufficient need. The new Massachusetts statute also allows the court to terminate, suspend or modify alimony upon a finding that a recipient is cohabiting with another adult — action that has long been permitted under Connecticut law in any case.
In contrast, rather than capping alimony awards, the Connecticut alimony statute mandates a case-by-case analysis of the issue based on a long list of factors including the length of the marriage or civil union, the causes of the breakdown, the age, health, and occupation of the parties, as well as their respective skills and earning capacities. This allows the court to project how the parties are likely to fare in the future, relative to one another, depending on the amount of alimony ordered.
In Connecticut, the group at the vanguard of the movement for alimony reform maintains a web site that is surprisingly non-specific about the ways in which members consider the existing Connecticut statutes to be defective. Instead, the group invites members to post so-called “horror stories” about their own cases.
To the extent that reform groups suggest that non-modifiable lifetime alimony is the norm, at least in Connecticut, they are misleading potential recruits.
Because Connecticut law generally allows for modification of alimony when the financial circumstances of the parties have changed, an agreement or order to the contrary must specifically preclude modification. While non-modifiable alimony orders are not altogether uncommon, they are most often the product of negotiations between the parties through which the recipient of alimony accepts a lower amount in exchange for a promise that the alimony will continue for a specified period of time.
According to the USA Today article, a bill concerning alimony reform is likely to be presented to the Connecticut General Assembly this year.
Because the issues are not simple, any effort at reform must be carefully considered. New legislation, if it is to bring positive change, should be thoughtfully drafted in a way that allows courts to address the legitimate concerns of both parties. Any reforms designed to protect the interests of one group without also safeguarding the rights of another will not satisfy that requirement, nor will changes that merely bring uniformity into the process without balancing the need for certainty with the overriding goal of treating all parties fairly.
As always, we welcome your comments.