High Income, Large Marital Estate, Equitable Distribution, and Alimony

February 26, 2020 § Leave a comment

I don’t know about other chancellors, but one of the most difficult tasks for me is to figure out whether there is truly a disparity requiring alimony after equitable distribution.

In the recent COA case, Descher v. Descher, decided January 14, 2019, the chancellor ordered Jeffrey Descher to pay his ex, April, $7,500 a month in periodic alimony, even though her equitable distribution, lump-sum alimony, and even child support, were substantial. The COA affirmed. Judge Lawrence’s majority opinion on the issue is chock-full of helpful authority and rationale, so here it is:

¶25. Finally, Jeff argues that the chancellor erred by awarding April permanent periodic alimony. “Alimony is considered only after the marital property has been equitably divided and the chancellor determines one spouse has suffered a deficit.” Castle v. Castle, 266 So. 3d 1042, 1053 (¶43) (Miss. Ct. App. 2018) (quoting Lauro v. Lauro, 847 So. 2d 843, 848 (¶13) (Miss. 2003)), cert. denied, 267 So. 3d 278 (Miss. 2019). This Court is bound to “consider the totality of the chancellor’s awards upon the divorced parties, including the benefit to the payee spouse and the concomitant burden placed on the payor spouse.” Id. (internal quotation marks omitted) (quoting Arrington v. Arrington, 80 So. 3d 160, 167 (¶23) (Miss. Ct. App. 2012)). “Our scope of review of an alimony award is familiar and well settled. Alimony awards are within the discretion of the chancellor, and his discretion will not be reversed on appeal unless the chancellor was manifestly in error in his finding of fact and abused his discretion.” Coggins, 132 So. 3d at 640 (¶8) (quoting Armstrong v. Armstrong, 618 So. 2d 1278, 1280 (Miss. 1993)).

¶26. Permanent periodic alimony serves an important purpose as a “substitute for the marital-support obligation.” Rogillio v. Rogillio, 57 So. 3d 1246, 1250 (¶11) (Miss. 2011). More specifically,

[t]he award of permanent periodic alimony arises from the duty of the husband to support his wife. We have also said that the husband is required to support his wife in a manner to which she has become accustomed, to the extent of his ability to pay. To update our language: Consistent with Armstrong, a financially independent spouse may be required to support the financially dependent spouse in a manner in which the dependent spouse was supported during the marriage, subject to a material change in circumstances.

Castle, 266 So. 3d at 1053 (¶43) (emphasis altered) (quoting Rogillio, 57 So. 3d at 1250 (¶11)). This duty, however, is not absolute. A spouse that seeks alimony must have “a deficit with respect to having sufficient resources and assets to meet his or her needs and living expenses.” Jackson v. Jackson, 114 So. 3d 768, 777 (¶22) (Miss. Ct. App. 2013) (emphasis added).

¶27. Without a periodic alimony award, April would have been forced to draw on her lump-sum award for the rest of her life. [Fn 9] That is not a “sufficient resource” that Jackson anticipated. Id. April still worked for the Descher corporation at the time of trial. The most money she ever earned was when she worked for the Descher corporation. According to her Rule 8.05 statement, when April worked at the Descher corporation, she earned $3,024.00 before taxes. After taxes, April earned $2,491.25. She listed $12,784.82 in total personal monthly expenses. In addition, her children’s expenses were listed as $3,402.33 each month. Because she received the home and her vehicle free and clear of any debt, April no longer has a mortgage payment or a car note in her monthly expenses. That means April’s personal monthly expenses, after the chancellor’s judgment, was $7,199.50. Jeff, on the other hand, was able to attend what McDonald’s calls “Hamburger University” and as a result qualified
to own and manage McDonald’s restaurants. The businesses he now owns are free and clear of any interest April held. Those businesses bring in over thirty-one million dollars per year in gross revenue. While the lump-sum alimony award was $856,794.98, which is certainly a large sum to most people, it does nothing to cure the fact that there is still a “significant income disparity” between Jeff’s and April’s incomes from the businesses, which were portions of the marital property. Jeff earns over $71,000 per month after taxes. April earns $2,491.25 per month after taxes if she is even still employed with the Descher business conglomerate. The lump-sum alimony award did not address this obvious income disparity.

[Fn 9] The dissent argues that the chancellor did not consider April’s $856,794.98 lump-sum alimony award as part of her “resources and assets” available to meet her expenses. Post at (¶46). The chancellor, however, specifically stated that “[i]n view of the significant income disparity following the equitable distribution of the marital estate, the lack of April having any meaningful potential future earnings potential, the length of the marriage, the parties’ accustomed standard of living, and the [c]ourt finding that it would be inequitable to require April to live exclusively off of the moneys she is to receive as the lump-sum alimony portion of the equitable distribution of the marital assets . . . this [c]ourt finds that April is entitled to an award of periodic alimony.” That indicates the chancellor did in fact consider the lump-sum alimony award as an asset.

¶28. The question now becomes whether $7,500 per month in permanent periodic alimony is excessive. Excessive awards of alimony by the chancellor have been overturned by this Court before. In Cosentino v. Cosentino, 912 So. 2d 1130 (Miss. Ct. App. 2005) (Cosentino I), this Court held that the wife was not entitled to $7,000 in permanent periodic alimony. Id. at 1131 (¶1). This Court reversed and remanded the case to the chancery court for a proper Ferguson and Armstrong analysis. [Fn 10] Id. at 1133 (¶12). When Douglas Cosentino again appealed the chancellor’s decision after remand, we reversed and rendered judgment for failure to justify the permanent periodic alimony award when the wife had received $2,615,815 as part of the marital estate. Cosentino v. Cosentino, 986 So. 2d 1065, 1066 (¶¶1-3) (Miss. Ct. App. 2008) (Cosentino II). The instant case is distinguishable from our decisions in Cosentino I and Cosentino II.

[Fn 10] Ferguson v. Ferguson, 639 So. 2d 921, 926 (Miss. 1994) (finding that awards of alimony are appropriate if after dividing the marital property there is still inequity between the two parties); Armstrong v. Armstrong, 618 So. 2d 1278, 1280-81 (Miss. 1993) (noting the twelve factors necessary for a chancellor to consider when entering a judgment for alimony).

¶29. In Cosentino II, we found that the chancellor’s failure “to provide any justification for the alimony award” was error. Id. at 1068 (¶8). Since “[t]he chancellor did not articulate any reason why Phyllis [Cosentino] needed more than the $2,615,815 that she was awarded,” this Court found that there was no evidence of a reasonable need for additional alimony. Id. at (¶9). Here, however, the record supports the chancellor’s finding that additional, permanent periodic alimony was necessary. The chancellor noted in his amended judgment that “April’s equitable distribution share of the marital estate [was] non-income producing” and that “even under the best of circumstances [any potential investment income] is not assured and pales in total insignificance when compared to the income historically received by Jeff.” The chancellor continued:

In view of the significant income disparity following the equitable distribution of the marital estate, the lack of April having any meaningful future earning[] potential, the length of the marriage, the parties’ accustomed standard of living, and the [c]ourt finding that it would be inequitable to require April to live exclusively off the moneys she is to receive as the lump-sum alimony portion of the equitable distribution of marital assets while Jeff receives $65,913.33 in monthly gross income [Fn 11] from his share of the marital estate, the [c]ourt finds that April is entitled to an award of periodic alimony.

(Emphasis added). The chancellor was not manifestly wrong in making this factual determination and did not abuse his discretion in addressing this obvious disparity.

[Fn 11] This figure is taken from Jeff’s Rule 8.05 statement and is not the recalculated, adjusted after-tax income that the chancellor found to be $71,377.66 per month. It is not clear why the chancellor resorted to $65,913.33 for purposes of this paragraph when he found the correct figure to be $71,377.66. Be that as it may, either figure (the one used by the chancellor in this paragraph or the corrected, recalculated figure as determined by the chancellor) showed a vast disparity in income between the parties from the marital businesses.

¶30. This Court’s recent holding in Castle is more analogous to the instant facts. When distributing the marital property in Castle, the chancellor found that the husband was at a greater benefit than the wife. Castle, 266 So. 3d at 1048 (¶22). To make the parties equitable the chancellor awarded the wife a “equalization payment” of $584,608.41. Id. On top of that, the chancellor also awarded lump-sum alimony in the amount of $1,600,00.00 and $6,500.00 a month in permanent periodic alimony. Id. This Court upheld the full award because “it [was] not difficult to understand how the chancellor recognized a deficit between [the husband] and [the wife] in their projected future ability to continue living in the style to which they became accustomed.” Id. at 1054 (¶47) (emphasis added).

¶31. The same can be said in this case. The chancellor specifically stated that the share of marital property awarded to April was non-income producing. More importantly, the record indicates that thirteen of the fourteen McDonald’s restaurants that Jeff owns were acquired during the marriage. Jeff admitted this in the following testimony:

Q. All of the entities described on Exhibit C — excuse me, 30, on Plaintiff’s Exhibit 30 that’s admitted into evidence, starting with No. 1 through No. 7 were acquired during your marriage to April?

A. That’s correct.

“The law presumes that all property acquired or accumulated during marriage is marital property.” Id. at 1049 (¶28) (quoting Stroh v. Stroh, 221 So. 3d 399, 409 (¶27) (Miss. Ct. App. 2017)). “Assets acquired or accumulated during the course of a marriage are subject to equitable division unless it can be shown by proof that such assets are attributable to one of the parties’ separate estates prior to the marriage or outside the marriage.” Hemsley v. Hemsley, 639 So. 2d 909, 914 (Miss. 1994). “Alimony and equitable distribution are distinct concepts, but together they command the entire field of financial settlement of divorce. Therefore, where one expands, the other must recede.” Ferguson v. Ferguson, 639 So. 2d 921, 929 (Miss. 1994). Truly, “the issues of property division and alimony are intertwined.” Ali v. Ali, 232 So. 3d 770, 774 (¶8) (Miss. Ct. App. 2017) (internal quotation marks omitted) (citing McKissack v. McKissack, 45 So. 3d 716, 723 (¶41) (Miss. Ct. App. 2010)).

¶32. If this Court were to agree with Jeff and reverse on the permanent-periodic alimony award, April would be forced to live off the lump-sum alimony award and potentially run the risk of eventually running out of funds from the lump-sum payment, while Jeff would continue to earn an estimated $71,377.67 in after-tax income each month. As the chancellor noted in his judgment,

April and the children are entitled to maintain their accustomed standard of living and the [c]ourt has attempted from the record before it not to go beyond what it believes is necessary [to] assure their accustomed standard of living. The [c]ourt further notes that Jeff’s income permits him to pay these sums and to continue his accustomed standard of living.

Every month of every year until he sells his interest in the businesses or dies, Jeff will make income from the thirteen McDonald’s restaurants and other businesses acquired during the marriage. April will make nothing. While Jeff draws income permanently, April would be forced to live on the dwindling lump-sum alimony if the chancellor had not awarded permanent periodic alimony.

¶33. The dissent complains that “Jeff’s substantial income is not, by itself, a sufficient basis for the chancery court’s award of $7,500 per month in permanent alimony.” Post at (¶48). Jeff’s “substantial income,” however, is part of, and derived from, the businesses acquired and formed during the marriage as part of the marital estate. The chancellor noted this fact in his findings of fact, and the parties agreed that it was true. Despite the fact that those assets and businesses were acquired during the course of the marriage, Jeff never associated April’s name with any of those assets or businesses. As a result of the divorce, April received $7,500 per month to alleviate the “significant income disparity” that the chancellor found to exist. The award of permanent periodic alimony was not based solely on April’s expenses or Jeff’s substantial income. The chancellor’s findings of fact with regard to the permanent periodic alimony are clearly articulated based on the evidence presented and are in accordance with the correct legal standards.

¶34. Finally, the dissent argues the chancellor abused his discretion in not considering April’s assets acquired after the divorce when he awarded her $7,500 per month in permanent periodic alimony. A review of Jeff’s income versus his monthly expenses indicates Jeff’s monthly income after taxes was $71,377.67. Jeff listed his Rule 8.05 monthly expenses at $24,829.11. At trial, Jeff admitted that $10,000 of that $24,928.11 in monthly expenses was actually paid by one of the Descher corporations he owned. Therefore, his actual out-of-pocket monthly expenses is $14,829.11. After his taxes and monthly expenses are paid, Jeff still has $56,548.56 left over each and every month as a result of the income produced by the businesses created during the marriage. The chancellor ordered Jeff to pay $7,500 a month in child support and $7,500 a month in permanent periodic alimony. After Jeff pays that court-ordered child support and alimony, as well as his monthly expenses, Jeff still has $41,548.56 left over each and every month. On the contrary, April has personal monthly expenses in the amount of $7,199.50 and presently collects $7,500 in alimony. Therefore, Jeff has $41,548.56 left over while April has $300.50 left over each month from the businesses that were part of the marital estate. [Fn 12] The chancellor attempted to lessen this disparity by his award of permanent periodic alimony coupled with the lump-sum alimony and the division of the marital estate. That finding by the chancellor is supported by the record and does not appear excessive or to be an abuse of discretion. Therefore, the order of alimony is affirmed.

12 This figure does not include the children’s expenses or the child support payment of $7,500 that Jeff was ordered to make each month. Further, this figure would not include any other expenses that April does not have if she is still employed by the Descher corporation.

Judge Jack Wilson wrote the dissent, joined by Judge Cory Wilson.

If You Want it You Have to Ask for It

February 3, 2020 § 2 Comments

Back in the day, when I was a mere tadpole of a lawyer, chancellors had broad powers to effect equitable relief. At the end of every pleading were words to the effect: “And she prays for such other and general relief as this honorable court deems mete and right in the premises,” or simply “And she prays for general relief.” Those magic words often evoked unpled-for remedies fashioned by the judge to meet and resolve the problem presented by the evidence. Lawyers (called Solicitors back in those smoke-filled days of yore) foresaw that and were not surprised or blindsided by it. It was the way chancery court business was done.

The MRCP came along in 1982 and made chancery much more like law courts, and the fact that fewer and fewer appellate judges have much chancery experience has accelerated the process. General relief is now no more than a will-o-the-wisp.

That’s the hard lesson that Cheryl Burrell learned in the chancellor’s denial of alimony and use of the former marital residence in her divorce from her adulterous husband, Geoffrey. The lesson was driven home by the COA when it affirmed in Burrell v. Burrell, decided January 7, 2020. Judge Westbrooks wrote the opinion:

¶15. Geoffrey argues that because Cheryl never requested equal or disproportionate distribution of the marital estate, permanent alimony, or spousal support in her pleadings, the court could not grant the relief. Geoffrey, however, did plead for an equitable distribution of the marital estate, which the court granted. Geoffrey further argues that the court did not err in refusing to perform an Armstrong or Cheatham analysis because neither was necessary in light of Cheryl’s non-inclusive pleading.

¶16. In Moore v. Moore, 363 So. 2d 286, 287 (Miss. 1978), the Mississippi Supreme Court rejected Mrs. Moore’s argument for reversal of a chancellor’s decree that did not include an award for permanent alimony. The Supreme Court noted that although Mrs. Moore had been
granted temporary alimony, she had “made no averment pertaining to or prayer for permanent or temporary alimony.” Id. Citing Horton v. Horton, 269 So. 2d 347 (Miss. 1972), the Mississippi Supreme Court held that “the chancellor has considerable discretion in allowing or not allowing permanent alimony, and his beneficence in granting her temporary alimony not sought in her pleadings cannot be reversible error as to her.” Moore, 363 So. 2d at 287.

¶17. Like Mrs. Moore, the record before us does not reflect any request by Cheryl, ore tenus or written, for permanent alimony or spousal support. Even Cheryl’s own pleading for reconsideration does not list alimony or spousal support as one of the issues at trial. Notwithstanding the omission, the court did grant Cheryl temporary spousal support in its temporary order. However, as its name suggests, the court’s grant of spousal support was temporary and does not entitle Cheryl to continued support.

¶18. Cheryl never requested leave to amend her complaint to include a request for alimony or spousal support. No such leave was granted, and no amendment was ever made. Thus, Cheryl was not entitled to permanent alimony or spousal support. Accordingly, we find no error with the chancery court’s decision to deny reconsideration of the award to Cheryl.

A few points:

  • If you don’t ask for it in your pleadings, you won’t get it unless you put on evidence to support that relief at trial without a sustained objection from the other side, and then follow up with a R15 motion to conform the pleadings to the proof.
  • By asking for equitable distribution himself, Geoffrey opened that door to Cheryl because when the chancellor awards Geoffrey his portion something has to be done with what is left.
  • So, what would happen if Geoffrey had asked for an award of alimony? Would that give Cheryl a vehicle to ride toward alimony for herself? No, alimony is a zero-sum game. The prayer for alimony is for the sole benefit of the pleader.
  • Although Cheryl argued that she moved ore tenus at trial for alimony, there was nothing in the record to indicate that she had. Always be aware that the most important thing you can do at trial is to make a record. I have tried cases that I knew had no chance of success with a particular chancellor, but carefully loaded up my record to win on appeal.
  • If you’re new at this, I urge you to create or steal some form divorce pleadings that ask for every conceivable form of relief: divorce; equitable distribution; alimony, lump-sum, periodic, and rehabilitative; custody; and so on. You can add or delete as necessary, but you will have everything you need as a starting point. Sometimes your client will say, “But I don’t want alimony; it will only make him mad.” You will answer, “If it’s in there we can always not pursue it or even take it out later, but if it’s not in there and you decide at trial that you want it, it may become impossible, so we’d better leave it in. Besides, we’re not in this to make him happy. We’re trying to see that you come through it okay.”

The Effect of Harris v. Harris

August 21, 2019 § 1 Comment

Back in February, 2018, I posted about the MSSC’s ruling in Harris v. Harris, which overruled Spalding v. Spalding, regarding the impact of Social Security (SS) retirement benefits on alimony. Spalding had held that the alimony-paying party is entitled to a credit against alimony in the amount of the other party’s receipt of SS benefits derived from the alimony-paying party’s work record. Harris held that receipt of SS does not automatically trigger modification. Here is a link to my post.

In Alford v. Alford, a July 23, 2019, COA case about which I posted yesterday, Judge Greenlee wrote a specially concurring opinion raising some concerns about Harris and how it will be applied:

¶37. I concur with the majority. However, because I am concerned about the effect Harris v. Harris, 241 So. 3d 622 (Miss. 2018), may have in this case and other cases, I specially concur.

¶38. Our supreme court’s decision in Harris has the potential to greatly impact those in our population who are aging and under a court-ordered duty of support. For our citizens who earn their wages through compensation from work for others, there comes a time that many should at least consider retirement, if retirement is not required or decided for them. The litigants in this case, if not retired, are rapidly approaching retirement.

¶39. In such cases, the problem chancellors face is in reliably predicting the impact of retirement upon the earnings of the parties. Harris should not mean that once retirement occurs to one or both of the parties (although foreseeable at the time of the initial support order) that the parties are foreclosed from asking the court for a modification based on a material and substantial change in circumstances. See Plummer v. Plummer, 235 So. 3d 195, 199 (¶14) (Miss. Ct. App. 2017) (modification of alimony requires proof of a material and substantial change in circumstances since the date of the prior judgment). If the application of our law is to foreclose a litigant’s request for a modification of periodic alimony upon that party’s retirement, such could mean that in order to meet the amount required, that party must not retire. If that is the case, has our law not imposed a servitude upon a citizen until death? Retirement is a substantial change to an individual’s circumstances, and Harris should not be allowed to hinder such a change from being brought before the chancellor for consideration.

This is a conundrum I have never seen directly addressed by our appellate courts: retirement is reasonably foreseeable and even necessary at some age. Retirement almost always results in a downward shift in the retiree’s income. How does that foreseeability affect the right to request modification? I think Judge Greenlee makes a valid point.

No Alimony for You

January 14, 2019 § Leave a comment

Robert Culumber was granted a divorce from his wife, Toni, on the grounds of habitual cruel and inhuman treatment and habitual drunkenness. They had separated after only 13 months together. The chancellor found that Toni was not entitled to alimony. Toni appealed both the granting of the divorce and the denial of alimony.

In the case of Culumber v. Culumber, handed down December 4, 2018, the COA affirmed on all issues. Chief Judge Lee wrote for the unanimous court (Tindell not participating) on the alimony issue:

¶28. Finally, Toni argues that in the event that the divorce was properly granted, then the chancery court improperly denied Toni’s request for rehabilitative alimony. Toni alleges that even though the marriage was short, she is entitled to rehabilitative alimony payments because Robert paid all the bills and expenses in the marriage and that she needs assistance to become self supporting after the marriage.

¶29. We first note that alimony is considered only if after equitable division, one party is left with a deficit. Carney v. Carney, 201 So. 3d 432, 440 (¶28) (Miss. 2016). “The decision of whether to award alimony, and if so, what amount, is left to the chancellor’s discretion.” Hearn v. Hearn, 191 So. 3d 129, 132 (¶10) (Miss. Ct. App. 2016). When determining whether to award alimony, the chancellor is to consider the Armstrong factors:

(1) the income and expenses of the parties; (2) the health and earning capacities of the parties; (3) the needs of each party; (4) the obligations and assets of each party; (5) the length of the marriage; (6) the presence or absence of minor children in the home, which may require that one or both of the parties either pay, or personally provide, child care; (7) the age of the parties; (8) the standard of living of the parties, both during the marriage and at the time of the support determination; (9) the tax consequences of the spousal support order; (10) fault or misconduct; (11) wasteful dissipation of assets by either party; or (12) any other factor deemed by the court to be “just and equitable” in connection with the setting of spousal support.

Larson v. Larson, 192 So. 3d 1137, 1142 (¶12) (Miss. Ct. App. 2016) (citing Armstrong v. Armstrong, 618 So. 2d 1278, 1280 (Miss. 1993)).

¶30. In regard to the type of alimony Toni argues she is entitled to, we note that rehabilitative alimony is “an equitable mechanism which allows a party needing assistance to become self-supporting without becoming destitute in the interim.” Serio v. Serio, 203 So. 3d 24, 30 (¶17) (Miss. Ct. App. 2016) (quoting Lauro v. Lauro, 847 So. 2d 843, 849 (¶15) (Miss. 2003)). It is “awarded to parties who have put their career on hold while taking care of the marital home.” Id. “Rehabilitative alimony allows the party to get back into the working world in order to become self-sufficient.” Id.

¶31. The chancellor stated that there was no basis for alimony. Toni alleges that the chancellor placed too much emphasis on the length of the marriage and did not properly consider the other factors. The record indicates otherwise. As the chancellor noted, Toni was not working at all when she came into the marriage. Additionally, she brought approximately $30,000 of debt into the marriage which Robert paid off in full. It is true, as the chancellor noted, that the marriage was very short—barely one year. The parties had no children. Per the chancellor’s findings, Toni was “actually better off by virtue of the marriage in terms of her education, having her student loan paid off and other things to help her further her career, rather than lose it.” Career wise, Toni was relatively young—being in her late thirties, while Robert was approaching retirement—being in his late fifties. In December 2013, Toni became employed, making around $38,000, and this employment continued at the time of trial. Robert paid all of the bills and expenses during the short-term marriage and assumed responsibility for all marital debt. Toni received payment for her
equitable share of marital assets in the amount of $13,442.00. As we now affirm, the chancellor found Toni at fault in the marriage on grounds of habitual cruel and inhuman treatment and habitual drunkenness. We do not find that the chancellor abused his discretion in denying Toni an award of rehabilitative alimony. This issue is without merit.

This is not a particularly noteworthy case, except that it illustrates how a chancellor, and the COA on review, may view rehabilitative (and other forms of) alimony in light of the Armstrong factors given a set of facts such as these.

Further on the Tax Treatment of Alimony

October 31, 2018 § Leave a comment

A couple of days ago I posted about the big change in tax treatment of alimony coming after December 31, 2018.

Here are some points brought to my attention that correct and fine-tune that post:

  • I said that there must be a judgment pre-dating the demarcation date. Other tax experts believe that a binding agreement for alimony to be treated for taxes as it currently exists will satisfy the law. The key is that the agreement must on its face be binding. To me that means either a PSA or a consent with alimony as an agreed issue presented to the court for approval or some other proceeding to make it binding.
  • I also said that modification would result in making the pre-demarcation-date-alimony non-deductible and non-taxable. A more accurate statement is that modification may, in some cases, change the tax treatment. It’s too complicated for me to elaborate on here, but you need to get some competent guidance before jumping into any alimony modification post December 31, 2018.

Those are the tweaks. Here are two of my own observations:

  • Don’t expect judges to be familiar with all of the nuances of these changes. Be prepared to offer expert testimony or stipulations that cover these points.
  • Get some competent tax advice so that you can properly and accurately advise your clients. That disclaimer in your retainer agreements and PSA’s about tax advice does not relieve you of the obligation to be able to advise your clients about basics such as tax treatment of alimony and the pitfalls of modification because that’s not really tax advice — it’s divorce advice.

Thanks to the lawyer who called this to my attention.

Tax Treatment of Alimony is Changing Soon

October 29, 2018 § 2 Comments

Effective after December 31, 2018, alimony will no longer be deductible by the payor, and will no longer be income to the payee. That’s per the “Tax Cuts and Jobs Act” passed by Congress earlier this year.

The law refers to “divorce agreements executed” after December 31, 2018, which would seem to indicate that if you have a PSA executed by the parties on December 29, 2018, the payments would maintain their deductible/income character, but at least one tax expert whom I asked said that the law requires a judgment or decree either adjudicating alimony as a contested issue or incorporating an agreement.

Also, any judgment modifying alimony after the cutoff date will cause the alimony to lose its deductible/income character.

So here are some ramifications for Mississippi practitioners:

  • If you’ve been dragging out that divorce case and the current alimony treatment is important to your client, you’d better get moving; you’ve only got two months left until the change.
  • You need to think twice about modification, especially if you represent the payor. Even a slight modification of alimony after the cutoff date will cause it no longer to be deductible.
  • The parties will no longer be able to agree to deductibility or non-deductibility, or taxability or non-taxability. All alimony is non-deductible and non-taxable, no matter what the parties agree.
  • It will no longer make any sense to craft hybrid alimony provisions because taxability is no longer a factor.
  • The court is required to consider the tax consequences under the Armstrong factors. Keep that in mind as you prepare your witness list. You might want to prepare a stipulation for the court as to taxability of alimony.
  • I think this will: (a) make alimony more difficult to negotiate, and (b) have a depressing effect on amounts of alimony awarded and agreed.
  • I believe this also applies to separate maintenance, but that’s my opinion.

It’s not too soon to sit down with a tax specialist who can advise you of the consequences of this change. This has drastic strategic consequences for divorce lawyers and their clients.

 

Doing Away with Alimony: Two Routes

April 10, 2018 § 4 Comments

Adam Lewis filed a complaint to terminate alimony against his ex-wife, Karen. Adam contended that Karen was cohabiting or in a de facto marriage with her boyfriend, Dobel, since the parties’ 2002 divorce. There was a lot at stake, since the parties’ divorce agreement provided that Adam would pay Karen $15,000 a month in periodic alimony.

Following a trial, the chancellor dismissed Adam’s case per MRCP 41(d). Adam appealed. The COA affirmed the dismissal in In the Matter of the Dissolution of the Marriage of Lewis, decided March 20, 2018. You can read the facts as developed at trial for yourself. Here is how Judge Wilson addressed Adam’s arguments on cohabitation and de facto marriage:

A. Cohabitation

¶17. “Modification of alimony may occur upon the existence of a situation of mutual support between the recipient spouse and another individual which alters the recipient spouse’s financial needs.” Scharwath v. Scharwath, 702 So. 2d 1210, 1211 (¶6) (Miss. 1997). “[C]ohabitation creates a presumption that a material change in circumstances has occurred. This presumption will shift the burden to the recipient spouse to come forward with evidence suggesting that there is no mutual support . . . .” Id. at (¶7) (citation omitted).

¶18. In the present case, Adam did not prove cohabitation and failed to prove any mutual financial support. Adam admitted that Karen and Dobel maintain separate homes and do not spend the night at each other’s homes. Adam also admitted that he had subpoenaed Karen’s financial records but had found no evidence that Dobel financially supported Karen or vice versa. On this record, the chancellor did not clearly or manifestly err by finding that Adam failed to meet his burden of proving cohabitation or mutual financial support.

B. De Facto Marriage

¶19. “In the absence of cohabitation, alimony can be terminated based on proof of what has been termed a ‘de facto marriage.’” Hughes, 186 So. 3d at 400 (¶18). “A de facto marriage may be proven in two ways.” Id. “First, a chancellor may find a de facto marriage if the alimony recipient is deliberately avoiding remarriage merely to continue receiving alimony.” Id. (citing Martin v. Martin, 751 So. 2d 1132, 1136 (¶16) (Miss. Ct. App. 1999)). “Second, a de facto marriage can be found . . . if the alimony recipient and another person have ‘so fashioned their relationship, to include their physical living arrangements and financial affairs, that they could reasonably be considered as having entered into a de facto marriage.’”
Id. (quoting Pope v. Pope, 803 So. 2d 499, 504 (¶12) (Miss. Ct. App. 2002)).

¶20. In Martin, Ben and Linda’s divorce judgment required Ben to pay Linda periodic alimony. Martin, 751 So. 2d at 1133 (¶3). After the divorce, Linda became involved in a long-term relationship with Norm Anderson. Id. at (¶5). Linda wore a diamond engagement ring that Anderson gave her, and the couple consistently told friends that they planned to marry “next year.” Id. Moreover, on cross-examination, Linda “admitted . . . that she and Anderson had not married because she need[ed] the financial support provided by the alimony received from [Ben].” Id. Linda and Anderson maintained separate residences, but Anderson’s was a “small . . . efficiency apartment,” while Linda’s was a “luxurious home.” Id. at 1133, 1136 (¶¶6, 15). Anderson had a key to Linda’s home, spent the night at her home a few times each month, ate meals at her home regularly, ran errands for her, and did yard work and other household chores. Id. at 1133 (¶6). In addition, Linda had written Anderson checks totaling over $11,000 over a three-year period. Id. Anderson also provided Linda with substantial discounts on clothes and cosmetics from the store where he worked. Id. Based on this evidence, the chancellor found that Linda and Anderson had entered into a “de facto marriage” and terminated Ben’s alimony obligations. Id. at 1134-35 (¶¶10, 14).

¶21. On appeal, this Court affirmed the chancellor’s finding that Linda had “structured her relationship with Anderson in an attempt to circumvent the appearance of cohabitation so as to continue her alimony.” Id. at (¶16). We did so based on Linda’s admission under oath “that she and Anderson had not married because she need[ed] the financial support provided by [her] alimony.” Id. We held that when “an alimony recipient spouse purposefully avoids marriage merely to continue receiving alimony, equity should not require the paying spouse to endure supporting such misconduct.” Id.

¶22. In contrast, in Hughes, supra, the chancellor found that the alimony payor failed to prove that his ex-wife, Mariel, had entered into a “de facto marriage” with her boyfriend, Darrell. Hughes, 186 So. 3d at 396 (¶3). Mariel and Darrell had been in an exclusive dating relationship for four years, and Mariel wore a diamond ring that Darrell had given her. Id. at 398-99 (¶¶11, 13). They maintained separate residences, but they spent the night at each other’s homes once a week or more. Id. at 398 (¶11). They also traveled and vacationed together, and Darrell had exhibited one of his Corvettes at the National Corvette Museum with a plaque stating that the car was on loan from “Darrell Hill & Mariel Hughes.” Id. at
399 (¶13). Mariel and Darrell denied that they had discussed marriage or planned to get married. Id. at (¶14). However, there was testimony that Mariel once “said that marrying Darrel would ‘mess things up’ in some unspecified way.” Id. at 401 (¶22).

¶23. On those facts, we affirmed the chancellor’s finding that the alimony payor failed to prove the existence of a de facto marriage. We concluded that Martin was distinguishable because there was no outright admission or other clear evidence that Mariel “was avoiding remarriage solely to continue her alimony payments.” Id. at 401 (¶22). In addition, the evidence was, at best, conflicting as to whether Mariel and Darrell had “so fashioned their relationship, to include their physical living arrangements and financial affairs, that they could reasonably be considered as having entered into a de facto marriage.” Id. at 403 (¶26) (quoting Pope, 803 So. 2d at 504 (¶12)). They were in a long-term, exclusive relationship, she wore a diamond ring that he gave her, they traveled together frequently, and they spent the night together regularly. However, they maintained separate homes and had no access to one another’s financial accounts. Id. at 402-03 (¶26). Therefore, there was evidence to
support the chancellor’s finding that the long-term, exclusive relationship was not a scheme to avoid remarriage to continue alimony payments or a de facto marriage. Id. We emphasized, as we had in a prior case, that “[t]he most important distinction” in our precedents on de facto marriage “is the finding of the chancellor.” Id. at 403 (¶26) (quoting Burrus, 962 So. 2d at 621 (¶15)). “We will not reverse a chancellor’s findings regarding the existence or nonexistence of a de facto marriage unless they are manifestly or clearly erroneous.” Id.

¶24. We reach the same conclusion in the present case. Karen and Dobel obviously are in a long-term, serious relationship. However, unlike Martin, there is no outright admission or any other clear or direct evidence that Karen is avoiding remarriage just to continue receiving alimony. Adam testified that he believes that is what Karen is doing. However, Adam did not call Karen or Dobel as an adverse witness. In addition, although Adam apparently deposed Karen prior to trial, he did not seek to introduce any part of her deposition into evidence. See M.R.C.P. 32(a)(2) (“The deposition of a party . . . may be used [at trial] by an adverse party for any purpose.”); Fred’s Stores of Tenn. Inc. v. Pratt, 67 So. 3d 820, 827-28 (¶¶39-44) (Miss. Ct. App. 2011) (Maxwell, J., concurring in part and in result) (explaining that a plaintiff may introduce a defendant’s deposition during the plaintiff’s case in chief). Moreover, as in Hughes, Karen and Dobel maintain separate residences and separate finances. As noted above, Adam admitted that he had found no evidence that Dobel supports Karen financially or vice versa. Therefore, as in Hughes, we cannot say that the chancellor manifestly or clearly erred by finding that Adam failed to prove a de facto marriage.

¶25. To reiterate, a trial judge’s ruling on a Rule 41(b) motion to dismiss “is, for purposes of appeal, treated like any other finding of fact. In other words, [her] decision will not be disturbed on appeal unless it was manifestly wrong.” Gray, 477 So. 2d at 1357. On such a motion, the trial judge is entitled to weigh the credibility of the plaintiff’s evidence as if “making findings of fact and rendering final judgment.” Id. at 1356-57. Thus, to the extent that Adam offered circumstantial evidence that could have permitted an inference of a de facto marriage, the chancellor was “not required to look at the evidence in the light most favorable to [Adam],” nor was she required to give him “the benefit of all favorable inferences.” Mitchell v. Rawls, 493 So. 2d 361, 362 (Miss. 1986) (quoting Davis v. Clement, 468 So. 2d 58, 61 (Miss. 1985)). The chancellor was entitled to judge the credibility of the evidence and make findings of fact. And we will reverse her decision only if she would have been “obliged to find for [Adam] if [Adam’s] evidence were all the evidence offered in the case.” Corson, 612 So. 2d at 369. Adam’s evidence was not so compelling as to oblige the chancellor to find in his favor. Therefore, we affirm.

Voilà, a textbook statement of the law on modification of alimony.

Some observations:

  • Cohabitation and de facto marriage are the two main avenues to termination of alimony.
  • Mutual support is the key characteristic of cohabitation. That will require financial proof. Discovery and use of subpoenas duces tecum are what it will take to develop your proof.
  • As far as de facto marriage is concerned, try to get an admission of avoiding marriage to preserve alimony. Friends may provide admissions of the principals against interest. Living and financial arrangements are crucial evidence. As with cohabitation, commingled finances and mutual support may create circumstantial evidence.

Alimony and Loss of Income

March 7, 2018 § Leave a comment

When Charles and Lajuana Easterling were divorced in 2013, the judgment incorporated their property-settlement agreement under which Charles agreed to pay Lajuana $2,500 a month in periodic alimony. He also agreed to pay the monthly note on the former marital residence, which Lajuana continued to occupy.

At the time of the divorce Charles worked offshore as a tool pusher. He later remarried and had two stepchildren and an adopted child by his second wife.

In 2015, Charles’s employment  was terminated for reasons beyond his control. His efforts to file other employment in the oil industry were unsuccessful. He filed a petition for modification asking the court to eliminate the alimony obligation, and there was a temporary agreement reducing his alimony to $600 a month. He quit making the mortgage payment, forcing Lajuana to pay it herself.

At the time of the final hearing in May, 2016, Charles still reportedly had no income. He did have $400,000 in a securities account, an annuity, real property, vehicles, and other assets. He claimed living expenses of $7,574.56 a month. He said that he made up the deficit by increasing credit-card debt.

Following a hearing, the chancellor reduced Charles’s alimony obligation to $1,500 per month. Charles filed a motion for rehearing charging that the court should have terminated, not reduced, alimony. The chancellor denied the motion and Charles appealed.

In Easterling v. Easterling, a February 20, 2018, decision, the COA appealed. Judge Griffis wrote for a unanimous court:

¶11. Here, the chancellor’s final judgment found that Charles’s “decrease in income from his loss of employment was not anticipated at the time of the divorce and is a material change in circumstances[, but] . . . the loss of employment does not justify a termination of alimony[.]” After which, the chancellor considered the Armstrong factors to determine the proper amount of alimony. See Holcombe, 813 So. 2d at 703-04 (¶12).

¶12. “Personal bills cannot be used as a factor to reduce support payments.” Hardin v. Grantham, 201 So. 3d 511, 515 (¶15) (Miss. Ct. App. 2016). Since the divorce, Charles has acquired a new home and land, and has remarried and adopted one child and has two stepchildren. The law is clear that the claim of the divorced wife under an alimony award on the ex-husband’s earnings takes precedence over that of a second wife. De Marco v. De Marco, 199 Miss. 165, 167, 24 So. 2d 358, 359 (1946). The obligations to the first wife also take precedence over any obligations the ex-husband may have as the result of children with his new wife. James v. James, 724 So. 2d 1098, 1104 (¶22) (Miss. Ct. App. 1998). As a result, Charles’s post-divorce personal bills and remarriage cannot be used as factors to reduce his support payments. See Hardin, 201 So. 3d at 515 (¶15).

¶13. Further, the chancellor considered the Armstrong factors and concluded that Charles had not missed any payments on his monthly financial obligations since the divorce. Despite having been fired and claiming that he was in financial jeopardy because of his alimony obligation, all of his debts were current and there was no risk of foreclosure or repossession at the time of the hearing. Charles argues that he was current on all of his debts only because he took on additional credit-card debt through cash advances in order to make the payments. However, “simply alleging, as does [Charles], that one is subsisting on borrowed funds does not show with the required particularity that he is unable to pay.” Varner v. Varner, 666 So. 2d 493, 497 (Miss. 1995).

¶14. At the time of trial, Charles held more than $400,000 in stocks and an annuity, along with real property, vehicles, and other assets. Here he argues that he will run out of money within four years if he is forced to pay $1,500 a month in alimony, $120 a month in mortgage payments— including retroactive payments on each—and his reported $7,574.56 in monthly expenses. If this were the case, at that rate without any other income, Charles would be rendered destitute regardless of the court-required support payments.

¶15. At the hearing, Charles could make his obligatory alimony payments to Lajuana, whose living expenses and needs have remained unchanged since the divorce. The supreme court has held:

[i]n property and financial matters between the divorcing spouses themselves, there is no question that, absent fraud or overreaching, the parties should be allowed broad latitude. When the parties have reached [an] agreement and the chancery court has approved it, we ought to enforce it and take as dim a view of efforts to modify it, as we ordinarily do when persons seek relief from their improvident contracts. Weathersby v. Weathersby, 693 So. 2d 1348, 1351 (Miss. 1997) (quoting Bell v. Bell, 572 So. 2d 841, 844 (Miss. 1990)).

¶16. “[T]he chancellor has substantial discretion in reaching a decision that [she] finds equitable and fair to both parties.” Seale v. Seale, 863 So. 2d 996, 999 (¶14) (Miss. Ct. App. 2004). The chancellor determined that Lajuana had been substantially dependent upon both her disability payments and the alimony payments from Charles since the divorce to meet her monthly living expenses. Her financial situation has not changed. As a result of Charles’s material change in circumstances, the chancellor concluded that a $1,000 reduction in his alimony obligation was warranted. We find the chancellor’s reduction in the amount of the alimony was neither manifest error nor an abuse of discretion. The chancellor’s judgment is affirmed.

It seems a harsh rule when viewed from the payer’s perspective, but the chancellor’s job is to find a solution that is “equitable and fair to both parties.” At ¶10, the court noted that, “When analyzing [the Armstrong] factors and ‘deciding whether to modify periodic alimony,’ chancellors should ‘compar[e] the relative positions of the parties at the time of the request for modification in relation to their positions at the time of the divorce decree.’ Steiner v. Steiner, 788 So. 2d 771, 776 (¶16)(Miss. 2001)(citations omitted).”

The only other thing to which I would call your attention is that there was “no record or written order” documenting the temporary proceeding, per ¶4. That’s just asking for trouble. Here the parties agreed to what had transpired, but absent an agreement it could have been dicey, particularly for Charles, who had reduced his alimony and quit paying the mortgage note. Had Lajuana denied any agreement, Charles might have a big arrearage judgment and may have had his modification case bounced for unclean hands. Make sure you get an order; better yet, make a record and get an order entered.

Spalding is Reversed

February 12, 2018 § 3 Comments

Last summer we posted here about the COA’s decision in Harris v. Harris, in which the court affirmed the chancellor’s decision to reduce alimony based on the ex-wife’s receipt of Social Security benefits derived from those of her husband. You can read my post at this link, if you care to. The chancellor and the COA relied on Spalding v. Spalding as authority for the proposition that the chancellor is required to give the alimony payer credit for Social Security benefits derivative of the payer’s.

The MSSC granted cert, and in Harris v. Harris, decided February 1, 2018, the court reversed the COA and the trial court, overruling Spalding. Here’s what Justice Chamberlin wrote for the court en banc:

¶19. Today, we hold that … Social Security benefits derived from the other spouse’s income do not constitute a special circumstance triggering an automatic reduction in alimony. When a spouse receives Social Security benefits derived from the other spouse’s income, the trial court must weigh all the circumstances of both parties and find that an unforseen material change in circumstances occurred to modify alimony. See Ivison, 762 So. 2d at 334 (holding that the circumstances of both parties are considered to determine whether there was a material change); see also
Tingle, 573 So. 2d 1389, 1391 (Miss. 1990) (holding that change in circumstances must be after-arising and unanticipated). To the extent that Spalding states otherwise, it is overruled.

You can read the other 18 paragraphs reasoning their way through the law of Mississippi and other jurisdictions to get to this point. The court remanded the case to the chancellor to analyze it under Armstrong v. Armstrong, 618 So.2d 1278, 1280 (Miss. 1993) to determine whether modification was warranted, and, if so, how to modify.

Maybe it’s just me, but it seems that one of the murkiest areas of alimony law is what effect retirement has on the obligation. Retirement is, after all, a foreseeable event. Social Security benefits are foreseeable. What are we supposed to do? One of the easiest answers until this case was that Social Security benefits derived from the payer created a credit. Now that certainty is taken away. I think lawyers should spend more time negotiating over the future of retirement benefits. Clients absolutely do not want to think or talk about it until retirement is the 500-pound gorilla knocking at the front door. But this decision leaves your clients little choice but to deal with it now or engage in expensive and impoverishing litigation later.

Another Life Insurance Award Reversed

August 30, 2017 § Leave a comment

The fairly commonplace practice of securing alimony awards via life insurance has come under increasing scrutiny. A recent post on the subject is at this link.

You can add the COA’s decision in Griner v. Griner, handed down June 27, 2017, to your collection of cases on point. In that case, the chancellor had ordered Chip Griner to obtain a $1,000,000 life insurance policy based on an award of alimony to his wife, Melanie. On appeal, Chip argued that the parties’ consent to divorce authorized the judge to consider alimony, but not life insurance. Justice Irving wrote for the court:

¶28. We also find that the chancellor operated within the authority granted to him by the parties’ submission of the issue of alimony when he ordered Chip to maintain a life-insurance policy with Melanie designated as the beneficiary. Mississippi Code Annotated section 93-5-23 (Rev. 2013) provides that, when granting a divorce, a chancellor

may, in [his] discretion, having regard to the circumstances of the parties and the nature of the case, as may seem equitable and just, make all orders . . . touching the maintenance and alimony of the wife or the husband, or any allowance to be made to her or him, and shall, if need be, require bond, sureties or other guarantee for the payment of the sum so allowed.

Miss. Code Ann. § 93-5-23. This Court has held that “[a]n alimony payor may be required to maintain life insurance in an amount sufficient to satisfy payment of alimony obligations that survive the payor’s death.” Coggins v. Coggins, 132 So. 3d 636, 644 (¶35) (Miss. Ct. App. 2014) (citations and internal quotations omitted). “Recognizing the possibility that an alimony payor may fall behind in periodic-alimony payments and then die leaving those vested payments unsatisfied, this court has acknowledged the chancellor’s authority to require the alimony payor to maintain a life-insurance policy to protect the recipient spouse against such a contingency.” Id. at 645 (¶37); see also Johnson v. Pogue, 716 So. 2d 1123, 1134 (¶41) (Miss. Ct. App. 1998); Beezley v. Beezley, 917 So. 2d 803, 808 (¶17) (Miss. Ct. App. 2005).

¶29. While we find that the chancellor was within the authority granted him by the parties when he ordered Chip to maintain a life-insurance policy with Melanie named as the beneficiary, we also find that the amount that Chip was required to maintain—$1,000,000— was unreasonable and excessive. The purpose of requiring an alimony payor to maintain a life-insurance policy with the alimony payee designated as the beneficiary is to protect the vested but unpaid amount of alimony in case of the payor’s death.

¶30. In Coggins, we held that the chancellor erred in his requirement that the husband designate his former wife as the beneficiary to a $175,000 life-insurance policy “to protect against [the husband] defaulting on his $504-per-month alimony payments and then dying before curing the default.” Coggins, 132 So. 3d at 645 (¶38). We reasoned that “[t]his amount of insurance—the equivalent of thirty years worth of alimony payments—assumes not only that [the husband] may fall behind for three decades but also that [his former wife] will experience no material change of circumstances altering or terminating her need for alimony.” Id.

¶31. Here, with respect to the protection of the alimony awarded to Melanie, the chancellor stated in the modified order:

The [c]ourt failed [in its final judgment] to ensure that the amount of alimony awarded to Melanie [was] covered by insurance and hereby directs Chip to change the beneficiary on his $1,000,000.00 life insurance policy to make the same payable to Melanie for the performance of the [j]udgment of the [c]ourt in case of Chip’s death.

As noted earlier in this opinion, the chancellor awarded Melanie periodic alimony of $3,000 a month, as well as lump-sum alimony of $480,000, or $4,000 a month for ten years. Although Chip was allowed to pay the lump-sum alimony in installment payments, the full amount vested immediately. Only a $480,000 policy would be required to guarantee payment of the lump-sum alimony. If Chip immediately paid his lump-sum-alimony obligation in a single payment, he would have to fail making his monthly periodic-alimony payments for more than twenty-seven years to accumulate a $1,000,000 arrearage. And if Chip chose to pay his lump-sum-alimony obligation in installment payments, along with his
periodic-alimony payments, and failed to make any payments for ten years, he would be in arrears by only $840,000, not counting any accrued interest. It is unreasonable to assume that Melanie would allow the payments to get that far behind before seeking judicial redress. Moreover, it is not unreasonable that Melanie may remarry, at which time Chip’s periodic alimony obligation would cease. Since we are already reversing on other grounds, we direct that on remand the chancellor take a new look at the amount of life insurance that will be required to protect Melanie’s alimony interest.

Again, the amount of life insurance ordered needs to be enough to protect any arrearage that might reasonably be expected to accrue, and no more.

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