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Undisclosed Trust Distributions May Justify Retroactive Child Support Modification

Parents who receive trust distributions may have a duty to disclose the amount and source, even if the trust distributions do not necessarily constitute income for child support purposes.  That’s one of the issues raised by Eisenman-Gomez v. Gomez, No. 1596 WDA 2014 (August 11, 2015), a recent decision of the Superior Court that should have been published, but wasn’t.

In Eisenman-Gomez, the mother of two minor children failed to disclose nearly $500,000 in distributions that she received from a trust established by her mother from 2007 to 2009.  During that time period, Mother sought and received child support based on her stipulated income of $25,000 per year.  During a support modification proceeding in 2010, Mother testified that she had withdrawn money in 2009 from a family trust account which had been established by her grandfather “when she was a little girl,” but she did not reveal the $500,000 in distributions from her mother’s trust.

In 2013, when the trust distributions came to light in another modification proceeding, the trial court ordered the support master to consider them with the following directive: “The court directs the parties and the Master to Mencer v. Ruch, 928 A.2d 294 (Pa. Super. 2007). Therein, the Superior Court held that distributions from a trust were to be considered as income for child support purposes.” Subsequently, the judge held: “[D]istributions from the trust that mother received might be treated as if it were in the nature of an inheritance and, therefore, should only be used as a reason for deviating from the support guideline amount as noted in Humphreys v. DeRoss[,790 A.2d 281 (Pa. 2002)]. The money received may not necessarily be considered as income for support purposes. Therefore, the hearing officer shall take testimony regarding the source of receipt.”  Thus, the trial court highlighted an important legal nuance when considering trust distributions in child support proceedings: that trust income distributions may be considered as income, but distributions of trust principal are merely grounds for guideline deviation.

During the ensuing hearing, Mother offered the testimony of a CPA, who testified that she could not distinguish in this case between trust income and principal in the distributions received by Mother.  The trial court therefore held that the distributions must be deemed to be gifts (trust principal), inheritance, or a hybrid — all of which are not income for support purposes.  On appeal, Father argued that the burden should have been Mother’s to demonstrate that the distributions were derived solely from trust principal if she wished to shield them from her support obligation.

The Superior Court disagreed, holding that it was Father’s burden in support modification proceedings to demonstrate a change in circumstances warranting modification.  He had not offered an expert opinion or other evidence to prove that the trust distributions were derived wholly or in part from trust income, so the trial court was correct in assuming they were from principal.  Kimock v. Jones, 47 A.3d 850, 855 (Pa. Super. 2012).

Still, one must wonder whether the Superior Court’s decision was correct.  As the party having exclusive control of the evidence pertaining to the trust, shouldn’t Mother have sustained the burden of proving the source of her trust distributions?  And, didn’t Father by proving that Mother received and concealed the trust distributions, sustain his burden of showing a change in circumstances?  Perhaps the Superior Court in this case confused the burden of proving a change in circumstances with the burden of proving the amount and nature of a party’s incomes, which are separate issues.

The opinion also addresses Father’s request for retroactive modification, which was denied because Father failed to act promptly when he learned of Mother’s trust distributions (and perhaps also, tacitly, because the Court did not include the distributions in her income); Father’s request for a downward guideline deviation, which was denied because Mother’s trust distributions did not affect Father’s ability to pay child support to her; and Father’s request that the court assign a greater earning capacity to Mother, which he did not substantiate with evidence at trial.

Do you need a prenup to deal with frozen eggs?

Women who are contemplating IVF, ZIFT, surrogacy and other alternative reproductive techniques (ART), and their parenting partners, should seriously contemplate their need for a pre- or post-nuptial agreement or cohabitation agreement, in order to determine how the frozen embryos will be used, stored or disposed in the event of a divorce or breakup.  In vitro fertilization (IVF) is a fertility treatment in which sperm and eggs are combined in a lab, with the resulting pre-embryos being transferred to the woman’s uterus, where they grow into a baby.  Zygote intrafallopian transfer (ZIFT) is similar procedure involving the implantation of zygotes, or fertilized eggs that have begun to grow.  Some couples elect to freeze their embryos or eggs, in a process known as cryopreservation. Couples may choose these ART methods because of fertility issues or serious health conditions that interfere with childbearing.  Others hope to stop the biological clock, preserving their genetic material to improve their chances of conceiving a healthy baby later in life.  In each of these situations, men and women should consider what will happen with the frozen eggs or embryos if they are not used.

In 2012, the Pennsylvania Superior Court decided how to dispose frozen embryos after a husband and wife divorced, awarding the embryos to Wife to use at her discretion.  In that case, the wife was diagnosed breast cancer and had her fertilized pre-embryos frozen (while husband and wife were harmoniously married) before undergoing extensive surgery, radiation treatment, and chemotherapy.  Husband and wife subsequently divorced, and wife testified that her highest priority in life was to have children before she died, even if she were no longer married to the man who would be involuntarily fathering her children.  The Superior Court held that the women’s interest in having children was greater than the man’s interest in refraining.  Similar cases have come before the state supreme courts in Tennessee, New Jersey, Iowa, and Massachusetts.

Generally, couples who have their eggs or embryos frozen must sign contracts with their fertility center, which may or may not contain policies on the care, use and disposal of genetic materials.  Yet, too often these contracts are incomplete or difficult to enforce, lacking details on how embryos and eggs may be used after a divorce or breakup, and who will pay for their care.  A pre- or post-nuptial agreement can effectively deal with these future possibilities.  Some couples do not wish to destroy their eggs or pre-embryos for religious or moral reasons. Cryopreserved materials may be donated to other couples, given to medical research, or allowed to thaw without donating.  They also might become useful for stem-cell medical treatment in the future.  However the materials might be used or disposed, it is a decision that couples should make before they are faced with an adversarial divorce or breakup.  Call our lawyers if you think you might need an agreement to resolve these issues.

Corporate Successor Not Marital Property Following Post-Sep Business Failure

There is often suspicion when a business that would be marital property fails shortly after marital separation, particularly if the owner spouse subsequently starts a new business.  This is the situation that the Superior Court addressed in its recent opinion, Weisman v. Weisman, Nos. 1471 EDA 2014 (July 14, 2015), a non-precedential decision.

Husband was the founder of PRN Healthcare Services, a company that provided skilled and non-skilled nursing care in Montgomery County.  The company was created during the Weismans’ lengthy marriage and prior to their separation in 1999. Shortly after the marital separation, PRN defaulted on its business loan, which was secured by the marital residence, resulting in its foreclosure.  As PRN was winding down its operations, a white knight (Reliance Home Healthcare) was formed by a third party, who hired Husband and assumed many of PRN’s accounts.  Wife argued that, as in Gioia v. Gioia, 555 A.2d 1330, 1334- 35 (Pa. Super. 1989), her husband’s interest in a corporate successor was a marital asset.

In this case, however, Husband did not own an interest in Reliance and denied that it was a successor.  The trial court agreed after hearing extensive testimony and evidence.  On appeal, Wife argued that Reliance must be a successor because it became immediately profitable despite its owner’s complete lack of experience, that PRN’s employees and accounts were responsible for the success of Reliance, and Reliance traded on the goodwill of PRN by using its phone number and advertising its years in business.

The Superior Court refused to overturn the trial court’s findings, stating that Wife’s appeal was merely an invitation to reconsider the credibility of Husband and other witnesses.  Interestingly, the Court remarked that “an expert report on the valuation of PRN—in particular its goodwill or going concern value—would have been useful to the trial court and to this Court in assessing the legitimacy of Appellant’s claim.” It’s not clear what impact such evidence might have had, if in fact the company had had transferable goodwill prior to separation, but perhaps husband might have been found guilty of dissipating a valuable marital asset.

Divorces involving privately-held businesses are some of the most complex and interesting cases that come before the family court.  Pollock Begg has assembled a team of lawyers with experience in handling complex divorces for business owners and their spouses.  Make an appointment to meet with one of our partners today.

Same-Sex Couples Need Prenups before Marriage

Same-sex couples who are getting married after spending many years in committed relationships may need prenuptial agreements even more than new couples who are just starting out.  That’s the conclusion I’ve reached after contemplating the ramifications of the U.S. Supreme Court’s recent decision in Obergefell v. Hodges, ___ U.S. ____ (June 26, 2015).

In Obergefell, the U.S. Supreme Court held that all Americans have a fundamental right, protected by the U.S. Constitution, to be married.  The opinion of Justice Anthony Kennedy, writing for a 5-4 majority of the Court, was simple and elegant because it concentrated on what we all agree upon.  It didn’t waste time chewing on disagreements. We all agree that marriage and family are the foundations of society. The right to marry is a fundamental right guaranteed by the U.S. Constitution, and every state must recognize a legally valid marriage issued by another state.

When a fundamental constitutional right is restricted for some people by a legislative or executive act, there must be a compelling reason and the restriction must be narrowly tailored.  Measured by this standard, the Defense of Marriage Act (or DOMA) did not pass muster.

So why should same-sex couples who have been involved for years in committed relationships get prenups before they marry? They need prenups to ensure that their entire relationships, not just the post-June 26, 2015 portion, will be considered by the courts for estate planning, divorce, tax and other legal reasons.  When couples marry without a prenup, the courts might not recognize the true duration of their relationship or the property they acquired before they were officially married.  It might be difficult for our courts to reach an equitable result in a divorce, estate or tax dispute without recognizing the entire duration of the relationship.

Long-term couples who are just now getting married may also need to update their wills, property deeds, insurance beneficiaries, and other legal documents.  And, they may need to untangle trusts, civil unions, adoptions, or other legal mechanisms that they were forced to use before marriage became a legal possibility.  My law firm has handled these issues and is capable of addressing the needs of same-sex couples who are getting married.  Call me today before you say “I do.”

Emotional Connection Does Not Guarantee Award of Marital Residence

According to the old saying, “possession is nine-tenths of the law.” Perhaps that’s true in some context, but in a Pennsylvania divorce decision that was recently published by the Superior Court, possession of a marital home during separation did not dictate the outcome.  In Markle v. Markle, No. 968 WDA 2014 (June 22, 2015)(non-precedential), the marital home was occupied by the wife during the separation period.  During the master’s hearing on equitable distribution, the husband argued that he had invested his time in repairing and improving the home.  Perhaps more persuasively, he testified that he would have the financial ability to refinance the mortgage loan in his own name, relieving the wife of any liability.  The master awarded the marital residence to husband instead of wife, who also wanted the home.  The trial court adopted this portion of the master’s recommendation.

On appeal, the wife argued that the home should have been awarded to her because of special needs.  The Superior Court reviewed case law in which special needs were considered, such as a spouse who had installed access ramps to accommodate a wheelchair, or a spouse who operated a child care business in the home.  Yet, the Superior Court dismissed the wife’s appeal in this case, finding that she did not present evidence of special needs. Wife had lived in the home with the children, resided three doors down from her ailing father, and spotted the home during her childhood, but these were not compelling reasons to overturn the court’s decision to award the house to the husband.  Notably, Wife had testified at an earlier stage of the divorce that she was ambivalent about keeping the house, and might be willing to sell it.

Market Risk in Dividing Retirement Assets upon Divorce

Divorcing spouses in Pennsylvania might be well-advised to consider the risks associated with various retirement vehicles, as they decide which assets to retain or divide in equitable distribution.  A recent non-precedential decision of the Superior Court, Wyatt v. Wyatt (No. 1228 MDA 2013, June 11, 2015), illustrates this point.

In Wyatt, one of the spouses had a railroad pension that would pay a guaranteed monthly annuity over the employee spouse’s lifetime.  By contrast, the other spouse had a 401-K plan.  Upon equitable distribution, the 401-K spouse asked the trial court to divide both retirement plans, so that each spouse would have a guaranteed benefit as well as a retirement account that would be exposed to the risks and rewards of the securities market.

The trial court declined, finding that the railroad employee could keep his entire pension, and giving equal assets to the other spouse.  The Superior Court affirmed, on the principle that immediate offset distribution is favored (as opposed to deferred distribution, or QDROs).

A good financial planner would probably recommend a healthy mix of slow-growing but guaranteed investments (like annuities) as a hedge against market-influenced investments that might be more volatile.  Perhaps it might be time for the court to give this a second look.

Spousal Support of Foreign Nationals – The I-864

Back in 2012, I reported on a Pennsylvania Superior Court case, Love v. Love, in which Pennsylvania recognized a support obligation arising from sponsorship of a foreign national spouse.  Now, the ABA Family Law Quarterly has published an article, entitled “The I-864 Affidavit of Support: An Intro to the Immigration Form You Must Learn to Love/Hate,” examining Love and similar decisions around the United States.  As the article mentions, a spouse who sponsors his or her spouse for immigration to the United States must sign a form, the I-864, promising to provide support to the foreign national, at a level equal to 125% of the Federal Poverty Guidelines.  Currently, that is equivalent to $14,588 per year ($1,216 per month) plus $5,075 for each additional household member.

The support obligation created by I-864 is indefinite in duration.  Potentially, a sponsor could be contractually liable for the lifetime support of a foreign national, if the foreign spouse does not earn in excess of the poverty guideline.  A Florida federal district court held, in fact, that the I-864 obligation continues after separation and divorce.  The obligation does terminate, however, when the foreign national achieves U.S. citizenship, works for 40 quarters (10 years), leaves the U.S. and resigns permanent citizenship, is deported, or dies. Household income of the sponsor may be used to meet the support obligation (if the spouses reside together), and their earnings may be “double stacked” to meet the 40 quarter requirement in five years.

Avoiding the I-864 support obligation is extremely difficult, as the article suggests.  One might think that the obligation could be waived with a prenup, but three out of four courts who have considered that argument rejected it.  Other contract remedies, such as failure of consideration, have met similar fates.  The author of this excellent article, Greg McLawsen, maintains a website and blog dedicated to this subject, found here.

Equal Custody Trumps Long Commute to School

When one parent moves to a new neighborhood after having equal shared custody, the move might cause a longer commute time for a children traveling to and from school.  In a recent published decision, the Superior Court of Pennsylvania considered whether it was reasonable to shift primary custody to one parent in order to limit the child’s commuting time.

In R.S. v. T.T., 2015 Pa. Super. 72 (April 10, 2015), the mother of a 6 year old child was awarded primary custody because equally shared custody would require the child to commute up to 40 minutes to and from school if he stayed with Father during the week.  Both parents agreed that a shared custody schedule would require the child to spend too much time riding back and forth in a car.  Mother testified that a shared custody schedule had become impractical when the child start to attend full day elementary school, as it would prevent the child from establishing predictable routines and establishing roots.  The trial court agreed, holding that the commuting would undermine the child’s stability.

The Superior Court disagreed, overturning the trial court’s decision.  First, the Court noted that Mother and Father had not agreed to terminate the shared custody arrangement in order to avoid commuting. Next, the Court held that a child’s attachment to his parent was more important than avoidance of a 40 minute daily commute.  The Court even suggested a week on/week off custody schedule to minimize the number of weekly custody exchanges.

The Court also emphasize the importance of considering all ramifications stemming from a change in the custody arrangement. Finding that the trial court had not adequately considering the potential damage to the child’s relationship with his father, the Superior Court vacated the order.

Father Reasonably Withheld Support for College Tuition

Parents who are divorcing in Pennsylvania often express willingness to pay for their children’s college tuition when the time should come.  Some parents even put their commitment in writing. Yet, as this case demonstrates, circumstances may change from the time of the divorce settlement to the time when children matriculate in college, and an effective agreement will anticipate those changes.  The Superior Court of Pennsylvania examined one of those agreements in Mazurek v. Russell, 2014 PA Super 130 (June 24, 2014).

In 2010, Mother and Father executed a marital settlement agreement, in which Father agreed to pay 100% of the children’s expenses for colleges that would be “reasonable and appropriate for the children, with the parties’ mutual consent, which consent shall not be unreasonably withheld.”  Three years later, Mother sued Father for contempt of this provision after Father refused to pay for their third son’s expenses at Marymount Manhattan College.  Father presented evidence, in the form of emails that he wrote to his son and Mother, to prove that his refusal to pay was not unreasonable.  Father testified that his son had estranged himself from Father, did not consult him about his choice of colleges, did not permit Father to access his academic records and grades, and did not agree to maintain a 3.0 grade point average and refrain from having a car at school.  The trial court held Father in contempt, finding that his refusal to pay was not reasonable.

On appeal, the Superior Court quoted two lengthy emails that Father wrote to his son (linked here). Father told his son he thought Marymount Manhattan was not the right choice for him, that Emerson would be a better choice, and that he would not financially support a son who refused to communicate with him. Father followed up with an email to Mother, writing that he would pay for tuition only if the son would grant him access to his academic records, maintain a 3.0 GPA, and refrain from keeping a car at school. Father also testified that he had paid private school tuition for all four children through high school, and college tuition for two elder children.  The third child had not lived up to his academic potential in high school, and Father was concerned that he lacked maturity to succeed in college without parental supervision.  Interestingly, Mother did not testify or present witnesses.

The Superior Court agreed that Father’s demands were reasonable.  The Court cited Fina (1999), a college support involving a similar contract obligating a parent to pay for college.  In Fina, as in this case, the parent’s obligation was conditional upon being consulted and granting his consent, which would not be withheld unreasonably. In Fina, as in this case, the Court held that a child’s refusal to consult with the parent and “purposeful estrangement” excused the parent from his contractual obligation.  The Court distinguished the prior decision in Wineburgh (2002), in which the parent was not excused from paying tuition.

The Superior Court reversed the trial court’s decision holding Father in contempt.  On appeal, the Court held that Father’s refusal to pay for the child’s college expenses was reasonable.

Judge Jenkins wrote separately in Mazurek, filing a concurrence. In his opinion, Judge Jenkins expressed reservations about what might constitute “purposeful estrangement” between a parent and child. Judge Jenkins hinted that if the child need not have a meaningful personal relationship with his father in order to deserve financial support under the contract.  It would be sufficient, perhaps, for the child to inform his father of his plans and provide his grades.

Child Support Agreement Does not Limit Father’s Obligation

A recent Pennsylvania Superior Court decision considers: (a) whether a father’s child support obligation is limited by a settlement agreement; and (b) whether the court should assign an earning capacity to a mother who provides full time care for a special needs child.

Morgan v. Morgan, 2014 PA Super 176  (Pa.Super.2014)

Mother and Father in this case were divorced, and settled their economic claims by written agreement in Maryland in 2003.  The marital settlement agreement contained provisions for alimony and child support, which were fixed until July 1, 2007.  The settlement agreement was incorporated, but not merged, in the decree in divorce.

In 2007, Father registered the settlement agreement in Franklin County and petitioned for modification of alimony. Mother responded with a petition to increase the alimony. Four years of litigation ensued, including a Superior Court appeal and remand. During the second appeal, subsequent to the remand, Father threatened to stop paying support for the special needs child, who was over 18 years old.  Mother filed a petition to modify child support, and the trial court learned that Father had falsified his tax returns and income records. This resulted in an extensive discovery period and a retroactive modification of child support, back to 2007 when Father registered the settlement agreement.

The action finally came to trial in 2012, in which the trial court modified the support obligation retroactively and awarded Mother $128,526 in legal fees. The Court imputed Mother with a full time earning capacity, based upon the testimony of Father’s vocational expert, and denied a 25% upward deviation from the guidelines based on the minimal time that Father spent with the child.

Father initiated a Superior Court appeal, arguing that the trial court lacked jurisdiction to modify the child support provisions of a settlement agreement that was incorporated, but not merged, in the divorce decree[1].  The Superior Court disagreed:

The Divorce Code specifically provides that regardless of whether an agreement between parties is merged or incorporated into the divorce decree, “[a] provision of an agreement regarding child support, visitation or custody shall be subject to modification by the court upon a showing of changed circumstances.” 23 Pa.C.S.A. § 3105(b); see also McClain, 872 A.2d at 862-63.

Thus, the Court held that the child support obligation was not limited by the terms of the settlement contract.

Mother filed a cross-appeal, raising several issues. First, Mother argued that the trial court should not have assigned her an earning capacity because child care expenses were likely to consume her earnings.  The trial court had reasoned that Mother’s child care expenses were too speculative to be quantified until Mother actually began to work.  The trial court could not predict how many hours Mother would be in the office or commuting. But more importantly, Mother had not reconciled how she was handling child care currently when she was unavailable to provide care “due to her extensive work with Democratic politics” and when studying for her Ph.D. degree outside of the home. Tacitly, the trial court was skeptical about Mother’s need for child care to work, when she apparently didn’t need child care to pursue politics and study at the university.

Secondly, Mother disputed the trial court’s finding that she could earn $80,500 per year after a 12 year absence from the workforce.  The Superior Court noted that Father’s vocational expert had cited a range of salaries, and he testified that Mother could earn the upper end of the range after a few years back to work. The Superior Court vacated the trial court’s finding, which was the upper end of the scale, especially since the trial court applied that earning capacity to the entire retroactive period, which was five years prior to the hearing.

Finally, Mother argued that the trial court should have awarded a 25% upward deviation from the support guidelines, because Father almost never visited the unemancipated child. The trial court had reasoned that Father had no legal recourse to see the child more often, since custody laws did not apply, and Mother had once refused to allow Father to visit. Under an “abuse of discretion” standard, the Superior Court affirmed.

 

[1] Prior to the 1988 Divorce Code amendments, Pennsylvania law distinguished between agreements that were merged into the divorce decree, giving power to the courts to modify the agreement; and those that were merely incorporated, prohibiting the courts from modifying.  See, Nicholson v. Combs, 550 Pa. 23, 703 A.2d 407 (1997); Brown v. Hall, 495 Pa. 635, 435 A.2d 859 (1981); Jones v. Jones, 651 A.2d 157 (Pa. Super. 1994). In 1988, the Legislature revised 23 Pa.C.S.A. § 3105(b), which eliminated this distinction.