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Homeschooling Children Does Not Justify Alimony, says Superior Court

by bvertz on Mar 19, 2011 • Comments Closed • , , , , ,

In Kent v. Kent (March 18, 2011), the Superior Court of Pennsylvania rejected a parent’s argument that she should be entitled to collect alimony for a period of eleven years so that she could continue to homeschool the parties’ minor children. It was undisputed in this case that the mother had withdrawn from the workforce five years earlier in order to home-school the parties’ children, which she continued to do up to the date of trial. The wife had resigned her position as a teacher and began to collect a reduced public pension in order to supplement the family’s finances. The husband argued that homeschooling was not a joint decision and did not require so much of wife’s time as to prevent her from working. The trial court awarded alimony to wife for a period of three years rather than the requested eleven years.

On appeal, the Superior Court cited the paucity of controlling case law. The Court observed that a body of law concerning the payment of private school tuition (Fitzgerald, Gibbons, et al) did not control, since those cases were governed by the child support guidelines, not the statutory alimony criteria (where a spouse’s ability to become self-supporting through appropriate employment is paramount). Instead, the Court relied upon a decision of the Arkansas Supreme Court, holding that alimony was appropriate where the homeschooling parent had no employable skills, education or experience.

Examining the wife’s work history in this case, the Superior Court affirmed the trial court’s finding that the homeschooling wife was capable of returning to work within three years. The Court also endorsed the husband’s reasoning that economic decisions made during coverture might no longer be viable when an intact family breaks into two separate households. The Court emphasized that its decision was not motivated by a policy against homeschooling, but a simple affirmance of the trial court’s application of statutory criteria.

10 Cash Flow Rules In Divorce (Part I)

by bvertz on Sep 28, 2010 • Comments Closed • , , , , , , , , ,

In business, they say, cash flow rules. The same principle is true, I find, in divorce. I have been brainstorming a set of cash flow “rules” for divorcing spouses. Here is part one:

1.  Never run out of cash. My #1 divorce rule is the as Inc Magazine‘s #1 business rule. In divorce, there is a period of time immediately following separation when a divorcing spouse’s cash flow may be particularly vulnerable. Spouses who are not working need to know that litigation might drag on for weeks before the support payments will begin. In order to meet routine financial obligations (bills, loans, credit cards), divorcing spouses should be sure to have a two months’ supply of cash before separating.

2. When it is impossible to increase income, reduce spending. Some divorcing spouses expect to preserve the standard of living they have always enjoyed, but it is just not possible.  In fact, the law does not guarantee it.  Our judges know that two households cannot be run as cheaply as one, so it is necessary to cut corners. Many families are living beyond their means or just scraping by. Divorce did not create the problem and cannot solve it. If your cash flow is not enough to pay the expenses, you must reduce expenses.

3. House-poor or pension-poor is just plain poor. Liquidity is a valuable resource. Some divorcing spouses insist on keeping a house or pension instead of assets that can be converted to cash more easily. Kids can’t eat a house. A pension won’t pay the light bill if you are 45 years old. Even though you may have worked your whole life to earn that pension or create a great home for your kids, you might be better off trading it away or selling it to generate cash that will pay the bills. You will sleep better at night.

4.  Credit borrowing does not equal cash flow. Loans and credit cards are temporary – and very expensive – ways of dealing with inadequate cash flow. By borrowing, you may be digging a deeper financial hole for your future. Do not borrow unless you have a sure means of paying off the loan or credit card within a year or less.

5.  Build earning capacity. We have all heard the story about the father who is refusing overtime at work so that he will not have to pay more child support or the mother who is waiting until the divorce is concluded before she returns to college. It might seem like an attractive strategy, but it always backfires. The sooner that you enhance your cash flow, the sooner you will restore your financial stability.

Alimony Tax Gross-Up Approved

by bvertz on Aug 9, 2010 • Comments Closed • , , ,

In Balicki v. Balicki, 2010 PA Super. 134 (July 30, 2010), the Superior Court considered the husband’s argument that the alimony order provided more income to his ex-wife than she could spend (as shown by her budgetary expenses). The trial court in its opinion justified the alimony award by noting that the wife would pay income tax on her alimony award, thereby reducing the after-tax dollars available to her. The trial court presented a seemingly reverse-engineered analysis of available income sources to prove that the income nearly matched wife’s claimed budgetary needs, thereby vindicating the result.

An important element of the trial court’s opinion was its calculation of the ex-wife’s income tax liability arising from her alimony award. The trial court held, and the Superior Court agreed, that a tax “gross-up” may be warranted under 23 Pa.C.S. § 3701(b)(15), one of the 17 statutory criteria for judging alimony claims. The trial court’s tax gross-up was triple the provision recommended by the master, but the trial court also disapproved the master’s inflated budget. These two adjustments offset each other, and the trial court affirmed the result reached by the master on different grounds.

The husband argued that the trial court had no right to reconsider the tax gross-up since neither party raised the issue in their exceptions from the master’s report. The Superior Court agreed that the trial court was not limited to the issues specifically raised on exceptions. Ironically, the Superior Court dismissed all of the husband’s allegations of error pertaining to specific items on wife’s budget, holding that they were waived because they were not specifically identified in the § 1925 statement.

All of the ex-wife’s issues on appeal, most of which seemed to be calculated to counter-balance husband’s appeals, were dismissed by the Superior Court, which affirmed the rationale of the trial court.

Pennsylvania: Alimony Factors

by bvertz on Feb 3, 2010 • Comments Closed • , , , , , , , , ,

What factors inflence a spouse’s eligibility for alimony after divorce under Pennsylvania law?

Under Pennsylvania law, post-divorce alimony “is a secondary remedy . . . available only where economic justice and the reasonable needs of a party cannot be achieved by way of an equitable distribution award and development of an appropriate employable skill.” These are the well-known words of the Superior Court of Pennsylvania in its Opinion in Nemoto v. Nemoto, 620 A.2d 1216 (Pa.Super.1993). Most of the important concepts in alimony jurisprudence are covered in this sentence. First, the trial courts must attempt to divide marital property in a way that avoids the need for post-divorce alimony. Why? Because the courts encourage a complete cessation of financial ties between divorcing spouses. If enough property (particuarly income-generating property) can be conveyed to a divorcing spouse, then that property can fulfill all of the spouse’s economic needs without the financial “umbilical cord” of alimony.

  • The value of the assets and liabilities distributed to each of the parties must be considered before awarding alimony. 23 Pa.C.S. § 3701(b)(10), (16); Fee v. Fee, 496 A.2d 793 (Pa.Super. 1985).
  • In its determination of alimony, the trial court must consider the income generated by a spouse’s marital and nonmarital assets. Ressler v. Ressler, 644 A.2d 753 (Pa.Super. 1994).

Second, our Courts encourage spouses to maximize their earning capacity and income potential through appropriate employment. In the first decade of the Divorce Code, enacted in 1980, the law provided that alimony could be awarded only for rehabilitative purposes, such as paying for college or vocational training. Alimony was not permitted in Pennsylvania prior to 1980, and the legislators who enacted the  Divorce Code worried that spouses would lose their incentive to become self-supporting if they could easily receive post-divorce alimony. The alimony law has been revised since 1980, allowing alimony for other reasons, such as meeting the budgetary shortfall of a spouse who is incapable of self-support. Still, the old law remains a strong influence among judges and lawyers in Pennsylvania. Several attempts to modernize the alimony law have failed, primarily because they might reduce a spouse’s incentive to go back to work. 23 Pa.C.S. § 3701(b)(1), (9), (17).

  • The Court imputed an earning capacity to a dependent spouse who devoted her time to an unproductive start-up business instead of seeking gainful employment. Thomson v. Thomson, 519 A.2d 483 (Pa.Super.1986).
  • An award of alimony for ten years was deemed excessive when a college education leading to a self-supporting job would require just four years. Barrett v. Barrett, 614 A.2d 299 (Pa.Super.1992).
  • In cases where there is no evidence of an impediment that would prevent a spouse from becoming self-supporting, the court is authorized to limit an alimony award. Adelstein v. Adelstein, 553 A.2d 436 (Pa.Super.1989).
  • In cases where a spouse’s earning capacity was limited by a medical disability or the disability of a custodial chid, Soncini v. Soncini, 612 A.2d 998 (Pa.Super.1992), the court may decline to impose a full time earning capacity upon a dependent spouse, justifying an award of alimony.

Finally, the law looks to the reasonable needs of a spouse. After a divorce, each spouse must have sufficient cash flow to meet his/her monthly household expenses. Yet, judges realize that two households cannot exist as cheaply as one combined household. The marital standard of living is just one of the seventeen statutory criteria for alimony awards, and in practice, it is one of the least influential. The expenses associated with custody of a child is more influential in an ex-spouse’s request for alimony. Just as important is the ability of a dependent spouse to become self-supporting through appropriate employment and the financial hardship that alimony may cause to the payor. When determining the amount and duration of an alimony award, the courts scrutinize the budget of a spouse seeking alimony carefully. 23 Pa.C.S. § 3701(b)(7), (8), (13).

  • The Court will not allow an award of alimony that would divert twice as much income to the alimony recipient as the payor, which would allow her to enjoy a better standard of living than she had enjoyed during the marriage Ressler v. Ressler, 644 A.2d 753 (Pa.Super.1994).

Marital misconduct is just one of the seventeen factors in awarding alimony, and it has remained one of the least influential since the enactment of the Divorce Code. 23 Pa.C.S. § 3701(b)(14); Nuttal v. Nuttal, 562 A.2d 841 (Pa.Super.1989).

Berlusconi Alimony: $65 Million Per Year

by bvertz on Nov 30, 2009 • Comments Closed • , ,

News sources are reporting (here and here) that Italian prime minister and TV-network billionaire Silvio Berlusconi may be facing an alimony obligation as great as $65 million per year. Berlusconi and his wife (who is 20 years his junior) have been married for nearly 20 years and estranged for at least 2 years. Berlusconi’s numerous public infidelities have deepened the rift between him and his wife. Berlusconi and his wife have two grown children.

Sneak Preview: 2009 PBI Family Law Update

by bvertz on Oct 22, 2009 • Comments Closed • , , , , , , , ,

Each year I am one of the broadcast presenters for Family Law Update, one of the most-watched legal education courses for the Pennsylvania Bar Institute. We make live presentations in Philadelphia and Pittsburgh, followed by a satellite broadcast to nearly two dozen counties around Pennsylvania. Traditionally, I have presented the most recent cases involving child support, spousal support and alimony pendente lite.

The Pittsburgh live presentation will be given tomorrow (October 23, 2009), with the satellite broadcast to be given on November 18, 2009. The book is available on PBI’s website, and I publish my Powerpoint slides here.

Update: I have added a page to this site with my Powerpoint slides.

More on Blazer: Retained Earnings Not Income for Alimony

by bvertz on Sep 25, 2009 • Comments Closed • , , , ,

 

The California Court of Appeal’s decision in Marriage of Blazer (2009) dealt not only with double dipping, but also with the exclusion of a company’s retained earnings when determining the owner’s income subject to an alimony obligation. After a 20 year marriage, Husband and Wife divorced, the husband retaining ownership of a berry distribution business. At trial, the husband’s expert testified that the berry company was thinly capitalized for its gross revenue. Wife’s expert agreed (if not grudgingly) that some earnings must be retained for capital reserves. The trial court excluded these retained earnings from the husband’s income for alimony purposes.

The husband’s expert also testified that retailers were seeking to eliminate middlemen, forcing the business to integrate vertically. The capital expenditures to purchase a growing farm and expand distribution were not added back to the company’s income, despite wife’s argument that husband “chose” to incur those expenses and would benefit from the enhancement in the company’s value. Again, the trial court adopted the position of the husband’s expert, over the opposition of wife’s expert.

On appeal, the California Court of Appeals affirmed the trial court’s decision under an “abuse of discretion” standard. The Court noted that there is no statutory definition of “income” for alimony cases in California, and it was unclear whether retained earnings could be properly categorized as “income” for alimony purposes. Case law held that the child support definition of “income” did not apply to alimony cases.

Basics of Pennsylvania Law: Double Dip, Part IV

by bvertz on Jun 24, 2009 • Comments Closed • , , , , , , ,

This is the fourth in a series of posts containing summaries of Pennsylvania case law on the issue of double dipping in divorce. “Double dipping” occurs when an income-producing asset (such as a pension or business) is counted as marital property subject to equitable distribution, as well as income subject to an alimony or child support obligation.

McFadden v. McFadden, 563 A.2d 180 (Pa.Super.1989).

            McFadden was a post-divorce alimony modification proceeding.  In this case, the husband’s pension annuity benefit was in pay status, and he was receiving the entire pension benefit. Yet, the court found that the husband’s pension had not been identified as marital property at the time of equitable distribution. Therefore, the Superior Court did not reverse the trial court’s calculation of the husband’s income, which included the pension benefit. Most troubling, in dicta, the Superior Court held (per Popovich, J.): “[I]t is equally clear that income from a pension is to be considered when fashioning an alimony award, even if the pension was previously subjected to equitable distribution. See 23 Pa.S.A. § 501(b)(3), (10), (13); Pacella v. Pacella, 342 Pa.Super. 178, 190, 2492 A.2d 707, 711-712 (1985)(court did not err in consideration earlier equitable distribution property in fashioning alimony); Braderman, 488 A.2d at 620 (pension subject to equitable distribution also may be used to calculate alimony award).”

Divorce Planning: Time to Defer Bonuses?

by bvertz on Jun 11, 2009 • Comments Closed • , , , , , , ,

Columnist Amy Feldman wrote an interesting article in this week’s Business Week entitled, “When to Take the Money.” June 30 is the deadline for executives to decide whether to defer this year’s performance bonuses to qualified plans. Ms. Feldman’s column suggests how to decide.

Take-home Pay Is Not the Measure of Child Support

by bvertz on Jun 8, 2009 • Comments Closed • , , , ,

In Pennsylvania, child support is based on the net incomes of the parents, so it shouldn’t be difficult to figure, right? Um, wrong.  It might seem as simple as looking at a W-2 or pay stub, or perhaps a tax return, to figure each parent’s net income, but child support is not based on take-home pay. The definition of income under the child support law includes more and less than taxable income. Here are some (but not all) of the differences between take-home pay and net income:

1. 401(k) contributions – On a pay stub, 401(k) contributions are deductions that reduce an employee’s net income. In divorce court, however, 401(k) contributions are added back to a parent’s income in most instances. In fact, if an employer makes unmatched contributions to the parent’s 401(k) plan, those contributions might be added to the parent’s income even though it is not take-home pay.

2. Disability insurance, life insurance, savings bonds – Some employees elect to pay for group disability or life insurance policies through pretax deductions, or defer part of their income into savings bonds and credit unions. These elections reduce their take-home pay, but the divorce court generally adds it back to net income.

3. Restricted stock – When restricted stock vests, it is generally reported as income on a pay stub or W-2. If the restricted stock was issued prior to separation, however, it might be marital property. The restricted stock can be considered as income for support purposes, or property for equitable distribution purposes, but not both. Therefore, restricted stock is excluded from net income in some cases.

4. Pass-through income – An owner of a business organized as a partnership or  Subchapter “S” corporation receives an annual K-1 form which reports his or her share of the business income. In reality, the business might not distribute the partner’s entire share of profits. Some businesses distribute just enough to enable the partner to pay his or her taxes. In divorce court, the retained earnings of a business may be excluded from the owner’s income if they were not actually distributed and the owner does not own a controlling interest.