Over the years, I have blogged about alimony formulas, “rules of thumb” and similar ways that alimony is settled. I say settled, because in most instances, courts are not allowed to use a formula to determine alimony. Basically, there are two types of formulas that we often see. One takes a percentage of the differences in the parties’ income (or imputed incomes) to come to a fixed amount of alimony to be paid. The other – often used in cases where someone’s income fluctuates substantially from year to year – calculates alimony on some percentage of total income, often up to a cap but sometimes not. In most of those cases, there is a floor to the alimony too. Just as a court cannot use a formula for a fixed amount of alimony so too can they not really use a formula for variable alimony either though I have seen the Appellate Division affirm constructs like this from time to time.
On November 16, 2020, the Appellate Division issued an unreported (non-precedential) opinion in the case of P.J.W. V. E.B.W., which handled an agreed upon formula in an interesting way. During the last 4 years of the marriage, the Husband’s income averaged $910,000 per year. In the parties 2013 divorce, they agreed that the husband would pay the wife of 25% of husband’s total gross compensation up to a total of $1,250,000.00 per year in alimony (payable as a 25% of his salary when received and 25% of the bonus up to the cap. The Agreement also included a standard clause that the parties could seek to modify alimony based upon a change of circumstances.
in the first 5 years post divorce, the Husband’s income averaged $850,000. However, in October 2017, he was notified that he was going to be fired as of January 5, 2018. After a job search, the husband obtained a job with a base income of $200,00 ($220,000 less than his prior base income). The Husband then filed a motion to reduce his alimony and child support based. The Court found that there was a prima facie showing of a change of circumstances and ordered discovery and a plenary hearing. Both parties hired employability experts, as a result. Before the plenary hearing, the husband took a new job with a $265,000 salary with a potential for bonuses and stock options, causing the expert reports to be updated.
After the plenary hearing, wherein the experts differed on whether the husband made a good faith job search, the trial court granted plaintiff’s motion to modify his alimony obligations by requiring plaintiff to pay twenty-five percent of his salary and bonuses based on his compensation from his new employer and the appeal followed. The Appellate Division affirmed the decision as to alimony.
The rationale for the decision was fascinating, however. First, the Appellate Division agreed with the trial court that the 25% formula was not limited solely to the husband’s employer at the time of the divorce. But the Appellate Division went even further, suggesting in a way, that the plenary hearing was not even necessary, when they held:
“Given our interpretation of the Support Agreement, plaintiff did not need to show a change of circumstances. Nevertheless, even if plaintiff had to show such a change, the factual findings made by the family court establish that plaintiff showed a change of circumstances warranting a reduction in his alimony obligation. There is no dispute that plaintiff was fired from his job at
Barclays. Thus, he lost the position that was compensating him over $900,000 per year. (Emphasis added)
The Appellate Division also rejected the wife’s claim that the husband was voluntarily underemployed, deferring to the trial court’s opinion that expressly found that the husband had engaged in good-faith efforts to obtain new employment maximizing his compensation.
The cause for alarm was the finding that, per the Agreement, that the husband didn’t need to show a change of circumstances. Despite what appears to be a reduction in income in the neighborhood of $400,000 or more, that seemingly didn’t make a difference because the formula was simply enforced. Now, maybe in this case it wouldn’t have made a difference because the court found that the job search was in good faith and there was a change of circumstance. That said, under the same rationale, if the agreement was strictly enforced, it might not matter if there was a good faith job search. While the result in this case may have been fair (though I suspect that the wife disagrees), if a future court follows this rationale, maybe the result won’t be as fair.