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).

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.

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.

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.

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).”

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.

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.

A recent decision issued by Florida’s intermediate appellate court, Craissati v. Craissati, amply demonstrates the importance of good contract writing skill. The husband and wife in this case entered into a marital settlement agreement, in which the husband agreed to pay alimony for eight years. Like most alimony agreements, this agreement provided that the alimony would terminate upon the death of the recipient, her remarriage, or cohabitation for a period of three months or more.

The wife in this case was incarcerated after a DUI conviction, and the husband petitioned the court for termination of his contractual alimony obligation. The parties stipulated that wife was, technically, “cohabiting” with her cell mate for a period in excess of three months, and that the termination clause of the marital settlement agreement was unambiguous. Still, the trial court held, the termination of alimony due to incarceration would be an absurd result not within the contemplation of the parties. The trial court modified the amount of alimony (since wife’s needs had been temporarily curtailed) but refused to terminate the obligation.

On appeal, the Florida appellate court reversed, adopting a literal construction of the agreement. Adding insult to injury, the author of the opinion found that driving under the influence was a voluntary act known to possibly result in incarceration, so the wife should have known that her criminal behavior could result in the termination of alimony.

If only the prisons were less crowded, the wife could have maintained her alimony award, I guess.