Determining Support in a Time of Changing Economic Reality
It has been the norm, even through the most recent economic crisis, for courts to eschew claims of newly diminished income as the basis for a support award—opting instead to impute income or deny downward modification. The standard of living, even to the extent it might no longer be actually capable of being sustained, remained of paramount concern as courts tried to balance the claims of the income-producing spouse of diminished resources with the expectations and needs of the less monied spouse and the children. Of note then is the decision in S.A. v. L.A.1 where the present financial situation—far less lucrative than existed throughout the marriage—led the court to a different result than usually reported and also to caution that there was a new economic reality which would have to be accepted by the less monied spouse.
A New Economic Reality
In S.A. v. L.A., the Supreme Court, Westchester County, (albeit in considering interim spousal support) had to determine if it would apply the husband's 2012 income of $819,049 or his far lesser annualized 2013 income imputed at $240,000. The husband was 56 years old and employed in the financial services industry. The wife was 64 years old—essentially a stay-at-home wife and mother—without substantial employment for 23 years of this long-term marriage. Much of the decision involved a discussion of the propriety of applying current income as opposed to the income on the last tax return on a presumptive temporary maintenance calculation2 in similar fashion as is available for interim child support.3 However, an issue which was found to be of great significance was the court's view of the parties' present diminished financial situation from the historic standard of living even as measured by the immediately preceding year.4
The discrepancy between the husband's 2012 adjusted gross income of $819,049 and the annualized 2013 income of $240,0005 resulted in the diminution of presumptive temporary support from $17,000 per month as requested by the wife to the tax-free $5,737 per month awarded by the court, with the requested amount deemed by the court to exceed the wife's legitimate monthly expenses thus also rendering the presumptive award unjust and inappropriate.
In his holding, Justice Lawrence Ecker noted,
The court recognizes that the spousal support provisions in this decision and order will greatly affect the parties' respective post-separation standards of living. They need to consider the financial predicament they are in, and how to deal with the future. They are now suffering the consequences of their prior high standard of living. It is beyond dispute that two cannot live as cheaply as one, and that "hardship" at any economic level follows drastic losses of income. It is time for the parties to recognize the financial reality they may well face in the future, given their ages, work experience and future prospects for employment. The court urges that the parties' focus should be on financial planning with asset and debt liquidation. The continuance of this costly litigation will not heal their wounds, both economic and emotional, already suffered, but rather will exacerbate them.
Marital Standard of Living
In establishing support, the court is of course unbound by a party's representation of income.6 The court may base spousal and child support upon earning ability, skill, education and historical showing. The marital standard of living was by statutory amendment to DRL §236B(6) in 19867 raised above all other factors when considering interim and final spousal support. By virtue of a 2010 statutory amendment adding DRL §236B(5-a), standard of living has been brought back into a non-existent issue on interim support in post-Oct. 12, 2010, cases, except as a factor in considering use of income above $524,0008 or where deviating from the presumptive amount to be awarded.9
The change in the statutory import of marital standard of living may very well have affected the court's ability to tell its cautionary tale. Since the marital standard of living no longer has the position it used to on interim applications and awards, it may give the court more of a legislative imprimatur to perhaps consider it less important than actual income so that the current lesser income takes priority.
In those cases where more recent income has been asserted to be less than before, appellate decisions are replete with imputation affirmations and sparing with those finding imputation to have been inappropriate.10 The same holds true in downward modification cases where only rarely would a decision be found granting such relief.11 Even as the Legislature amended the child support statute,12 requiring orders to set forth new standards for modification unless the parties opted out, the law cautions that relief would not be available to those whose income was not involuntarily reduced and provided that the "party has made diligent attempts to secure employment commensurate with his or her education, ability and experience."
Aberration or Reality?
So what do we make of the holding in S.A. v L.A.? Is this an aberration to be confined to itself and its not so unusual facts or will the call to recognize a new economic reality and the plea to accept a diminished lifestyle gain traction? Although the case involves interim support, it recognized the effect of interim awards on the balance of the case as well as on the final outcome where, although the marital standard of living comes to the forefront again on spousal support, the die may have already been cast if the financial fortunes have not been reinvigorated at the time of trial.
If the economics are cyclical, it is reasonable to argue that it is unfair to require the less monied spouse and children to accept less and then essentially encourage future litigation if the fortunes later turn back. Of course, if the reduced support is part of an agreement as opposed to court determination, the standard for modification is more stringent, particularly on spousal support where "extreme hardship" must be proven.13 In such a case, counsel would be wise to have the provisions merge into the judgment of divorce so that it does not maintain its separate contractual identity with a higher modification standard and/or have triggering mechanisms built into the agreement which would allow for self-defined modification terms where there is an increase in income.
Accordingly, the agreement could, for example, set forth a lesser or different standard for modification and contain provisions for annual reviews of the parties' incomes with commitment to upwardly modify without having to first demonstrate the requisite change of circumstances to the court should the payor's income increase. Conversely, if the income-producing spouse's livelihood has been affected industry-wide so that a prediction of recovery is specious or the reduced income is not aberrational, it is similarly unfair to expect that spouse to sustain a support award which is not reality-based and where contempt applications and hollow enforcement remedies pit the parties against each other in an unending and destructive war of attrition.
Finality vs. Ongoing Litigation
Having the parties provide for a periodic review of their support obligations presents an ability to ensure their fairness. The other side of the coin however, is the built-in invitation to perpetually litigate the issue so that chronologic and other limitations on the agreed upon review of income are essential.14 Of course, pinning down the self-employed or other monied spouse with an ability to control their income is an entirely different story. The parties may also opt out of the statutory child support modification provisions and limit modification of spousal support to give an agreement more permanency going forward if they are satisfied that their circumstances reflect a mutual sense of the economics.
Where then does the reality lie? The decision in S.A. v L.A. may very well be a wake-up call to those whose expectations of a ride on a long continuing gravy train are already too high. And, as one film is titled—"Reality Bites."15
Lee Rosenberg is a partner at Saltzman Chetkof & Rosenberg in Garden City. He is a Fellow of the American Academy of Matrimonial Lawyers and a member of the Office of Court Administration Matrimonial Practice Advisory Committee. He may be reached at Lrosenberg@scrllp.com.
1. 2013 NY Slip Op 23430 (Sup Ct Westchester Co., Dec 16, 2013, Ecker, J.)