Plain and Not So Simple: Imputing Income for Support

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Believe this. The court would almost certainly prefer avoiding the need for imputing income. However, sometimes it represents an inevitable task. After all, New Jersey law doesn’t allow for an arbitrary number when it comes to support payments.

 It may be that you just lost your job. Quite frankly, it could be that you simply have no proof of earnings. Truth be told, in some cases, it’s a bit more disturbing. Your former spouse might suggest that you are hiding income.

Imputing earnings applies to determining financial obligations when tax records don’t tell the full story. Not everyone receives W-2 or 1099 statements summing up income. For some, issues surface during divorce proceedings.

However, that’s not always the case. Long after the ink is dry on your divorce decree, your life could take a dramatic change. It happens.

Consider this. You and your spouse worked hard to negotiate your marital settlement agreement (MSA).  At the time, you found it to be fair. You recognized your former spouse as the mother of your children and a woman you once loved. You agreed to make alimony payments in an amount that seemed affordable.

What you did not count on was losing your job. After all, you were a high-income earner with a big company. Surely, you’d be with the conglomerate until retirement.

Life doesn’t always work out as intended. Fired on short notice, you have no idea how you’ll make what now seems the exorbitant court-ordered spousal support payments. You consult with an experienced family law attorney and hope for the best.

This scenario could easily mirror your concerns. If so, you're surely interested in a legal opinion recently decided by the New Jersey Appellate Division.

Imputing Income: What Happened Here?

Although it’s not the sole issue in L.M.B. v. M.E.B., the New Jersey Appellate Division recently affirmed a trial court decision regarding the computation of imputed income. Meanwhile, the unpublished legal opinion applies to the named parties. Their names are represented by initials alone to protect their identities.

In 2014, the parties finalized their divorce after twenty-two years of marriage, M.E.B. was 58 years old at the time and served as a senior vice president of a major corporation. Although L.M.B. did not work, their tax return listed her as a realtor.

As part of the divorce settlement, the formerly married couple agreed to alimony provisions. M.E.B. would pay 42% of his gross annual earnings even if he stopped working for AIG. In the meantime, the definition of the income not only included his M.E.B.’s base salary of $300K. Other compensation also factored in, with alimony payments due until M.E.B. celebrated his 64th birthday.

Meanwhile, the MSA further provided that a change in income “would not "constitute a prima facie change of circumstances or otherwise allow any review of or modification of the alimony provisions of the [MSA]."

That said, the MSA also stated that if M.E.B. became unemployed, he would continue to pay alimony at 42% of any unemployment benefits.

Employment Termination

Ten months after the parties divorced, the unexpected happened. M.E.B.’s employer decided to downsize. He had an hour’s notice of termination of his employment.

According to M.E.B., he put out feelers to his contacts in the industry. He contacted headhunters. He used the placement services of his company to search for a new job.

Nearly two years after his layoff, M.E.B, still did have a new position. In the meantime, his ex-wife disputed his efforts to locate work. As far as she was concerned, his attempts seemed half-hearted. In fact, it appeared that he was viewing the termination as early retirement – at her expenses.

Instead of paying the agreed alimony, M.E.B. began disbursing 42% of his deferred compensation to L.M.B.  However, she viewed this as part of equitable distribution and expressed her discontent.

The parties attempted to resolve their issues concerning alimony in mediation, albeit to no avail. In August 2017, the plaintiff filed a motion to enforce litigant’s rights because M.E.B. failed to comply with the MSA. She also requested the court to impute his income and order an extension of payments subsequent to the defendant’s 64th birthday for the months he missed support payments.

Meanwhile, M.E.B. motioned the court. He disputed his ex-wife’s contentions and requested the court to compute his imputed income based on his calculations. As far as he was concerned, the plaintiff needed to refund a portion of the alimony payments.

Trial Court Order

Upon consideration, the trial court decided that M.E.B. needed to start to make monthly alimony payments of $10,500 until his 64th birthday. The court found that M.E.B. left his employer involuntarily. Nonetheless, he did not do enough to search for a new job.

How did the court come up with the amount for spousal support?  M.E.B. certified that he searched for jobs paying $200K. The court considered his prior bonus opportunities and self-employment earnings. Based on the preceding, the judge imputed M.E.B.’s earnings at $300K.  The $10,500 expectation for spousal support equated to 42% of the imputed income.

On Appeal

The defendant appealed the ruling, stating that the court did not order a plenary hearing. It did not explore L.M.B.’s need for alimony. M.E.B. also questioned why the rate of payments was not modified from the 42% since there was a change in circumstances.

That said, one of the provisions of the MSA stated that even if the defendant’s employment changed, he would still need to pay alimony at the same rate.

Meanwhile, M.E.B. contended that the trial court used M.E.B.’s previous base salary to impute his earnings. However, the Appellate Division found that this was not the case. From all appearances, the $300K number was somewhat coincidental.

Other issues within this legal opinion might interest you and surely warrant reading it to see how the court rules in matters of such as these.

Contact Us

Imputing income represents a difficult task and one that suggests the need for legal assistance. At the Law Offices of Sam Stoia, we have dealt with this issue as part of the divorce process and post-judgment modifications. Contact us to learn more.