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Family Law Update 2006 Alimony and Counsel Fees Brian C. Vertz Pollock Begg Komar Glasser Pittsburgh
Four Types of Alimony (with celebrity examples) <ul><li>Periodic Alimony </li></ul><ul><li>Rehabilitative Alimony </li></u...
Periodic Alimony <ul><li>Although he is retired, 64 year-old rock star Paul earns a lot more than his 37 year old wife Hea...
Periodic Alimony <ul><li>Elements of Proof: </li></ul><ul><li>Budget </li></ul><ul><li>Income Disparity </li></ul><ul><li>...
Periodic Alimony <ul><li>Stamerro , 889 A.2d 1251 (Pa.Super.2005) </li></ul><ul><li>Husband and Wife were divorced in 2000...
Periodic Alimony <ul><li>Husband left his job in NYC after the company had two bad years but his salary did not decrease <...
Periodic Alimony <ul><li>Husband argued that the agreement was clear and unambiguous; said nothing about “voluntariness” <...
Periodic Alimony <ul><li>Koehler ,  2005 WL 4312126 (Northamp.2005) </li></ul><ul><li>Bar to Alimony – 23 Pa.C.S.  § 3706 ...
Periodic Alimony <ul><li>Kozel , Superior Ct.  No. 1807 WDA 2005 </li></ul><ul><li>Short marriage (4 years) </li></ul><ul>...
Rehabilitative alimony <ul><li>Years ago, Bobby became a stay-at-home dad while Whitney brought home the bacon. To resume ...
Rehabilitative Alimony <ul><li>Elements of Proof: </li></ul><ul><li>Impairment of Earning Capacity </li></ul><ul><li>Plan ...
Rehabilitative alimony <ul><li>Rostron , Superior Ct.  No. 1039 WDA 2005 </li></ul><ul><li>Short marriage (5 years or less...
Rehabilitative alimony <ul><li>Kokolis , Superior Ct.  No. 1131 WDA 2006 </li></ul><ul><li>Wife was awarded alimony for fi...
Rehabilitative alimony <ul><li>Double-dipping issue: Wife was awarded 60% of the pension-in-pay-status as part of her prop...
Permanent Alimony <ul><li>Married 25 years ago, Eddie and Valerie intertwined their lives and finances for most of their a...
Permanent Alimony <ul><li>Elements of Proof: </li></ul><ul><li>Impossibility of Rehabilitation </li></ul><ul><li>Intertwin...
Permanent Alimony <ul><li>Smith , 904 A.2d 15 (Pa.Super.2006) </li></ul><ul><li>Husband and Wife married in 1965; separate...
Permanent Alimony <ul><li>Issue: Wife’s income tax liability should have been considered.  </li></ul><ul><li>She would owe...
Permanent alimony <ul><li>Hout ,  appeal auashed, 898 A.2d 1138 (Pa.Super.2006) </li></ul><ul><li>Illiquid marital estate ...
Equitable Reimbursement <ul><li>Jessica owes her career to the publicity that her marriage with Nick attracted. As soon as...
Equitable Reimbursement <ul><li>Ask for security – judgment note, pledge of securities, life insurance </li></ul><ul><li>A...
Equitable Reimbursement <ul><li>Johnson , 2006 WL 2589787 (9/11/2006) </li></ul><ul><li>Divorced in 1985 after a 17 year m...
Equitable Reimbursement <ul><li>Husband eventually filed bankruptcy, and Wife attempted to obtain an “alimony” order in st...
Equitable Reimbursement <ul><li>Bankruptcy court dismissed husband’s petition, so the obligation survived </li></ul><ul><l...
Equitable Reimbursement <ul><li>Husband and new wife sold their home in Vermont </li></ul><ul><li>Vermont court refused to...
Tax Consequences <ul><li>Do’s and Don’ts of Deductibility </li></ul><ul><li>Allocation </li></ul><ul><li>Proposed Tax Refo...
Do’s and Don’ts of Deductibility <ul><li>DO pay in cash (not property) </li></ul><ul><li>DO enter an order or agreement </...
Johanson v. Com. <ul><li>T.C. Memo 2006-115 </li></ul><ul><li>Marital settlement agreement required husband to pay “spousa...
Kean v. Com. <ul><li>407 F.3d 186 (3d Cir. 2005) </li></ul><ul><li>Support order did not terminate support upon payee’s de...
Pennsylvania Law <ul><li>23 Pa.C.S.  § 3707:  “Upon the death of the payee party, the right to receive alimony pursuant to...
Tax Consequences <ul><li>Kean v. Com . 407 F.3d 186 (3d Cir. 2005) </li></ul><ul><li>NJ divorce court ordered Father to pa...
Kean v. Com. <ul><li>“ Where support payments are unallocated, as in this case, the entire amount is attributable to the p...
Pres. Bush’s Advisory Panel on Federal Tax Reform <ul><li>Report issued 11/1/2005 </li></ul><ul><li>Intended to eliminate ...
Tax Traps! <ul><li>Payments to a Third Party as Alimony </li></ul><ul><li>Arrears and Voluntary Interim Payments </li></ul>
Counsel Fees <ul><li>Grounds </li></ul><ul><li>Tax Consequences </li></ul><ul><li>Sources of Law: </li></ul><ul><ul><li>23...
Counsel Fees <ul><li>Stackhouse ,  900 A.2d 383 (Pa.Super.2006) </li></ul><ul><li>Wife won twice at the Master’s level </l...
Counsel Fees <ul><li>McCoy , 888 A.2d 906 (Pa.Super.2006) </li></ul><ul><li>Marital Estate = $400,000 </li></ul><ul><li>Hu...
Counsel Fees <ul><li>Husband also argued that Wife did not need CF because she received a $50,000 advance during divorce l...
Counsel Fees <ul><li>Jacobs , 884 A.2d 301 (Pa.Super.2005) </li></ul><ul><li>Husband refused to produce documents in disco...
Tax Consequences - CF <ul><li>Salesky  - T.C. Memo 2006-162 </li></ul><ul><li>Court ordered Husband to pay CF directly to ...
True Story <ul><li>A Dutch actress training to be a witch is eligible for a tax deduction for her course fees, the tax aut...
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Family Law Update Alimony 2006

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Presented by Brian C. Vertz, Esq., MBA, AVA at the Pennsylvania Bar Institute's Family Law Update 2006. Describes current issues and case law about alimony and legal fees in divorce cases.

Published in: Economy & Finance, Business
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Family Law Update Alimony 2006

  1. 1. Family Law Update 2006 Alimony and Counsel Fees Brian C. Vertz Pollock Begg Komar Glasser Pittsburgh
  2. 2. Four Types of Alimony (with celebrity examples) <ul><li>Periodic Alimony </li></ul><ul><li>Rehabilitative Alimony </li></ul><ul><li>Permanent Alimony </li></ul><ul><li>Equitable Reimbursement </li></ul><ul><li>Counsel Fees </li></ul>
  3. 3. Periodic Alimony <ul><li>Although he is retired, 64 year-old rock star Paul earns a lot more than his 37 year old wife Heather, who will not have enough $ to make ends meet after divorce. </li></ul>
  4. 4. Periodic Alimony <ul><li>Elements of Proof: </li></ul><ul><li>Budget </li></ul><ul><li>Income Disparity </li></ul><ul><li>Imputed Income from Property </li></ul><ul><li>Illiquidity of Property </li></ul><ul><li>Lingering Liabilities </li></ul><ul><li>Health Insurance </li></ul>
  5. 5. Periodic Alimony <ul><li>Stamerro , 889 A.2d 1251 (Pa.Super.2005) </li></ul><ul><li>Husband and Wife were divorced in 2000 </li></ul><ul><li>Husband was a highly-compensated sales executive in NYC; wife was unemployed </li></ul><ul><li>Husband agreed to pay alimony for ten years </li></ul><ul><li>No modification unless Husband’s income is greater than $600,000 or less than $200,000 </li></ul>
  6. 6. Periodic Alimony <ul><li>Husband left his job in NYC after the company had two bad years but his salary did not decrease </li></ul><ul><li>Moved to Florida with new wife </li></ul><ul><li>Took a job at father-in-law’s real estate business earning less than $100,000 </li></ul><ul><li>Sought modification of alimony </li></ul>
  7. 7. Periodic Alimony <ul><li>Husband argued that the agreement was clear and unambiguous; said nothing about “voluntariness” </li></ul><ul><li>Superior Court held that there is an implied duty of good faith and fair dealing in every agreement </li></ul><ul><li>Husband evaded the spirit of the contract </li></ul>
  8. 8. Periodic Alimony <ul><li>Koehler , 2005 WL 4312126 (Northamp.2005) </li></ul><ul><li>Bar to Alimony – 23 Pa.C.S. § 3706 </li></ul><ul><li>Perennial Question: </li></ul><ul><ul><li>What constitutes “cohabitation”? </li></ul></ul>
  9. 9. Periodic Alimony <ul><li>Kozel , Superior Ct. No. 1807 WDA 2005 </li></ul><ul><li>Short marriage (4 years) </li></ul><ul><li>Long separation (7 years of APL) </li></ul><ul><li>Wife was young, healthy, unemployed </li></ul><ul><li>No alimony </li></ul><ul><li>Issue: if there is an appeal, will APL continue? </li></ul>
  10. 10. Rehabilitative alimony <ul><li>Years ago, Bobby became a stay-at-home dad while Whitney brought home the bacon. To resume his career after divorce, Bobby will need vocal coaching.... and a good publicist. </li></ul>
  11. 11. Rehabilitative Alimony <ul><li>Elements of Proof: </li></ul><ul><li>Impairment of Earning Capacity </li></ul><ul><li>Plan for Rehabilitation </li></ul><ul><li>Cost of Rehabilitation </li></ul><ul><li>Prospects for Improving Earning Capacity </li></ul>
  12. 12. Rehabilitative alimony <ul><li>Rostron , Superior Ct. No. 1039 WDA 2005 </li></ul><ul><li>Short marriage (5 years or less) </li></ul><ul><li>Wife did not work, raising children </li></ul><ul><li>3 years of APL </li></ul><ul><li>65% plus 5 years of alimony </li></ul><ul><li>“ window of opportunity” </li></ul>
  13. 13. Rehabilitative alimony <ul><li>Kokolis , Superior Ct. No. 1131 WDA 2006 </li></ul><ul><li>Wife was awarded alimony for five years in 2001 </li></ul><ul><li>Wife suffered a back injury in 2005 </li></ul><ul><li>Change in circumstances – increased medical expenses + unable to work FT </li></ul><ul><li>HELD: Extension of alimony was granted for an additional 2-1/2 years ( to age 62) </li></ul>
  14. 14. Rehabilitative alimony <ul><li>Double-dipping issue: Wife was awarded 60% of the pension-in-pay-status as part of her property division in 2001 </li></ul><ul><li>Master counted pension as income to Wife in calculating her unmet needs for alimony </li></ul><ul><li>Trial court reversed, holding that it was a double dip </li></ul>
  15. 15. Permanent Alimony <ul><li>Married 25 years ago, Eddie and Valerie intertwined their lives and finances for most of their adult lives. Both now retired, they depend on Eddie’s residuals to pay the bills, since Valerie’s work is no longer in syndication. </li></ul>
  16. 16. Permanent Alimony <ul><li>Elements of Proof: </li></ul><ul><li>Impossibility of Rehabilitation </li></ul><ul><li>Intertwining of Financial Destinies </li></ul><ul><li>Sacrifice of Economic Opportunity </li></ul>
  17. 17. Permanent Alimony <ul><li>Smith , 904 A.2d 15 (Pa.Super.2006) </li></ul><ul><li>Husband and Wife married in 1965; separated in 2000 </li></ul><ul><li>Wife had limited education, did not work during marriage; disabled after separation </li></ul><ul><li>Wife awarded alimony until she is eligible to draw her derivative OASDI benefit </li></ul>
  18. 18. Permanent Alimony <ul><li>Issue: Wife’s income tax liability should have been considered. </li></ul><ul><li>She would owe taxes on her alimony award, which reduces the available dollars, and would have to pay taxes on the interest income from her share of marital property. </li></ul>
  19. 19. Permanent alimony <ul><li>Hout , appeal auashed, 898 A.2d 1138 (Pa.Super.2006) </li></ul><ul><li>Illiquid marital estate – house only </li></ul><ul><li>Disparity of incomes </li></ul><ul><li>Alleged medical problems </li></ul><ul><li>15 years of alimony pendente lite </li></ul>
  20. 20. Equitable Reimbursement <ul><li>Jessica owes her career to the publicity that her marriage with Nick attracted. As soon as she reached the pinnacle of pop stardom, she dropped him for another. </li></ul>
  21. 21. Equitable Reimbursement <ul><li>Ask for security – judgment note, pledge of securities, life insurance </li></ul><ul><li>Acceleration clause – in the event that payor misses 2 payments and does not cure within 10 days of notice, entire balance is due on demand </li></ul><ul><li>Not tax deductible if obligation survives death of payee </li></ul>
  22. 22. Equitable Reimbursement <ul><li>Johnson , 2006 WL 2589787 (9/11/2006) </li></ul><ul><li>Divorced in 1985 after a 17 year marriage, Husband was ordered to pay installment payments to wife for 10 years with interest as compensation for her interest in husband’s milling business </li></ul><ul><li>The business went broke in 1993 and husband stopped paying his equitable reimbursement payments. </li></ul>
  23. 23. Equitable Reimbursement <ul><li>Husband eventually filed bankruptcy, and Wife attempted to obtain an “alimony” order in state court to avoid discharge of the installment obligation to her </li></ul><ul><li>State court refused to characterize the payments as “alimony” which might survive the discharge </li></ul>
  24. 24. Equitable Reimbursement <ul><li>Bankruptcy court dismissed husband’s petition, so the obligation survived </li></ul><ul><li>Husband sought modification of alimony </li></ul><ul><li>Trial court granted modification </li></ul><ul><li>Superior Court reversed; equitable reimbursement is really equitable distribution </li></ul><ul><li>Modification would constitute forfeiture </li></ul>
  25. 25. Equitable Reimbursement <ul><li>Husband and new wife sold their home in Vermont </li></ul><ul><li>Vermont court refused to attach proceeds </li></ul><ul><li>Husband and new wife sold stocks </li></ul><ul><li>Pennsylvania court refused to attach proceeds of Vermont house because it was entireties property </li></ul><ul><li>Remanded regarding stock proceeds </li></ul>
  26. 26. Tax Consequences <ul><li>Do’s and Don’ts of Deductibility </li></ul><ul><li>Allocation </li></ul><ul><li>Proposed Tax Reform </li></ul><ul><li>Tax Traps </li></ul>
  27. 27. Do’s and Don’ts of Deductibility <ul><li>DO pay in cash (not property) </li></ul><ul><li>DO enter an order or agreement </li></ul><ul><li>DO NOT designate as non-deductible </li></ul><ul><li>DO NOT live together </li></ul><ul><li>DO terminate upon payee’s death </li></ul><ul><li>DO NOT designate as child support* </li></ul><ul><li>DO NOT file joint tax return </li></ul><ul><li>DO NOT front load </li></ul>
  28. 28. Johanson v. Com. <ul><li>T.C. Memo 2006-115 </li></ul><ul><li>Marital settlement agreement required husband to pay “spousal support” </li></ul><ul><li>Did not terminate “spousal support” upon death of the payee </li></ul><ul><li>Incorporated into California divorce decree </li></ul><ul><li>California law states that “spousal support” terminates upon payee’s death </li></ul>
  29. 29. Kean v. Com. <ul><li>407 F.3d 186 (3d Cir. 2005) </li></ul><ul><li>Support order did not terminate support upon payee’s death </li></ul><ul><li>NJ law: no statute to terminate spousal support upon payee’s death </li></ul><ul><li>NJ law: divorce abates upon death of a spouse </li></ul>
  30. 30. Pennsylvania Law <ul><li>23 Pa.C.S. § 3707: “Upon the death of the payee party, the right to receive alimony pursuant to this chapter shall cease.” </li></ul><ul><li>Rule 1910.19(d): “All charging orders for spousal support and alimony pendente lite shall terminate upon the death of the payee spouse.” </li></ul>
  31. 31. Tax Consequences <ul><li>Kean v. Com . 407 F.3d 186 (3d Cir. 2005) </li></ul><ul><li>NJ divorce court ordered Father to pay unallocated child and spousal support into a joint bank account </li></ul><ul><li>Support order stated that wife would have exclusive use of the deposited funds </li></ul><ul><li>Husband claimed alimony deduction </li></ul><ul><li>Wife did not claim alimony income </li></ul>
  32. 32. Kean v. Com. <ul><li>“ Where support payments are unallocated, as in this case, the entire amount is attributable to the payee spouse’s income. Otherwise, we would be left with a situation in which the portion of the unallocated payment intended for the support of the payee spouse would be taxable to the payor spouse. This treatment of support payments is not accidental, and can benefit families going through a divorce. </li></ul><ul><li>“ By ordering the payor spouse to make an unallocated support payment taxable in full to the payee spouse, the couple may be able to shift a greater portion of their collective income into a lower tax bracket. Consequently, an unallocated payment order not only frees the parents from restrictive court instructions that dictate who pays for what, but may allow the parties to enjoy a tax benefit at a time when they face increased expenses as they establish independent homes. This advantage would be lost by taxing all unallocated payments to the payor spouse.” </li></ul>
  33. 33. Pres. Bush’s Advisory Panel on Federal Tax Reform <ul><li>Report issued 11/1/2005 </li></ul><ul><li>Intended to eliminate AMT and “simplify” the tax code </li></ul><ul><li>Would eliminate the alimony deduction </li></ul><ul><li>Uncertainty whether existing alimony orders would be “grandfathered” </li></ul><ul><li>Would also eliminate home mortgage interest deduction </li></ul>
  34. 34. Tax Traps! <ul><li>Payments to a Third Party as Alimony </li></ul><ul><li>Arrears and Voluntary Interim Payments </li></ul>
  35. 35. Counsel Fees <ul><li>Grounds </li></ul><ul><li>Tax Consequences </li></ul><ul><li>Sources of Law: </li></ul><ul><ul><li>23 Pa.C.S. § 3702 – divorce actions </li></ul></ul><ul><ul><li>23 Pa.C.S. § 4351(a) – support actions </li></ul></ul><ul><ul><li>23 Pa.C.S. § 6108(a)(8) – PFA actions </li></ul></ul><ul><ul><li>42 Pa.C.S. § 2503 – vexatious conduct </li></ul></ul>
  36. 36. Counsel Fees <ul><li>Stackhouse , 900 A.2d 383 (Pa.Super.2006) </li></ul><ul><li>Wife won twice at the Master’s level </li></ul><ul><li>Defeated on appeal </li></ul><ul><li>Granted $80,000 on remand but denied alimony </li></ul>
  37. 37. Counsel Fees <ul><li>McCoy , 888 A.2d 906 (Pa.Super.2006) </li></ul><ul><li>Marital Estate = $400,000 </li></ul><ul><li>Husband earned $64k, Wife earned $15K </li></ul><ul><li>50/50 division of assets, 15 mo. alimony </li></ul><ul><li>$5,000 CF to wife </li></ul><ul><li>Husband argued that Wife failed to meet her burden to produce evidence of the nature and reasonableness of her CF </li></ul>
  38. 38. Counsel Fees <ul><li>Husband also argued that Wife did not need CF because she received a $50,000 advance during divorce litigation </li></ul><ul><li>Superior Court called it a “close case” but deferred to trial court’s discretion </li></ul>
  39. 39. Counsel Fees <ul><li>Jacobs , 884 A.2d 301 (Pa.Super.2005) </li></ul><ul><li>Husband refused to produce documents in discovery, which would have revealed that he owned a separate estate of $7 million </li></ul><ul><li>Wife spent over $120,000 in CF to obtain sanctions against Husband </li></ul><ul><li>Trial court awarded $50,000 CF to Wife </li></ul><ul><li>Affirmed by Superior Court </li></ul>
  40. 40. Tax Consequences - CF <ul><li>Salesky - T.C. Memo 2006-162 </li></ul><ul><li>Court ordered Husband to pay CF directly to Wife’s law firm </li></ul><ul><li>Husband claimed alimony deduction </li></ul><ul><li>NJ law: Obligation to pay CF terminates upon death of payee </li></ul><ul><li>Not tax-deductible </li></ul>
  41. 41. True Story <ul><li>A Dutch actress training to be a witch is eligible for a tax deduction for her course fees, the tax authorities in the Netherlands have decided. They allowed the 39-year-old woman to claim 2,210 euros (£1,505) for the course that lasts a year and a day. </li></ul><ul><li>A tax official told Reuters news agency the woman used the course &quot;to extend her professional knowledge.&quot; Students learn to cast spells, prepare herbs and potions and use crystal balls as well as other aspects of witchcraft. The course organiser, Margarita Roland, said she taught apprentices all they needed to know, using magic as a force for good. </li></ul>

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