When it comes to determining how much one should pay in alimony, the court will carefully examine both parties’ income. But what exactly is “income?”
As the Superior Court of New Jersey’s Appellate Division in Somerset County recently noted in the case of T.J. v. M.J., income definitely includes bonuses and deferred compensation.
For a lot of folks, their base salary or hourly pay is going to substantially cover it in terms of “income” for purposes of calculating spousal support. But when a substantial portion of one’s wealth is derived from things like annual bonuses, stock options, pensions or retirement plans, these cannot be overlooked.
Even when the parties agree to this for the most part, our Somerset divorce lawyers know sometimes it’s more a matter of timing. Should the money from deferred compensation be paid out every month or in chunks, as the payor receives it? In cases where income is variable, courts may come up with a fixed amount of support and then require supplemental support if there is an upward trend in support variation. Determining the best arrangement will require careful consideration and review with your attorney.
The Case of T.J. v. M.J.
In the case of T.J. vs. M.J., decided late last year, husband and wife were married 27 years and had three children together, two of whom were grown and the youngest was in college. The wife, 55, was a certified CPA who stopped practicing a few years after the couple married to raise their children. By the time of the 2019 trial, she was close to earning a master’s degree in child advocacy. The pair acquired substantial assets over the course of their marriage, including several homes, investments and retirement accounts.
With the help of their attorneys, the pair were able over two years of litigation to reach their own agreements on equitable distribution of most of their assets and other issues. But there were a few points of contention that went to trial, including alimony.
Trial court awarded the wife $17,000 monthly, noting the husband’s total annual compensation was more than $1.1 million, which included not only his base salary of $400,000, but also an annual bonus that averaged $450,000 a year as well as restricted stocks. The pair had also amassed tens of thousands of dollars in savings in the last decade of their marriage. Meanwhile, the wife, once she graduated, had the ability to earn about $40,000 a year.
On appeal, the husband argued that alimony should only have been $4,500/month – less than 5 percent of his gross income. But as the court noted, this entirely overlooked the fact that he was raking in much more in net income than his wife (more than six figures). He argued the court erred because 85 percent of his net take-home pay each month (seized through wage garnishment) was going to his ex-wife in violation of 15 U.S.C. § 1673 (which holds the maximum allowable garnishment at 65 percent of one’s net take-home pay).
“The flaw,” noted the appellate court, “is that he completely ignores his annual bonus.” Under the statutes he cited, “earnings” do include annual bonuses and deferred compensation. What’s more, while the husband spent a great deal of time arguing about the investment income his ex-wife could earn off what he was paying her, he was also making a case for the additional investment income he could earn too. As for the additional amount tacked on to compensate the ex-wife for the savings, the court noted that, “a spouse’s need for savings has long been recognized as a component of alimony… to protect the supported spouse against the day when alimony payments cease because of the [death of supporting spouse] or change in circumstances.”
There was substantial credible evidence in this case that his annual income exceeded $1 million and that their marital savings was significant.
The bottom line is that spouses don’t get to pick and choose what’s considered “income” based solely on their regular paychecks. In making these determinations, it’s important to examine the big picture. Our Somerset divorce lawyers can help.
Call Rozin|Golinder Law, LLC today at (732) 810-0034 for a free and confidential consultation.