Determining the Proper Amount of Spousal Maintenance

A judge looking at the figures and the underlying data (see charts on page 4) should be able to conclude that the amount and duration of support in the husband's proposal are insufficient. In a typical case, a judge would be given information such as this on a couple of alternative scenarios; for example a scenario proposed by the wife or a scenario in which everything is split down the middle. Each of these scenarios will provide insight into the respective needs and paying abilities of the parties in the context of that particular scenario. This information should help the judge arrive at an equitable outcome that takes into account the pre-divorce standard of living and meets the needs and paying abilities of the parties in the context of that outcome.

In this case study, several alternative scenarios can be shown to be workable for both the husband and the wife, all of which involve additional amounts and durations of maintenance. All of these scenarios use the historical data contained in the Statements of Net Worth and are thus intimately related to the pre-divorce standard of living. The calculated needs and paying abilities are context-dependent and provide insights into the long-term financial consequences, equitability and workability of each of the respective alternatives.

One such scenario might utilize a significantly larger amount of spousal maintenance over a more extended period of time. This would initially enable the wife to pay her bills and thus meet her needs. However, the husband's income drops significantly when he retires, and he will be severely negatively impacted if he continues to pay support at such high levels at that time. If he stops making such payments at that time, the wife's financial position begins to rapidly deteriorate. This analysis clearly shows that the house must eventually be sold or the wife must find an alternative and increased source of income.

A third possible scenario might involve an intermediate level of support, until the husband retires, at which time the house will be sold and the proceeds transferred to the wife.

I believe that a judge armed with this information should be able to make more equitable and predictable decisions regarding both equitable distribution and support. Currently, this information is not typically made available to the court in New York. Although these amounts and durations of maintenance are context dependent and vary with each scenario, the analyses clearly show that the husband can afford to make significantly higher maintenance payments and still wind up in a strong financial position.

Unfortunately, unless the wife is able to increase her income substantially, or some other unforeseen event occurs, she appears to be unable to keep the house. None of the additional scenarios is workable if the husband transfers his equity in the house to the wife, and she continues to make payments similar to those associated with the current mortgage (assuming she can qualify for a loan).

The scenarios involving increased levels of maintenance, which terminate upon the husband's retirement, with the house being sold jointly (saving substantial amounts of capital gains taxes) and the proceeds of the sale being transferred to the wife have the advantage of allowing the wife to live in the marital home for an extended period of time. They also enable her to keep a larger share of the husband's retirement assets and the joint investment assets, as well as continue to maintain a decent standard of living, thus solving other problems identified in the initial analysis.

Lifestyle Analysis: The New Jersey Model

Although economic forecasting often uses data reflective of the marital standard of living, New Jersey has, since the landmark case of Crews v. Crews, 164 N.J. 11 (2000), relied extensively on lifestyle analysis to determine appropriate amounts and durations of alimony (maintenance). The Lifestyle Analysis differs from the Statement of Net Worth in that it is usually based on three or more years of financial data and is potentially more reflective of the standard of living established during the marriage.

Unlike New Jersey, lifestyle analysis in New York has been historically used to impute income, but it can also be helpful in making maintenance determinations. But there is no need to change New York's law in order to make lifestyle analysis a part of maintenance decisions in New York. Economic forecasting analyses should simply be routinely presented to the court for use in maintenance determinations in most cases. When historical data contained in the Statement of Net Worth (the previous year's data) is not reflective of the marital standard of living enjoyed in the marriage, a rigorous Lifestyle Analysis covering a more extended period of time might also be helpful to the court.

Another potential benefit of a lifestyle analysis, especially for an analysis prepared rigorously, is that it can provide a foundation on which the court can rely for future determinations, such as those involving motions for post-divorce modification based on changes in circumstances.

Proposed Legislation vs. the Status Quo

“Simpler” and “more consistent” do not necessarily equate with better. Problems associated with inconsistent or unpredictable application of Domestic Relations Law ' 236(B)(6)(a), the statute defining the basis and supporting factors for determining spousal maintenance awards in New York, are most likely due to the fact that the data and analyses routinely made available to the courts and upon which they must base their decisions are often unreliable, inadequate or otherwise flawed. To fix the problem, analyses must be routinely presented to the court that provide insights into pre-divorce standard of living and context-dependent needs and paying abilities. Although much of the underlying data for such analyses may currently be available to courts, it is often not organized or analyzed with this specific purpose of making spousal maintenance determinations in mind. Furthermore, the results of these analyses are context-dependent. If the data and analyses are not presented to the court in a context-dependent fashion, the court is likely to arrive at inconsistent and unpredictable results or throw up its hands and opt for the easy way out ' a consistent and predictable formula that is flawed and associated with inequitable determinations.

Proven methodologies exist that can help the courts easily make consistent, predictable and workable decisions regarding maintenance: economic forecasting and lifestyle analysis. These methodologies also provide additional benefits and insights. Rather than amend the statute in a way that is clearly flawed, analyses based on these methodologies should be routinely applied ' even required ' by the court. Replacing the existing statute, simply for the sake of consistency and predictability, with one involving a formula that is flawed and does not take into account the unique aspects of each case, does not lead to more equitable or workable outcomes. It is an unnecessary workaround that substitutes one set of problems for another.

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Carl M. Palatnik, CFP', CDFA', a member of this newsletter's Board of Editors, is founding president and executive vice president of the Association of Divorce Financial Planners (www.divorceandfinance.org) and President of DivorceInteractive.com, an Internet divorce portal. He can be reached at [email protected] or at 516-747-2259.

In last month's newsletter, we discussed Domestic Relations Law (DRL) ' 236(B)(6)(a), the statute containing the factors courts use to determine spousal maintenance awards in New York, along with the recently proposed legislation (See New York State Assembly Bill A10446) that would replace the statute with a formula to calculate both the amount and duration of maintenance. Supporters of the proposed legislation say it would make maintenance awards more uniform and predictable. However, there are better ways to go about ensuring fairness in maintenance awards. How can courts, without a change to the law, predict and safeguard the ongoing financial health of both divorcing parties?

Alternative Scenarios

As we observed in last month's hypothetical husband's proposal for dividing his and his wife's marital property, what at first might look like a fair division of property can turn out badly for one party. The husband's proposal identifies significant issues that need to be addressed to potentially arrive at a more workable and equitable outcome and suggests potential ways to help the parties (or the court) do so. Where possible, these scenarios also attempt to take into consideration the parties' respective long-term goals.

A judge looking at the figures and the underlying data (see charts on page 4) should be able to conclude that the amount and duration of support in the husband's proposal are insufficient. In a typical case, a judge would be given information such as this on a couple of alternative scenarios; for example a scenario proposed by the wife or a scenario in which everything is split down the middle. Each of these scenarios will provide insight into the respective needs and paying abilities of the parties in the context of that particular scenario. This information should help the judge arrive at an equitable outcome that takes into account the pre-divorce standard of living and meets the needs and paying abilities of the parties in the context of that outcome.

In this case study, several alternative scenarios can be shown to be workable for both the husband and the wife, all of which involve additional amounts and durations of maintenance. All of these scenarios use the historical data contained in the Statements of Net Worth and are thus intimately related to the pre-divorce standard of living. The calculated needs and paying abilities are context-dependent and provide insights into the long-term financial consequences, equitability and workability of each of the respective alternatives.

One such scenario might utilize a significantly larger amount of spousal maintenance over a more extended period of time. This would initially enable the wife to pay her bills and thus meet her needs. However, the husband's income drops significantly when he retires, and he will be severely negatively impacted if he continues to pay support at such high levels at that time. If he stops making such payments at that time, the wife's financial position begins to rapidly deteriorate. This analysis clearly shows that the house must eventually be sold or the wife must find an alternative and increased source of income.

A third possible scenario might involve an intermediate level of support, until the husband retires, at which time the house will be sold and the proceeds transferred to the wife.

I believe that a judge armed with this information should be able to make more equitable and predictable decisions regarding both equitable distribution and support. Currently, this information is not typically made available to the court in New York. Although these amounts and durations of maintenance are context dependent and vary with each scenario, the analyses clearly show that the husband can afford to make significantly higher maintenance payments and still wind up in a strong financial position.

Unfortunately, unless the wife is able to increase her income substantially, or some other unforeseen event occurs, she appears to be unable to keep the house. None of the additional scenarios is workable if the husband transfers his equity in the house to the wife, and she continues to make payments similar to those associated with the current mortgage (assuming she can qualify for a loan).

The scenarios involving increased levels of maintenance, which terminate upon the husband's retirement, with the house being sold jointly (saving substantial amounts of capital gains taxes) and the proceeds of the sale being transferred to the wife have the advantage of allowing the wife to live in the marital home for an extended period of time. They also enable her to keep a larger share of the husband's retirement assets and the joint investment assets, as well as continue to maintain a decent standard of living, thus solving other problems identified in the initial analysis.

Lifestyle Analysis: The New Jersey Model

Although economic forecasting often uses data reflective of the marital standard of living, New Jersey has, since the landmark case of Crews v. Crews , 164 N.J. 11 (2000), relied extensively on lifestyle analysis to determine appropriate amounts and durations of alimony (maintenance). The Lifestyle Analysis differs from the Statement of Net Worth in that it is usually based on three or more years of financial data and is potentially more reflective of the standard of living established during the marriage.

Unlike New Jersey, lifestyle analysis in New York has been historically used to impute income, but it can also be helpful in making maintenance determinations. But there is no need to change New York's law in order to make lifestyle analysis a part of maintenance decisions in New York. Economic forecasting analyses should simply be routinely presented to the court for use in maintenance determinations in most cases. When historical data contained in the Statement of Net Worth (the previous year's data) is not reflective of the marital standard of living enjoyed in the marriage, a rigorous Lifestyle Analysis covering a more extended period of time might also be helpful to the court.

Another potential benefit of a lifestyle analysis, especially for an analysis prepared rigorously, is that it can provide a foundation on which the court can rely for future determinations, such as those involving motions for post-divorce modification based on changes in circumstances.

Proposed Legislation vs. the Status Quo

“Simpler” and “more consistent” do not necessarily equate with better. Problems associated with inconsistent or unpredictable application of Domestic Relations Law ' 236(B)(6)(a), the statute defining the basis and supporting factors for determining spousal maintenance awards in New York, are most likely due to the fact that the data and analyses routinely made available to the courts and upon which they must base their decisions are often unreliable, inadequate or otherwise flawed. To fix the problem, analyses must be routinely presented to the court that provide insights into pre-divorce standard of living and context-dependent needs and paying abilities. Although much of the underlying data for such analyses may currently be available to courts, it is often not organized or analyzed with this specific purpose of making spousal maintenance determinations in mind. Furthermore, the results of these analyses are context-dependent. If the data and analyses are not presented to the court in a context-dependent fashion, the court is likely to arrive at inconsistent and unpredictable results or throw up its hands and opt for the easy way out ' a consistent and predictable formula that is flawed and associated with inequitable determinations.

Proven methodologies exist that can help the courts easily make consistent, predictable and workable decisions regarding maintenance: economic forecasting and lifestyle analysis. These methodologies also provide additional benefits and insights. Rather than amend the statute in a way that is clearly flawed, analyses based on these methodologies should be routinely applied ' even required ' by the court. Replacing the existing statute, simply for the sake of consistency and predictability, with one involving a formula that is flawed and does not take into account the unique aspects of each case, does not lead to more equitable or workable outcomes. It is an unnecessary workaround that substitutes one set of problems for another.

[IMGCAP(1)]

[IMGCAP(2)]

Carl M. Palatnik, CFP', CDFA', a member of this newsletter's Board of Editors, is founding president and executive vice president of the Association of Divorce Financial Planners (www.divorceandfinance.org) and President of DivorceInteractive.com, an Internet divorce portal. He can be reached at [email protected] or at 516-747-2259.