Retiring in a Down Economy

In an early retirement situation, i.e., prior to age 65, the analysis takes on an even more stringent standard, as courts must generally engage in a balancing act in an effort to protect the supported spouse from the payor's potential misconduct.

Pending Law

To that end, a pending law in Massachusetts designed to revamp existing alimony law would, in part, provide that alimony will end when the payor reaches full retirement age for Social Security, subject to deviation for “good cause,” a broad standard similar to “good faith.”

Does the analysis warrant a change or, perhaps, a closer look, in light of the current economy? Should the analysis depend upon the type of position or employment from which the payor retired? For instance, it is news to no one that Wall Street and the financial sector as a whole has undergone a transformation since the decline commenced in or about mid-2007. Not only have long-standing, legendary companies, such as Lehman Brothers and Bear Sterns, shut their doors in the face of the crisis, but entire industries, such as residential mortgage banking, have effectively been decimated. The legal arena has not been immune from adverse economic impact, as countless firms of all sizes have been forced to shut down or, at the very least, cut back, lay off attorneys, and more strictly enforce age-based policies in an effort to sustain operations and client relationships.

In these circumstances, what is a payor to do if the entire position/industry upon which he built a long-term, successful career vanishes into thin air, or, for that matter, morphs into some form for which he has no experience or expertise? What if the payor is placed in a position where his compensation no longer merits the work effort by comparison? What if that payor is at or around the age of retirement? Can he then, at that point, simply choose to retire despite not having previously thought to do so (or take a severance package in favor of termination), or is he obligated to mitigate his losses and find a new, and likely very different job ' as to both duties performed and compensation ' from that which he previously held? More generally, does a payor ever reach an age where he can simply retire and have it automatically deemed by a court to be in good faith or is a factor-based analysis always necessary?

While it seems logical to allow someone to retire under such circumstances and procure a concomitant support modification, rather than compelling him to seek alternative employment at an advanced age when skill sets have been refined over time, the resulting analysis will never be that simple. If it were, the equitable policies upon which existing spousal support legislation and cases are based would be undermined by providing a broad-based conclusion that everyone in such a situation should obtain relief. There are two parties involved, and the needs of the supported spouse will always be considered.

As a result, how should a court treat a payor who has lost his job and, as a result, seeks to retire rather than find another position of employment? On a related note, if the payor, at the very least, fulfills his prima facie burden entitling him to a plenary hearing on the issue, should he receive a temporary reduction during the litigation and discovery period? This article submits that the analysis should effectively be a hybrid as follows: 1) perform the retirement review enunciated at the outset of this article; and 2) engage in a general support modification analysis to determine whether the financial change is temporary and subject to some form of mitigation.

A Hypothetical

Presuming for the sake of a hypothetical scenario that a payor spouse who, at age 72 and in good health, has just learned that he is effectively being shown the door at the only law firm that he has ever known. Despite no less than 50 years of specializing in the area of intellectual property litigation, his equity in the firm and overall compensation have been slowly stripped away from him as the firm tightens its belt in the current economy. Since he is handsomely compensated, he knows that, at his advanced age, finding a similar position of employment elsewhere is unlikely. Moreover, after five decades of practice, the situation at work presents an opportunity for this payor to end his legal career.

On the other hand, the payor has a hefty alimony obligation to his former wife, and a family with his second wife that he must support. Since the dollar can only be stretched so far, and the payor would like to preserve his health at the same time, he decides it is best for him to retire and file for a modification in his alimony to his first wife.

In response, the prior spouse contests that the payor does not need to retire and is certainly capable of earning substantial sums of money, as well as utilize his post-divorce assets to fund his support obligation. Payee also asserts that she cannot support herself without the alimony, especially in light of her deteriorating health situation.

Reviewing the parties' respective affidavits and legal memoranda, the trial court will consider the payor's motive for retirement, but, since retirement was facilitated by his former employer's own actions, it must determine whether legislative policy and existing jurisprudence require the payor to mitigate his losses and obtain another job. At his advanced age and the unlikelihood of the payor ever finding a comparable position of employment in light of the down economy and relatedly diminished prospects in the legal field, the court ultimately determines that payor sought to retire in good faith. Perhaps, in so doing, the trial court even took judicial notice of the down economy and its impact upon the legal industry, rather than requiring the payor to produce a log of his job search since deciding to leave the firm.

On the other hand, it is unclear whether the payor should obtain relief since the supported spouse is in no condition to receive a reduced amount of alimony in light of her financial and health circumstances. Notably, the economy has similarly hit the payee hard, and her efforts to obtain some liquid funds in the form of a reverse mortgage on her property have proven unsuccessful. Without the payor's alimony, she could very well become a ward of the state.

Ultimately, the court will then consider that the payor's obligations to his current spouse take a backseat to his alimony obligation to a prior spouse, and will review the post-divorce assets of both parties to determine the payor's ability to pay and the payee's need. Since the divorce, the payor has accumulated several hundreds of thousands of dollars in investment assets that can be used to defray his support obligation. By contrast, the payee has nothing left other than the former marital home she received by way of equitable distribution. As a result, despite the down economy and a finding that the payor retired in good faith, his alimony may, ultimately, remain unchanged in light of other existing circumstances.

Conclusion

As previously indicated, each case addressing the issue of retirement and its impact on support is highly fact-sensitive. The down economy's impact on such a situation serves to add an intriguing, yet extremely critical, wrinkle to the equation. At what point payors will no longer be able to rely upon the current economy to bolster a support modification application is unclear, but it seems that the way the game is played will remain largely unchanged as courts are bound by the equitable policies upon which these situations were initially based.

Laurence J. Cutler, a member of this newsletter's Board of Editors, is a partner resident in the Roseland, NJ, office of Fox Rothschild LLP. He has been a chairman of the Family Law Section of the New Jersey State Bar Association, president of the New Jersey Chapter of the American Academy of Matrimonial Lawyers, and a founding fellow of the Chapter. He was also a founding fellow of the International Academy of Matrimonial Lawyers; a founding diplomat of the American College of Family Trial Lawyers; and a founding affiliate of the Matrimonial Lawyers Alliance. He is also a master in the New Jersey Family Law Inn of Court. Robert A. Epstein is an associate at the firm.

With an influx of applications by payor former spouses seeking to modify an existing alimony/spousal support obligation, much has been written about the impact of the economic decline on post-judgment litigation over the past few years. Hundreds of thousands ' if not millions ' of people have lost their jobs as employers attempt to become “leaner” to survive, while certain entities have been effectively eliminated altogether, especially on Wall Street and elsewhere in the financial and real estate sectors. In light of this ongoing situation, courts have had to apply a stricter level of scrutiny to the application of the law with regard to modification of judgments to determine which payors are truly suffering a change in their financial status meriting relief, and which ones are disingenuously trying to take advantage of a potentially fleeting opportunity.

Retirement

Under that backdrop, one area particularly worthy of discussion is a payor's ability to retire and successfully seek a modification of his support obligation. In most states, a court will analyze whether the decision to retire was made in “good faith,” or with an ulterior motive, i.e., support reduction. Good faith is a broad concept to say the least, but in New Jersey, pursuant to Deegan v. Deegan , 254 N.J. Super. 350 (App. Div. 1992), it generally begins with a look at the retiree's age. If the retiree is 65 or older, courts perform a fact-based analysis by looking at the reasons or motive for retirement, the ability of the retiree to continue working and at what earning capacity, the ability to pay support post-retirement, the supported spouse's ability to live with a reduced payment, the medical condition of each party, and the value of assets obtained post-judgment that can be utilized to pay.

In an early retirement situation, i.e., prior to age 65, the analysis takes on an even more stringent standard, as courts must generally engage in a balancing act in an effort to protect the supported spouse from the payor's potential misconduct.

Pending Law

To that end, a pending law in Massachusetts designed to revamp existing alimony law would, in part, provide that alimony will end when the payor reaches full retirement age for Social Security, subject to deviation for “good cause,” a broad standard similar to “good faith.”

Does the analysis warrant a change or, perhaps, a closer look, in light of the current economy? Should the analysis depend upon the type of position or employment from which the payor retired? For instance, it is news to no one that Wall Street and the financial sector as a whole has undergone a transformation since the decline commenced in or about mid-2007. Not only have long-standing, legendary companies, such as Lehman Brothers and Bear Sterns, shut their doors in the face of the crisis, but entire industries, such as residential mortgage banking, have effectively been decimated. The legal arena has not been immune from adverse economic impact, as countless firms of all sizes have been forced to shut down or, at the very least, cut back, lay off attorneys, and more strictly enforce age-based policies in an effort to sustain operations and client relationships.

In these circumstances, what is a payor to do if the entire position/industry upon which he built a long-term, successful career vanishes into thin air, or, for that matter, morphs into some form for which he has no experience or expertise? What if the payor is placed in a position where his compensation no longer merits the work effort by comparison? What if that payor is at or around the age of retirement? Can he then, at that point, simply choose to retire despite not having previously thought to do so (or take a severance package in favor of termination), or is he obligated to mitigate his losses and find a new, and likely very different job ' as to both duties performed and compensation ' from that which he previously held? More generally, does a payor ever reach an age where he can simply retire and have it automatically deemed by a court to be in good faith or is a factor-based analysis always necessary?

While it seems logical to allow someone to retire under such circumstances and procure a concomitant support modification, rather than compelling him to seek alternative employment at an advanced age when skill sets have been refined over time, the resulting analysis will never be that simple. If it were, the equitable policies upon which existing spousal support legislation and cases are based would be undermined by providing a broad-based conclusion that everyone in such a situation should obtain relief. There are two parties involved, and the needs of the supported spouse will always be considered.

As a result, how should a court treat a payor who has lost his job and, as a result, seeks to retire rather than find another position of employment? On a related note, if the payor, at the very least, fulfills his prima facie burden entitling him to a plenary hearing on the issue, should he receive a temporary reduction during the litigation and discovery period? This article submits that the analysis should effectively be a hybrid as follows: 1) perform the retirement review enunciated at the outset of this article; and 2) engage in a general support modification analysis to determine whether the financial change is temporary and subject to some form of mitigation.

A Hypothetical

Presuming for the sake of a hypothetical scenario that a payor spouse who, at age 72 and in good health, has just learned that he is effectively being shown the door at the only law firm that he has ever known. Despite no less than 50 years of specializing in the area of intellectual property litigation, his equity in the firm and overall compensation have been slowly stripped away from him as the firm tightens its belt in the current economy. Since he is handsomely compensated, he knows that, at his advanced age, finding a similar position of employment elsewhere is unlikely. Moreover, after five decades of practice, the situation at work presents an opportunity for this payor to end his legal career.

On the other hand, the payor has a hefty alimony obligation to his former wife, and a family with his second wife that he must support. Since the dollar can only be stretched so far, and the payor would like to preserve his health at the same time, he decides it is best for him to retire and file for a modification in his alimony to his first wife.

In response, the prior spouse contests that the payor does not need to retire and is certainly capable of earning substantial sums of money, as well as utilize his post-divorce assets to fund his support obligation. Payee also asserts that she cannot support herself without the alimony, especially in light of her deteriorating health situation.

Reviewing the parties' respective affidavits and legal memoranda, the trial court will consider the payor's motive for retirement, but, since retirement was facilitated by his former employer's own actions, it must determine whether legislative policy and existing jurisprudence require the payor to mitigate his losses and obtain another job. At his advanced age and the unlikelihood of the payor ever finding a comparable position of employment in light of the down economy and relatedly diminished prospects in the legal field, the court ultimately determines that payor sought to retire in good faith. Perhaps, in so doing, the trial court even took judicial notice of the down economy and its impact upon the legal industry, rather than requiring the payor to produce a log of his job search since deciding to leave the firm.

On the other hand, it is unclear whether the payor should obtain relief since the supported spouse is in no condition to receive a reduced amount of alimony in light of her financial and health circumstances. Notably, the economy has similarly hit the payee hard, and her efforts to obtain some liquid funds in the form of a reverse mortgage on her property have proven unsuccessful. Without the payor's alimony, she could very well become a ward of the state.

Ultimately, the court will then consider that the payor's obligations to his current spouse take a backseat to his alimony obligation to a prior spouse, and will review the post-divorce assets of both parties to determine the payor's ability to pay and the payee's need. Since the divorce, the payor has accumulated several hundreds of thousands of dollars in investment assets that can be used to defray his support obligation. By contrast, the payee has nothing left other than the former marital home she received by way of equitable distribution. As a result, despite the down economy and a finding that the payor retired in good faith, his alimony may, ultimately, remain unchanged in light of other existing circumstances.

Conclusion

As previously indicated, each case addressing the issue of retirement and its impact on support is highly fact-sensitive. The down economy's impact on such a situation serves to add an intriguing, yet extremely critical, wrinkle to the equation. At what point payors will no longer be able to rely upon the current economy to bolster a support modification application is unclear, but it seems that the way the game is played will remain largely unchanged as courts are bound by the equitable policies upon which these situations were initially based.

Laurence J. Cutler, a member of this newsletter's Board of Editors, is a partner resident in the Roseland, NJ, office of Fox Rothschild LLP. He has been a chairman of the Family Law Section of the New Jersey State Bar Association, president of the New Jersey Chapter of the American Academy of Matrimonial Lawyers, and a founding fellow of the Chapter. He was also a founding fellow of the International Academy of Matrimonial Lawyers; a founding diplomat of the American College of Family Trial Lawyers; and a founding affiliate of the Matrimonial Lawyers Alliance. He is also a master in the New Jersey Family Law Inn of Court. Robert A. Epstein is an associate at the firm.