Fairfield County Divorce Guidebook- Part 2

MARITAL PROPERTY & EQUITABLE DISTRIBUTION

Marital Property Explained

    Even before divorce litigation is commenced, most laypeople have a generalized understanding of the concept of “marital property.” Marital property is any asset - whether real estate, a bank account, a business or legal interest, a security or stock holding, or even a piece of home furnishing - which was purchased or obtained during or prior to the marriage, and remains the property of either party of the marriage, regardless of whose name is listed on the title for such property. 

Equitable Distribution

    Connecticut General Statutes Section 46(b)-81(a) broadly defines the court’s powers with respect to equitably dividing marital property between divorcing spouses: 
    “At the time of entering a decree annulling or dissolving a marriage or for legal separation pursuant to a complaint     under section 46b- 45, the Superior Court may assign to either the husband or wife all or any part of the estate of the     other. The court may pass title to real property to either party or to a third person or may order the sale of such real     property, without any act by either the husband or the wife, when in the judgment of the court it is the proper mode     to carry the decree into effect.” 
In essence, this subsection sets forth the very generous authority of the Superior Court in family matters to fairly divide assets, and even order the sale of property, in order to accomplish what the court finds to be fair and equitable in a divorce action.
    Connecticut is sometimes defined as an “all property distribution state,” or a “kitchen sink jurisdiction.” Divorcing spouses can and should expect that the court will consider allocating any and all property - including premarital or inherited property -- by and between the parties, regardless of how that property was acquired. This does not, however, mean that inherited property, for example, will necessarily be equally divided in all cases. As with all property, the court will consider a number of statutory factors in determining what a fair division of the assets would be. These factors, set forth in Connecticut General Statutes Section 46b-81, are:
(1) The age of the parties;
(2) the health of the parties;
(3) the station of the parties;
(4) each party’s occupation
(5) the amount and sources of the parties’ respective income;
(5) each party’s vocational skills and employability;
(6) the party’s liabilities;
(7) relevant special needs;
(8) each party’s future earning capacity and prospects for acquisition of capital assets and income; and
(9) the contribution of each of the parties in the acquisition, preservation, or appreciation of the assets. 
    In determining whether a party has a likelihood of retaining a certain asset after trial (or in order to advance such a position during negotiation), capable counsel will be familiar with recent court decisions, and engage in discovery so they may advance the best possible presentation and position at trial. Nevertheless, due to the broad discretion afforded to the Superior Court to divide marital property by statute, no spouse - and no attorney - should expect or guarantee that a certain item of property will be insulated from equitable distribution to the other spouse in any and all circumstances.
    It should be further noted that C.G.S. § 46b-81 only permits the courts to enter orders regarding the distribution of property during the dissolution proceedings. The court is not permitted to modify its original orders or enter additional orders providing for the distribution of property after the divorce is finalized. That being said, there are three limited exceptions where a court may revisit its original property orders. Firstly, a party may seek to open a judgment if, for example, one of the parties engaged in fraud, or the judgment was based upon a mutual mistake of the parties. Secondly, a court may enter orders to effectuate a previously ordered property distribution. Thirdly, parties may agree to have the court retain jurisdiction to resolve disputes that arise while parties are attempting to carry out orders related to the division of property. The last two scenarios may occur, for example, where the parties reach an impasse with respect to terms 25 regarding the sale of a home (e.g., selecting a broker, reducing the price, etc.), or the division of specific retirement accounts.

The Marital Residence

    In the majority of divorces, parties are jointly living in a home that they jointly own at the time of service. This property, referred to as the “marital residence,” often becomes an asset subject to equitable division by the court at some later date. Again, although there are often variations with respect to which spouse is listed on the title and/or any note or mortgage associated with the property, the trial court is empowered to either force a sale of the property, or assign that property to one party or the other as part of the dissolution action, where appropriate.  
    Pursuant to the Automatic Orders (as discussed above) neither party may deny the other use of the parties’ primary residence without a court order. Nevertheless, due to the likelihood of conflict between the parties (and perhaps in the presence of minor children), the spouses have the option of filing and proceeding with a motion for exclusive possession of the marital home. This procedural mechanism allows one party - on a temporary basis only - to be heard as to why it would be “just and equitable” to grant only one party interim use of the marital home (to the exclusion of the other spouse) without making a determination as to which party will ultimately receive title to that property upon final judgment.
    A myriad of factors may be considered by the court in awarding temporary (also referred to as “Pendente Lite,” Latin for “while the action is pending”) exclusive possession of the marital home, but perhaps the most significant factor is recent or present violence (or the threat thereof) in the marital home, especially if the same has resulted in police intervention or involvement by the Department of Children and Families. In circumstances of physical abuse of a spouse or a child, there are three options to be considered and employed (in tandem or individually) as circumstances allow: A) criminal proceedings and a criminal protective order; B) a civil application for relief from abuse; and C) the temporary, exclusive possession of the marital home as discussed here. Each of these options comes with its own benefits and procedural mechanisms; obviously, in the case of an emergency or serious, imminent danger to a person or child, law enforcement is the best option.

Inheritance, Gifts & Trusts

    In a divorce action, the Superior Court has the authority to allocate inheritances and gifts that have been received to either party regardless of the source. In determining whether a party should retain his or her inheritance or gift, judges utilize a fairness test, and look to numerous factors, including when the gift or inheritance was received, its past and current value, how it was used (if at all) during the marriage, whether it was held by one or both of the parties, and the reason the inheritance or gift was received.  
    In a dissolution of marriage action, "property" refers to a presently existing, enforceable right to receive income from the other party. Thus, a mere expectation of a future inheritance does not qualify as "property" and is generally not considered part of the marital estate. In the case of Rubin v. Rubin3 , where the husband's status as a possible residuary beneficiary under his mother’s revocable trust and will was deemed a "mere expectancy," the court determined that his possible future inheritance should not have been the subject of a court order as the husband’s “hope” to receive money in the future was not divisible or assignable by a court. Of course, divorcing parties may always enter into voluntary agreements about future inheritances as a way to achieve equity in the division of property, and this type of provision often bridges the gap of an otherwise difficult settlement.

Pension Benefits

    It is well settled that both vested and unvested pension benefits are marital property subject to equitable distribution under Connecticut General Statutes § 46b-81.4 Once it is established- either through an agreement or court order- that a pension will be divided, the valuation and distribution method must be addressed. There are generally two approaches used in Connecticut to divide a pension, the present value method and the present division method of deferred distribution.5
    Under the present value approach, the parties, or the court, must first determine the present value of the pension benefits at issue. The parties, or, again, the court, will then decide the portion to which the nonemployee spouse is entitled, and award other property to that spouse to offset the value of the pension benefits the employee spouse will retain. It should be noted that although this approach may result in immediately severing the parties’ financial connection, it also puts a considerable amount of risk on the employee spouse. Indeed, if, for example, the employee spouse never receives unvested benefits, the nonemployee spouse will have received at the time of dissolution a greater share of the marital assets.
    Under the present division method of deferred distribution, on the other hand, the court or the parties determine at the time of dissolution the percentage share of the benefits each will receive upon maturity, regardless of the overall value of the plan. Typically, the parties will then receive their respective shares as a monthly payment when the pension goes into pay status, e.g., when the employee spouse retires. Unlike the present value approach, the deferred distribution method imposes the risk of forfeiture on both parties in that if the employee spouse never receives the benefits, the nonemployee spouse will forfeit them as well. However, this approach also forces the parties to remain financially tied to one another for what could potentially be a very significant amount of time.

ALIMONY

Factors Taken into Consideration

    One of the great uncertainties that divorce clients deal with at the outset of divorce is the likely outcome of either side’s application for an order of alimony, or spousal support. In many marriages, one party largely supports the other, or there is an inequity in earnings throughout the marriage which, in the context of the marriage arrangement, results in the parties sharing their financial responsibilities in such a way that makes sense for the family unit during the marriage itself. Upon divorce, however, there is often one party who has been supported by the other during the marriage, who is now facing the prospect of either seeking additional gainful employment or receiving spousal support – whether rehabilitative or lifetime – to enable that spouse to meet his or her continuing financial obligations. 
    o answer the most frequently posed question first: there is no “formula” for alimony in Connecticut. Many judges, family law practitioners, and even family relations counselors employ different guidelines in certain cases, but the length, amount, and terms of alimony are designed to be case-specific, and may be as flexible (and as unexpected) as the broad variety of factual scenarios that come before the Superior courts week in and week out.
    An alimony award is based primarily upon a spouse’s “continuing duty to support” the other, even after the breakdown of the marriage, and is governed by Connecticut General Statutes § 46b-82.
    It is important to know that in Connecticut, courts may only enter alimony awards during dissolution proceedings. If a party is not awarded alimony during the initial proceedings he or she will be precluded from returning to any court to seek alimony at any time in the future. Because in some cases an immediate alimony order is not appropriate, courts may enter a nominal award, often set as one dollar per year. This effectively suspends the payor’s obligation, while preserving the recipient’s right to receive alimony at some point in the future. Orders may leave the duration of the nominal award indefinite, or may specify that an automatic modification will occur after a designated period of time.

Earning Capacity

    In today’s economy, where the only constant is unpredictability, a theme of increasing frequency in divorce litigation is the difficulty in calculating appropriate alimony or child support figures. When a breadwinner has fallen on hard times – late in a marriage, during a divorce, or immediately thereafter – and is constrained to take a cut in income, should support figures be based on what he or she now earns, or should they instead be based upon what could be earned given that person’s experience, education, credentials, and marketability?  
    Trial courts in Connecticut often utilize the concept of “earning capacity,” which is “meant to be a flexible concept, particularly suited to cases where the designation of a precise monetary value of earned income is inappropriate.”6 The Connecticut Supreme Court has defined earning capacity as “not an amount which a person can theoretically earn, nor is it confined to actual income, but rather it is an amount which a person can realistically be expected to earn considering such things as his vocational skills, employability, age and health.”7 The Appellate Court has noted that “it is particularly appropriate to base a financial award on earning capacity where there is evidence that the payor has voluntarily quit or avoided obtaining employment in his field.”8
    Connecticut’s Appellate Court has reaffirmed the assignment of an earning capacity to a payor of alimony (who sought to reduce his obligation after claiming to receive decreased taxable earnings at his new job), underscoring the weight an earning capacity determination can have on the primary wage earner of a marriage. In upholding the decision of the trial court to deny a modification of alimony, the Appellate Court in Tanzman v. Meurer9 pointed out that the husband had “failed to provide us with any statute, case law, or rule of practice that requires the trial court to specify an exact earning capacity when calculating an alimony and child support award.” In other words, under current case law, a judge in a divorce proceeding may assign one party an earning capacity – and award alimony and/or child support based on that party’s ability to earn – however, there is no requirement that the court specify a monetary value.
    This soft spot in our jurisprudence could cause additional complications in postjudgment motions to modify support orders, when one party seeks to demonstrate a “substantial change in circumstances” as required by Connecticut General Statutes § 46b- 86 et seq. Indeed, when an original alimony award was based on earning capacity and not on actual income, and the earning capacity was further left undefined by a trial court, a party faces the daunting task of demonstrating a “substantial change” to a nonquantified number. Instead, a moving party must rely upon extrinsic and collateral evidence to demonstrate that his or her earning capacity – however slippery and undefined – has substantially changed within the meaning of the statute and applicable case law.
    As a potential payor of alimony in a divorce proceeding, one should be aware that a judge might not simply glance at a tax return or even at a paystub, but may instead base his or her decision on a comprehensive history of the parties’ earnings, education, employability, and economic resilience. Moreover, even after that award is determined, any litigant would be best served to seek the counsel of an experienced family law attorney before attempting to modify the award based on decreased income or a change in employment.

Type of Alimony Award- Periodic vs. Lump Sum

    In awarding alimony a court may assign to either party a part of the estate of the other party, award periodic payments, or do both.10 It is important to note, that alimony is generally tax deductible by the payor and taxable to the payee, regardless of whether it is paid periodically or in a lump sum. Thus, when considering a potential alimony award, it is very important to thoroughly understand the tax ramifications, in terms of both the potential financial benefit for the payor and the potential financial liability for the payee.   
    Alimony is most often awarded as a periodic payment, typically paid weekly, monthly, or even quarterly. Although in many cases, alimony is designated as a straightforward, fixed sum, in some cases, it may be appropriate or even necessary to devise a more intricate payment scheme. For example, self-employed individuals, sales persons that earn a commission and/or those who receive a discretionary bonus in addition to their base salary, may experience significant fluctuations in their income from one quarter, or even one month, to the next. In such cases, it would be difficult to set a fixed sum as the parties would be forced to continually modify the dissolution judgment. As an alternative, the parties may find it more practicable to designate the alimony award as a fixed percentage of the payor’s income. This allows for automatic modifications without the necessity of revisiting and modifying the terms of the court’s prior orders, and therefore eliminates the need for further court involvement.

Periodic Alimony- Amount

    When considering an alimony award, it is important to address whether the amount will be modifiable. As set forth in more detail below, alimony is generally modifiable upon a showing of a substantial change in circumstances. However, in certain situations, parties may find it desirable to lock in either a fixed amount or a fixed percentage. 
    For example, if a payor anticipates an increase in income at some point in the future, he or she may want the amount of alimony fixed or “capped” to prevent the former spouse from sharing in the post-marital increase. On the other hand, if the payor is uncertain as to his or her future earnings, he or she may prefer to have the ability to seek a downward modification in the event of an income reduction or unemployment. An alimony recipient may prefer to “lock in” a designated sum or percentage, (and may even accept a lower amount), in exchange for the certainty and consistency associated with a fixed sum each period. Here, the recipient will forfeit the opportunity to seek an increase in alimony if the payor’s income increases, but will secure the certainty and predictability associated with receiving the fixed amount, and will be able to budget and plan accordingly. A recipient may also prefer to “lock in” a designated sum or percentage if he or she anticipates that his or her own income will increase, potentially warranting a downward modification by the payor. Conversely, a more risk-tolerant alimony recipient may forfeit the certainty and predictability of fixed payments and pursue a modifiable order if he or she suspects the payor’s income will substantially increase in the future, and the recipient wants to share in the additional earnings.
    As there are a multitude of potential scenarios from one case to the next, it is critically important to have a thorough understanding of the various alimony schemes available, and how those schemes will advance and/or protect the payor’s and recipient’s respective interests.  

Periodic Alimony- Term

    When considering a periodic alimony award, it is also important to address details related to the term, or duration of the award, as periodic alimony is usually paid over an extended period of time. When dealing with periodic alimony, parties, or the court, will generally designate the duration of the obligation as a set number of months or years. Usually, it is also specified that the obligation will automatically terminate sooner upon the occurrence of certain events, for example, if one of the parties dies, the recipient remarries, or the recipient begins cohabitating with another individual. It is crucial to specify both the duration and the conditions that will trigger earlier termination. Indeed, in the absence of specified events triggering automatic termination, the alimony obligation may continue indefinitely, requiring further judicial intervention to resolve the issue. 
    When negotiating an alimony provision, parties generally have considerable latitude in formulating terms. With respect to the term, or duration, of the alimony award, for example, it may be beneficial for the parties to agree to a shorter, nonmodifiable term with a higher amount of alimony. This might be preferred where a payor would like to be able to plan ahead and/or sever financial ties with his or her former spouse sooner rather than later. The recipient might prefer this arrangement as well if he or she is in need of cash up front, or if he or she is planning to remarry before the alimony obligation would otherwise have terminated. On the other hand, one spouse may prefer to receive payments over a longer period of time, in which case it may be desirable to set lower payments, or either front load or back load them (i.e., the payments will start off high and decrease or start off low and increase).
    In some cases it may also be appropriate to designate additional events triggering automatic termination above and beyond those mentioned above. When negotiating details related to the duration of alimony, it is important to fully understand both the financial and tax implications of such payments, as well as the different options available. From a negotiating standpoint, it is also important to understand the circumstances of each case, and how a court might view those circumstances in formulating orders of its own if the case were to go to trial. 

Remarriage and Cohabitation

    As mentioned above, in the event parties intend for an alimony obligation to terminate upon certain events, it is necessary that they specify the triggering events in their separation agreement. This holds equally true for the remarriage of the recipient as it does for any other event. In fact, a payor’s alimony obligation does not automatically terminate upon the recipient’s remarriage. To the contrary, except in the most exceptional circumstances, such remarriage simply produces an inference that the recipient intended to abandon the previous alimony award.11 Alimony is often terminated or modified in the event the recipient begins cohabitating with another individual. Indeed, pursuant to General Statutes § 46b-86(b), a court may modify, suspend, reduce or terminate the payment of periodic alimony upon a showing that the party receiving the periodic alimony is living with another person under circumstances which the court finds should result in the modification, suspension, reduction or termination of alimony because the living arrangements cause such a change of circumstances as to alter the financial needs of that party.12 Importantly, cohabitation alone is not enough. As set forth in C.G.S. 46b-86(b), for cohabitation to constitute a change of circumstances, the living arrangement must be such that the financial needs of the recipient are altered. Unlike remarriage, which is relatively easy to prove, it is often more difficult to prove that a party’s financial needs have been changed as a result of cohabitation. This is particularly true where the cohabitating party and his or her new partner engage in efforts to conceal the details of their finances, or intentionally keep their finances separate. As the burden of proof rests on the party seeking the termination or modification of alimony, it is often advisable to seek the assistance of counsel familiar with available discovery mechanisms, such as depositions, interrogatories and requests for production of documents. These steps are often required in order to obtain the information and documentation necessary to prove a case. 

Lump Sum Awards

    For a variety of reasons, parties may find it desirable to handle alimony in the form of a lump sum payment instead of a periodic obligation. For example, a recipient may be in need of cash for moving costs, or simply to reestablish himself or herself, and therefore might prefer one large payment up front in lieu of smaller periodic payments over an extended period of time. From a strategic standpoint, a recipient who anticipates getting remarried may also prefer an up front, lump sum payment as alimony would typically terminate upon the party’s remarriage. Under certain circumstances the alimony payor may also find such an arrangement beneficial. Firstly, a lump sum payment is usually significantly discounted, and where a payor has the resources available, it might make sense to take advantage of the savings. Secondly, a lump sum payment may be beneficial where the payor anticipates increased earnings in the future. If the lump sum is calculated based on current earnings, the payor would receive both the aforementioned discount, and may effectively preclude the former spouse from receiving a portion of the additional future earnings. In many cases, both parties find a lump sum arrangement beneficial as it immediately severs their financial ties.
    Although a lump sum alimony award is not treated the same as a property distribution for tax purposes, the two are nevertheless similar in that, unlike periodic alimony, lump sum alimony cannot be modified after the divorce is finalized- even if it is paid in installments. Therefore, unless the payor has ample resources with which to fulfill the obligation, both parties should consider this option very carefully.

Modifiability

    Generally speaking, in Connecticut, periodic alimony awards may be modified after the divorce is finalized. C.G.S. 46b-86(a) provides that, “Unless and to the extent that the decree precludes modification, any final order for the periodic payment of permanent alimony or support, an order for alimony or support pendente lite or an order requiring either party to maintain life insurance for the other party or a minor child of the parties may, at any time thereafter, be continued, set aside, altered or modified by the court upon a showing of a substantial change in the circumstances of either party.” It should be noted that, C.G.S. § 46b-86(a) only applies to orders for periodic alimony. As set forth above, lump sum alimony payments are generally non-modifiable as, in this regard, they are essentially treated as property distributions. In addition, as set forth in § 46b-86(a), periodic alimony is modifiable unless and to the extent the pertinent orders preclude modification. As discussed above, an alimony award may be designated as nonmodifiable as to term, as to amount, or as to both. Alternatively, an alimony award may be designated as non-modifiable, except under certain specified circumstances. For example, the amount of alimony may be non-modifiable by the recipient unless the payor’s earnings exceed a set dollar amount, effectively giving that party what lawyers and courts call an earnings “safe harbor” (essentially an incentive to earn income). On the other hand, the amount of alimony may be designated as non-modifiable by the payor unless his or her earnings fall below a certain dollar amount, thereby giving the recipient added security of consistent payments, and disincentivizing the payor from voluntarily earning less money. Additionally, as discussed above, the term, or duration, of alimony may be designated as non-modifiable except in certain circumstances, such as the payor’s unemployment or disability, the death of either party, the remarriage of the recipient or the cohabitation of the recipient. 
    As set forth in C.G.S. § 46b-86(a), and as further established by applicable case law, the party seeking a modification of alimony must prove as a threshold matter that there has been a substantial change in the circumstances of one or both of the parties warranting the modification. Although there is no limit to the types of circumstances that might warrant modification, suspension or termination, cases typically involve situations where the payor has lost his or her job or has otherwise experienced a significant reduction income or where the recipient learns that his or her former spouse has experienced a significant increase in income.
    Separate and apart from the reasons advanced in furtherance of the proposed modification, it is important to note that the change must have occurred after the original orders were entered. A party will not be afforded a second bite at the apple by pointing to circumstances that could and should have been taken into account when the original orders were entered. That being said, although courts once required that the change not be contemplated at the time the original orders were entered, this requirement has since been disposed of. Thus, in seeking a modification of alimony, a party may be permitted to rely upon events that took place after the orders were entered even though they were known or expected at the time of the divorce. 

Policing Changes in Income

    During negotiations centered around alimony, clients often ask: “how will I know if his/her income goes up?” This is often a major concern where the payor has historically received large, discretionary bonuses, or where the payor is self-employed. Courts in Fairfield County and beyond have dealt with this issue in a variety of ways, depending on the complexity of the parties’ finances and the amount of money involved. In a relatively straightforward case, a court may simply order the parties to exchange tax returns annually, allowing each to see the other’s income. In more complex cases, however, the court may permit the recipient spouse to retain a tax professional to audit the payor’s books and financial records each year. In cases where the audit reveals under-reporting, the payor may be required to reimburse the recipient for any underpayment of support, and he or she may even be held responsible for the cost of the audit. These types of provisions are designed not only to facilitate the exchange of information, but also deter the obligor from hiding or otherwise misrepresenting his or her income. 

Footnotes

3 204 Conn. 224, 230-31 (1987).
4 Bender v. Bender, 258 Conn. 733 (2001).
5 Id.
6 Weinstein v. Weinstein, 87 Conn. App. 699 (2005).
7 Weinstein v. Weinstein, 280 Conn. 764 (2007).
8 Hart v. Hart, 19 Conn. App. 91, 95 (1989).
9 128 Conn. App. 405 (2011).
10 Hotkowski v. Hotkowski, 165 Conn. 167 (1973).
11 Cary v. Cary, 112 Conn. 256 (1930).
12 C.G.S. § 46b-86.