AAML NJ Blog

By Carla Fried | Guaranteed Rate 

Separate emotion from your financial well-being and make a new plan

During a divorce, it can make all the emotional sense in the world to want to hold on to the house. You love it. You don’t want to add to the tumult younger kids already feel by adding a disruptive move. You simply can’t imagine uprooting.

But holding on to the home can be financially risky. Sure, your lawyers will work with you to come up with an equitable split of assets if you keep the house. That’s not the main problem. It’s everything that comes after the divorce.

Can you afford to refinance? If the home isn’t paid off, you will need to take out a new mortgage. Everything peachy with your soon-to-be ex? Perhaps you’re (both) thinking it’s no problem to just keep the existing mortgage? That’s setting you up for problems down the line. Your relationship may change. And it leaves you legally exposed to each other: If your ex gets sued, the home could be exposed.

Are you relying on alimony to keep the house? If you can’t cover all your housing costs from your own income, think twice about staying put. What if your ex loses a job? Or falls behind in payments?

Do you really have the cash flow to handle taxes, insurance and maintenance? Property tax is an especially big issue if you live in a state with high income tax and home values. The tax reform package that went into effect in 2018 sharply limits the total amount of state and local taxes you can deduct on your federal return. That effectively has raised the cost of home ownership in pricey states with pricey homes.

Will it be affordable in retirement? If you are within 10 or so years of retirement, you need to think long and hard about this. Yes, there are reverse mortgages, but taking out a reverse mortgage in your 60s or early 70s because you can’t otherwise afford to keep the home is a sign that you in fact can’t afford to keep the home.

Agreeing to sell the house today could do wonders for your later years. If you downsize, you can reduce your living costs, and perhaps your share of a home sale can plump up your retirement savings. Let’s say the two of you sell the big house, you’re able to downsize, and you pocket $100,000 to invest. At 7% compounded annually, you’d have roughly $195,000 more in savings in 10 years.

Given all the moving pieces you will be considering, it can be helpful to get an expert’s insight on how best to think about keeping or not keeping the home. A certified divorce financial analyst is trained to help you – and your divorce attorney – understand how decisions made today will play out in the future.

By Jeralyn Lawrence, AAML NJ Chapter President 

The principle that child support belongs to the child and not to the custodial parent is firmly established in New Jersey law. As a result, the misconduct or failures of their custodial parent may not be used to unduly burden children or deprive them of necessary support. This principle has come up for discussion on multiple occasions, especially in cases relating to child support claims filed later in the child's growth and development and after they have been estranged from the non-custodial parent for a significant period of time. One such case, L.V. v. R.S, 347 N.J. Super. 33, 788 A.2d 881 (N.J. Super. 2002), decided by the Appellate Division in 2002, has become a widely-cited precedent, especially when a noncustodial parent seeks to rely on the delay of the custodial parent to bar the collection of child support.

The doctrine of laches applies to bar claims or allow for relief when one party has engaged in a "delay for a length of time which, unexplained and unexcused, is unreasonable under the circumstances and has been prejudicial to the other party." W. Jersey Title & Guar. Co. v. Indus. Trust Co., 27 N.J. 144, 153 (1958). Therefore, in theory, and in practice in several cases, it has been relied upon in order to deny an action for child support many years after the birth of the child. Unlike a statute of limitations, laches is an equitable principle, and the court may exercise discretion as to what type of delay is unreasonable and thereby bar relief.

As noted in L.V. v. R.S., "Laches is an equitable doctrine which penalizes knowing inaction by a party with a legal right from enforcing that right after passage of such a period of time that prejudice has resulted to the other parents so that it would be inequitable to enforce the right." (347 N.J. Super. at 39)
However, as noted by the Appellate Division, "[s]ince welfare of children is a paramount concern, a public policy conflict arises from the application of the equitable doctrine of laches to a demand for child support." (L.V., 347 N.J. Super. at 40). The Appellate Division has repeatedly ruled that the application of the principle of laches to child support matters is closely circumscribed and that, even if it may be applied to actions by the custodial parent, that principle may not carry over to a claim by the minor child themselves.

Facts of the Case

In L.V. v. R.S., the plaintiff, who was the mother of the child and her custodial parent, appealed to the Appellate Division after the lower court denied her application for child support after a trial. The application was filed on behalf of her daughter Michelle in 1998 when Michelle was 16. The case began by seeking a paternity adjudication as well as a child support order, but the defendant, R.S., conceded that he was the father of Michelle after a genetic test established paternity with 99.99% confidence.

During the case, a pendente lite child support order was entered against the defendant for support of $183 paid weekly via wage garnishment, although its enforcement was deferred until the case was heard. The current wife of the defendant also filed a counterclaim against L.V., stating that she and R.S. had agreed to waive claims for child support, and the two claims were consolidated. The two parents, who were never married, had an off-and-on relationship between 1978 and 1981; in April of 1981, after their relationship had ended, L.V. and R.S. engaged in sexual intercourse. L.V. informed R.S. that she was pregnant with his child, and he sent her $100 for expenses.

Michelle was born in 1982, and her birth certificate named only the mother as her parent. L.V. testified that she did not want any contact with R.S. nor did she want his involvement in their daughter's life. They had little to no contact in the ensuing years, although R.S. sent L.V. a letter when Michelle was 7 years old, providing contact information and apologizing for past misconduct. L.V. did not respond to the letter or seek child support, although she stated that she was aware of how to file a child support action.

When Michelle was 16, she sought to find her father, using the internet and other public information. Eventually, Michelle found R.S.'s brother, who provided her with R.S.'s email account. Michelle and R.S. began communicating via email, sharing details of their lives and current photographs; during these email conversations, R.S. referred to himself as "Dad." L.V. called R.S. at work after learning of the conversations, and Michelle expressed that she was angry at her mother for doing this. After the conversations progressed over several months, Michelle asked R.S. for his address. He provided his work address but not his home address. However, Michelle told him that she already had found his address on her own.

At the trial, Michelle stated that she had asked for the address to file a child support application but said she did not start the relationship with her father for that reason. After R.S. received notification of the support claim, he angrily responded to Michelle, who responded in kind, ending the several months of friendly communication over email. The trial court judge denied L.V.'s support claim on the basis of laches, noting that L.V. did not want R.S. to be part of Michelle's life for many years and that, after their arguments following the support application, they would be unable to establish a bond.

In terms of any claim by L.V. herself, the Appellate Division agreed that the finding was fair. "While laches does not arise from delay alone, the actions and non-actions of the plaintiff are sufficient to justify the bar of laches to deny her any claim for reimbursement. The record shows that she was aware of procedures to obtain child support and to locate the defendant but chose not to do so in order to inhibit any daughter-father relationship." However, the court differentiated between any monetary award to L.V. and the rights of Michelle to make a claim for ongoing support moving forward. Specifically, the court held that "there is no basis to impute to a child the custodial parent's negligence, purposeful delay or obstinancy so as to vitiate the child's independent right of support from a natural parent." (Id. at 40)

The New Jersey Parentage Act provides recognition of the child's independent right to seek support or paternity, even if the action is filed by another on behalf of the child. Further, "a child is barred from relief by a prior paternity action only if the mother fully represented the child's right in the prior proceeding." (Id.)
Therefore, the Appellate Division reversed the trial court's findings and remanded for further proceedings. Specifically, the court noted, "We see no reason why he should not be compelled to support her in spite of plaintiff's actions. As her father, he owes her the duty of support regardless of the quality of their relationship. There is no such tilting of an equitable balance to deprive his daughter of on-going support." (Id.) The date of support would extend from the filing of the complaint to the daughter's emancipation, but the plaintiff could not seek retroactive child support prior to that date.

Child's Right to Support

Despite the acts of Michelle's mother, which may have severely hampered the father-daughter relationship and in fact prevented Michelle from benefiting from financial support from her father prior to the age of 16, the Appellate Division was clear that the child would not lose her rights as a result of the actions or inaction of her parent. This has been one of the enduring legacies of this case, which has been cited dozens of times in ensuing actions. While the acts of the custodial parent may bar that parent from a later claim, they do not prevent the child from enforcing his or her own interests, especially when, as is the case here, the child is clearly old enough to understand the action and express her own needs and wants.

The case also highlights another key principle in New Jersey's child support jurisprudence: The right to support cannot be waived on behalf of the child by the parent. This comes up not only in cases like L.V. v. R.S., where one parent is estranged for many years but also in cases where parties seek to make agreements that do not require child support to be paid by one parent or where parents seek to extinguish child support obligations as part of a property settlement agreement during a divorce. "The purpose of child support is to benefit children, not to protect or support either parent. Our courts have repeatedly recognized that the right to child support belongs to the child, not the custodial parent." J.S. v. L.S., 389 N.J. Super. 200, 205 (App. Div. 2006)

The Appellate Division distinguished the case from two prior cases in which laches was used to deny a child support claim. In State v. Volk, 280 N.J. Super. 57, 654 A.2d 500 (App. Div. 1995), the Appellate Division held that laches barred a claim for child support which had remained dormant for nine years after the mother and child relocated to Virginia. In the Volk case, no contact had been reestablished between the father and the child, and the prior pending claim had been dismissed after the family moved. Still, the court noted that the child may have an independent claim for support that could potentially be taken up by a guardian at litem.

Previously, in Moore v. Hafeeza, 212 N.J. Super. 399 (Ch. Div. 1986), the Appellate Division denied a plaintiff's action for support 15 years after a previous claim had been dismissed when filed by the Board of Social Services. The claim was dismissed on the grounds of res judicata and collateral estoppel, but the court noted that laches was an alternative grounds for dismissal.

However, in L.V. v. R.S., there was no prior dismissed action, and contact, however fleeting, had been reestablished between parent and child. The Court noted, "however sharp the serpent's tooth, an ungrateful child does not relieve a parent of the duty of support ...To the extent that either Volk or Hafeeza may be read to indicate that laches of the custodial parent may vitiate a child's right of on-going support, we disapprove and decline to follow such a holding." (L.V. , 347 N.J. Super. at 43)

Implications for Practitioners

L.V. v. R.S. is a widely cited case in a number of New Jersey family law matters, ranging from the right of a child to pursue support to the applicability of laches in child custody, support, or paternity issues. Even when a custodial parent has engaged in some form of wrongdoing or may be barred from seeking a claim against the other parent, this does not extinguish the rights of the child. Further, if the claim could be made in the case of the custodial parent's abandonment or death, it is likely that the claim can still be made by the child in their own interest. Even when the fault of one party may be relevant to property division or spousal support in a divorce action, it is not relevant to child support, as it is the right of the child and not of either parent. This means that children may be able to pursue claims for child support, even after lengthy estrangement and even if their custodial parent is partially or wholly at fault for the estrangement itself.

Further, the principles underlying the case serve as another reminder that parents may not contract away their children's right to support, whether through a property settlement agreement or another form of contract negotiated between them. The child would retain their rights and may be able to file a claim at a later date. Similarly, children may have a right to intervene in their own interests against both of their parents in marital settlement agreements and divorce proceedings. When constructing a marital settlement of any kind, it is important to explicitly provide for suitable child support, even if this means altering other aspects of the agreement in order to make it clear that the children's interests were not harmed in any future review.

By Rachel Leberstien, Senior Wealth Relationship Manager and Sharon Klein, President, Family Wealth, Eastern U.S. Region and head of the National Divorce/Matrimonial Advisory Practice | Wilmington Trust, AAML NJ Silver Sponsor.

As the year comes to an end, your clients face key tax considerations.Your client’s marital status, alimony payments and other divorce related issues can impact their end of year planning, and beyond. Listen as Rachel Leberstein discusses Divorce Tax Considerations at Year End and Beyond with Sharon Klein. 

For more information, reach out to Sharon Klein at 212-415-0531 or sklein@wilmingtontrust.com.

By Jasmina Woodson | Withum, AAML NJ Gold Sponsor.

As business appraisers,  we often have conversations like this:

Business Owner: These amounts were actually paid! Aren’t I entitled to make decisions regarding my company’s operations that will benefit me? 

Appraiser: When it comes to business valuation, not exactly…and here is why. 

A key step in preparing a business valuation under the Income Approach to value is determining the income stream a business would earn if it was managed by an independent party whose objective was to report the highest amount of earnings for the business. We call these earnings “normalized earnings”. Often, in matrimonial matters we deal with the owners of closely held businesses, whose goal is to lower reported earnings in order to reduce taxes. Because these owners typically have the discretion to adjust the operations of the business to achieve their goal, the appraiser must assess the business’ financials (tax returns, financial statements, detailed general ledgers, etc.) to determine what, if any, adjustments are needed to normalize earnings (i.e., what the company would have earned if managed by the unrelated party described above). Some of the more common normalization adjustments are reasonable compensation, personal expenses (perquisites), unreported income and expenses, and extraordinary or non-recurring items.

However, when valuing the subject interest of a business the appraiser must also consider all related party transactions. One such transaction is rent for the business premises. Most businesses need to rent space for operations or at the least, storage. There are instances, particularly with closely held businesses, in which this property is owned by 1) the business itself, 2) one or more owners of the business, either personally or through a real estate holding company, or 3) a related party of one or more of the business owners (i.e., relative, friend, business partner, etc.). In any of these situations the business appraiser has to assess if the rent paid by the business is at the market rate. For many reasons it may be above or below what is considered market rate. The following examples illustrate some of the motivations for business owners not to pay market rate rent. 

In order to calculate the normalized earnings, when the business is not paying market rate rent because the property being leased is owned by a related party or entity, the appraiser should consider making a normalization adjustment. To effectuate this market rate rent adjustment the appraiser typically relies on the following sources of information:

So, overall, how does the market rate rent adjustment impact your client? Without considering any of the other factors that go into preparing a business valuation, if the business owner is paying rent in excess of market rate, then an adjustment to market rate rent will decrease expenses and increase earnings and the value of the business. Conversely, if the business owner is paying less than market rate rent, then the adjustment will increase expenses and decrease earnings and thus, lower the value of the business. 

Key Takeaways

What is a Market Rate Rent Adjustment? 

The market rate rent adjustment is a normalization adjustment used when preparing business valuations in which the company pays above or below market rent to a related party or entity. 

Why do appraisers make this adjustment? 

Using the Income Approach to value, the market rate rent adjustment is made to normalize earnings so that the earnings represent those of a business managed by an independent party whose goal is to maximize profits. 

How does this adjustment impact the business valuation? 

With all other factors of business valuation remaining constant, if the business is paying more than market rate rent, the adjustment will result in an increase in earnings and an increase in the value of the business. If the business is paying less than market rate rent, then an adjustment will result in a decrease in earnings and a decrease in the value of the business.

By Kriste Rodriguez, CPA/ABV | EisnerAmper, AAML NJ Gold Sponsor

Often times, marital lifestyle/spending analyses are required in order to assist judges and attorneys in developing  the amount of support to be paid to one party. The analysis is time consuming, tedious and costly but necessary. The process includes: 1) inputting transactions from the parties’ bank, brokerage, savings, and credit card statements for a certain period of time depending on the issues of the case; 2) categorizing the data into Case Information Statement (“CIS”) categories; and 3) totaling the categories by year.  The analysis will show the total amount spent from the accounts for each CIS category.  However, the analysis can identify so much more than the obvious!

Uncover Hidden Assets

Once the data has been entered from the statements, each transaction must be traced and verified. Any unidentified transaction can lead to the discovery of hidden assets. For example, the identification of an unknown transfer can discover an undisclosed account. Large withdrawals or checks payable to cash for large amounts can  reveal potential undisclosed accounts.   Alternatively, it can potentially mean that one party is diverting funds to third parties, in an effort to “hide” money.  

Payments that appear to be legitimate can bring light to something much more.  Take for example a single payment to a homeowners’ association.  This would seem normal to most; however, if the homeowners’ association is something that one of the parties is not familiar with, it could lead to a hidden asset. This single nominal payment could reveal the purchase of a home by one of the parties without the others’ consent or knowledge. 

Dissipation of Assets

Often times, infidelity is the reason why the parties are divorcing and there may be suspicion that monies have been spent on the paramour.  A spending analysis may prove the amount spent on the paramour, which could result in a credit to the other party. 

“Gaps” or “Holes” in Spending   

Identifying holes in spending can imply numerous red flags. Unusually low or no spending in certain categories such as food and home supplies, restaurants, clothing and fuel can indicate that these items are paid for in cash. The payment in cash for expenditures can indicate any of the following:

Indication of Other Sources of Income

A marital SPENDING analysis is more than just that!  This type of analysis can also reveal undisclosed income sources.  An analysis of the inflows into the accounts could identify deposits for which the source is unknown to one of the parties, thereby indicating another source of income that must be identified by the other party in order to account for the amount when calculating support.

The analysis can also indicate that the parties are spending well in excess of their disclosed income.  If the spending exceeds the disclosed income and is not reconciled through inheritances, loans, debt balances, gifts. etc., then this could imply that the spending is being funded from an undisclosed source of income. 

As can be seen from the foregoing, although the analysis is timely and at times costly, the red flags that the analysis can reveal can produce benefits that can significantly outweigh the time and cost!

By Alana Gibson Chief Operating Officer | DGR, AAML NJ Silver Sponsor

You’ve been served—by Facebook. 

While personal service is still the gold standard of service of process, electronic service of process via social media has become much more commonplace over the years. Back in 2011, a judge approved the first case of alternative service via Facebook after a defendant in a divorce case couldn’t be located or contacted through postal mail. Since then, we’ve noticed a significant uptick in court orders for alternate service by social media coming into our office from throughout the country. 

Here’s what you need to know about the background of these requests and what to expect. 

Social media can be an effective form of alternate service

When a spouse simply walks out on their marriage without providing a new address or is evading service, the legal processes for divorce get complicated. Without a known address, personal service becomes much more difficult. Social media provides an opportunity for an alternate method of service that’s likely to reach the recipient. 

When the individual to be served has left the country, international process service is the next option for service. This means going through either formal or informal methods depending on the need to enforce a judgment. However, another option when not seeking to collect a judgment aside from service via agent could be social media service when appropriate according to the rules of each country.

These conditions can make service by social media a better option. After all, as the court stated in Noel B. v. Anna Maria, Facebook has no geographical constraints and currently has 2.91 billion active monthly users, with almost 90% outside of the US and Canada. 

But service via social media isn’t just for international service. Since the early 2010s, there have been numerous cases that have established firm precedent for alternative service via social media in cases pertaining to matrimonial law. 

For example, in Baidoo v. Blood-Dzraku, the application for alternative service was submitted under a New York rule that permitted a court to order any method of service that was appropriate for a case’s circumstances, as long as it could be shown that other options were “impracticable.” 

Due process requires any service method devised by a court to be reasonably calculated to notify the defendant of the court proceedings. As noted in Baidoo, publication service, though it has long been permitted, usually doesn’t provide a reasonable probability of actual notice. 

Presiding New York Supreme Justice Matthew Cooper even commented on the common use of publication in the Irish Echo and New York Law Journal in New York County in his opinion, saying, “If that were to be done here, the chances of the defendant, who is neither a lawyer nor Irish, ever seeing the summons in print, either in those particular newspapers or in any other, are slim to none.”

Given that reality, when service by publication is the last available option, it begs the question whether service via social media may in fact be the better choice. 

Requesting alternate service

In New Jersey, a family court plaintiff can request permission from the court to use an alternative method of service if a spouse has no known address. This is usually either substituted service by a third party who can serve divorce papers to the defendant; or service by publication, usually in a newspaper in the county where the action is filed. 

Before a court will permit the request, however, the plaintiff must provide an affidavit of diligent  inquiry that demonstrates the completion of specific efforts to locate the spouse. Even after years of court precedent, personal service is the preferred method for service of process by far. If there’s a known address or ability to conduct an investigation to locate a new address for an individual, courts still require that the established steps of due process are followed prior to approving service via Facebook.

When seeking alternate service via Facebook or any other social media platform, it’s important to have conducted the appropriate due diligence prior to requesting. This includes searching for forwarding addresses, potentially bringing in a private investigator, and more.

Pursuing service through social media

In cases where service via social media has been ordered, the judges clearly articulated that they viewed this method as useful and were unopposed to bringing technology into legal practice when necessary.

In each case where service via social media has been ordered, there were several things the courts looked for prior to approving the request:

Is this the right individual?

Many critics of the practice of service via social media point out that it’s easy to create fake accounts. This is true—and it means that it’s important to do the necessary research. Clients should be prepared to submit affidavits of communications with the defendant through that account. If that’s not available, then other concrete evidence the account belongs to the defendant should be produced, such as regularly posting pictures of daily activities or updates containing information that’s not common knowledge. 

Why is social media a better method than others?

This goes back to the need to attempt personal service first. This type of service will only be approved once other options have been exhausted.

In Baidoo v. Blood-Dzraku, the wife sought a divorce from her husband whom she didn’t live with or see for five years after the marriage. Serious attempts were made to locate the husband. 

These efforts failed to turn up an address for him. In situations where there’s clearly no other way to effectuate service, service by Facebook would seem to be a logical path forward given that the wife and husband communicated regularly on Facebook Messenger.

Can we be sure they will receive notice?

Receiving notice and establishing jurisdiction are key elements of service of process. The courts want to be confident that an individual is likely to receive the documents. That’s why it’s important to have proof that a subject regularly uses their social media account, whether it’s for using direct messages, posting updates, or interacting with other account users.  

Account authentication is key

As noted above, fake accounts are a real concern when it comes to service of process via social media. The Baidoo court addressed this by requiring the plaintiff to submit an affidavit verifying that the defendant owned the account in question. 

She provided copies of messages between herself and the defendant and identified photos of the defendant on the account. While this wasn’t absolute proof of ownership, the court determined that it was sufficiently persuasive. 

The court also required her to show that the defendant logged into the account on a regular basis. Another step the court took to ensure that the account was legitimate and belonged to the defendant was to require that the notice be posted three times, at weekly intervals. The plaintiff also had an active mobile phone number for the defendant, making voice mail and/or text available as a backup notification method.

While the effort required to authenticate account ownership and ongoing use is significant, it doesn’t appear to be more strenuous than the work that goes into getting service via publication approved and completed. What’s more, in most cases it’s likely more effective.  

Pitfalls of e-service

Service of process via social media has its pitfalls. It’s possible that an account is fake, or that the owner stops using the account, or that a message might go to the wrong person. However, the measures used in Baidoo offer a degree of security. It’s also important to point out that the method under discussion is Facebook’s private instant messaging service, Facebook Messenger, and not a public post.

When a private message is opened on Facebook Messenger, Facebook provides a “seen” message with the time and day the message was received. It is of course still not possible to prove that the person who saw it was the account owner—for example, a friend or family member may have access to a defendant’s account and open the message. This is also the case with email. 

For these reasons, e-service is by nature less reliable than personal service or mail service with return receipt requested. Even considering these pitfalls, though, notification by instant message seems to be more reliable in this day and age than notification via publication.

What’s more, not all cases will get approved. Take Fortunato v. Chase as an example. Fortunato claimed the credit card debt in her name was actually accrued by her estranged daughter. In an effort to implead the daughter on the suit, Chase was unable to locate an address and requested to effect service through Facebook. Yet the court denied the request, stating there wasn’t enough evidence that the profile belonged to the correct individual and “the Court’s understanding is that anyone can make a Facebook profile using real, fake or incomplete information.”

Looking forward

Service of process via Facebook as an alternate service method has become more widely accepted these days, and its use suggests that it’s a more effective option than service by publication. Prior to pursuing this service method, however, it’s critical to demonstrate necessary due diligence in attempts at personal service as well as proof of ownership and frequent use of the Facebook account.

By Jeralyn Lawrence, AAML NJ Chapter President

Alimony allows former spouses who were financially dependent on their partners during their marriage to meet their own needs. It takes into account the economic entanglement that the two people had. Therefore, the resources of the former spouses, the marital standard of living, and the age and health of both parties, along with the duration of the marriage, have long been substantial factors in determining an alimony award.

When circumstances change, an alimony order may also change. This means if one party's income changes significantly, it may be a reason to reevaluate or terminate the obligation. In New Jersey, alimony may also be terminated when the recipient remarries or cohabitates with another partner.

In the past, while it was clear that remarriage terminates an obligation to pay alimony, some recipients have chosen to live in marital-like situations with combined finances but without a legal marriage in order to preserve their alimony. Therefore, the question of when cohabitation similar to marriage emerges has become a subject of disputes between former spouses when alimony has been ordered.

In 2014, an amendment to the state's alimony statute (N.J.S.A. 2A:32-23n) laid out specific factors to be considered in order to determine when cohabitation is present sufficient to cause the termination of alimony. One unpublished 2020 case considered by the Appellate Division, Wajda v. Wajda, lays out some guidance about how the Appellate Division views what is needed for a movant to present a prima facie case of cohabitation sufficient to receive discovery or move forward to a plenary hearing.

Ending Alimony for Cohabitation in New Jersey

Prior to the 2014 legislative reform, several cases established principles on which alimony could be ended when the recipient became seriously involved with another partner, even without a remarriage. The 2014 reform aimed to codify and clarify the factors that could lead to a determination of cohabitation. Cohabitation under the law does not necessarily require the couple to reside in one household, but it is defined as an "intimate, mutually supportive personal relationship wherein a couple shares duties and privileges typically associated with marriage or a civil union."

Overall, courts reviewing these types of petitions focus on the financial aspects of cohabitation, which may be considered to differentiate cohabitation from a dating relationship. A dating relationship is not a sufficient reason to terminate alimony, while the "marriage-like" relationship of cohabitation is sufficient. The elements laid out in the statute that point toward cohabitation are the following:

In order to move a petition for termination forward to discovery, a movant must make out a prima facie case for cohabitation. It is not necessary to show that all of the above factors are present in order to make a case for cohabitation, and the definition includes both emotional elements like recognition of the relationship, living together, and sharing lives as well as primarily financial elements such as joint liabilities and joint budgeting. However, the financial elements may provide the clearest demonstration of a difference between cohabitation and a dating relationship, both of which are often public and supportive.
At the same time, these are the most difficult elements to prove without some access to discovery. People are generally not in the habit of sharing their personal financial decisions, so while a movant may be able to show photos of a couple traveling together, it may be very difficult to present any evidence of intertwined finances without access to discovery.

It should be noted here that a prima facie case does not necessarily require extensive evidence. A prima facie case is one that is "sufficient to establish a fact or raise a presumption unless disproved or rebutted; based on what seems to be true on first examination, even though it may later be proved to be untrue." (Black's Law Dictionary). It is therefore unnecessary for a movant to prove cohabitation in fact in order to make out a prima facie case.

Wajda v. Wajda

In 2019, the Appellate Division ruled in Landau v. Landau (461 N.J. Super. 107, 218 A.3d 823 (N.J. Super. 2019)) that applicants seeking a termination of their alimony obligations must establish a prima facie case for cohabitation in order to proceed with discovery. However, the court did not specify what type of evidence or how much was sufficient to make out such a case, nor did it evaluate any presented evidence of cohabitation on the merits.

The Landau court reversed a trial court decision granting discovery to an ex-husband and alimony payor who argued that his ex-wife and her new boyfriend traveled together and enjoyed a shared social life, noting that the two maintained separate homes but often slept at each other's home. The Appellate Division reversed the discovery order on the basis of the privacy rights of the supported spouse in her private relationships because the court did not state that a prima facie case was made While the court indicated that discovery could not be used to make a prima facie case where none existed, it did not spell out which elements movants needed to meet in order to make out such a case.

Wajda v. Wajda, decided approximately 7 months later on April 23, 2020, was an unreported and therefore non-precedential decision of the Appellate Division. Here, the Appellate Division reversed a trial court judge who had denied discovery and found that the movant did not make a prima facie showing of cohabitation. In the Wajda case, the movant presented a certification stating that his former wife's new boyfriend often stayed in the ex-wife's home, alleging that they had established cohabitation.

The payor paid $425 in alimony weekly to his ex-wife, and he presented a report by a private investigator detailing the above assertions. In response, the ex-wife said that her boyfriend lived in New York and only stayed with her and that they did not share joint finances. As the court noted, "The report also indicated that A.S. remained in the home when defendant was not present and when the parties' daughter was there, kept his car there, often drove defendant's car, did some household chores, and kept his two dogs there."

The Appellate Division did not rule on the merits of the underlying cohabitation claim. However, it  overturned the trial court, affirming that the movant had made a sufficient showing to warrant further discovery and thus a prima facie case. The Appellate Division recognized that it would be nearly impossible to address the economic factors of cohabitation without moving forward to discovery, ordering the case to be returned to the trial level for further proceedings. "We recognize the difficulties of developing proofs of things such as intertwined finances, joint bank accounts, shared living expenses and household chores, and recognition of the relationship in the couple's social and family circle, without either invading a former spouse's privacy or taking some discovery on the issue... The question is whether plaintiff made a sufficient showing to warrant further discovery. We think he did." The court, however, did not explicitly address the issue of what was necessary for a movant to make out a prima facie case.

After Wajda: The Temple Decision

The Appellate Division's later decision in Temple v. Temple (A-0293-20 (N.J. Super. Jun. 17, 2021)) provided much greater clarity to movants seeking to terminate an alimony obligation on the basis of cohabitation and move forward to a plenary hearing on their case. The decision in Temple, which reiterates many of the principles expressed in the Wajda decision, was originally issued as unpublished but was later published, becoming binding authority in New Jersey alimony cases.

In the Temple case, the Appellate Division once again dealt with a situation where a trial court had erroneously denied further discovery to a movant who had laid out a claim to terminate alimony on the basis of cohabitation. The payor alleged that his ex-wife had been in a relationship with the same person for 14 years, during which her new partner had referred to her as his wife, that the couple lived together, and that they shared a common lifestyle. However, the trial court denied the ex-husband's petition for further discovery because his petition did not address all six of the enumerated factors in the statutory definition of cohabitation.

The Temple court noted, as the Wajda court had prior, that it was extraordinarily difficult for movants to make out any claim regarding the financial elements of cohabitation without a successful motion for discovery. Requiring such at the motion level would make a successful claim "as rare as a unicorn," the Appellate Division noted in their decision. The court held that the trial court was incorrect in requiring movants to make a showing of all six factors for cohabitation before being granted discovery on the basis of a prima facie case.

Going further, the Appellate Division likened the consideration of such a motion to that given to a summary judgment motion, in which the court determines whether issues of material fact are being presented. Given that such issues were clearly at hand, the movant should have received an assumption of truth to the extent of allowing discovery to move forward in the case. Of course, the facts in the Temple case may be stronger than those in the Wajda case or other cohabitation claims, but the published ruling lays out clear guidelines that can help movants make out such a claim in a petition to terminate alimony obligations.

Lessons for Practitioners

The Wajda case was a precursor to the Temple decision. Both indicate thought from the Appellate Division about how payors of alimony may access the necessary information to make out a claim of cohabitation sufficient to reach discovery or, after that, a plenary hearing for termination. They provide additional clarity to a matter that has long been murky for many practitioners and may correct the tendency on the part of some trial courts to quickly dispose of cohabitation claims.

Of course, the strength of any claim for termination of alimony relies most on the facts of the specific case as well as the arguments that can be marshalled to support the claim. Timeliness can be another significant factor, although the Wajda case points to a much shorter relationship of months, rather than the Temple relationship of over a decade, as a potential example of cohabitation. Practitioners should keep a fact-sensitive approach at hand, using the approach laid out in Temple to point to sufficient evidence to move forward to obtain further financial or other relevant details.

By Alex Krasnomowitz and Rory Gannon of Smolin, AAML NJ Gold Sponsor

A business owner’s ownership interest is often one of their most significant personal assets. Many business owners are surprised to learn that the courts consider some or all of it marital property. Tax issues related to the family business can complicate divorce matters, often to a far greater degree than owners anticipate. 

Tax-free transfers

Following a divorce, most assets can be divided between the business owner and their soon-to-be ex-spouse without any federal income or gift tax consequences. These tax-free transfer rules cover cash and business ownership interests.

Suppose the business owner’s spouse receives an asset under this rule. In that case, they inherit the tax basis (for tax gain or loss purposes) and its current holding period (for short-term or long-term holding period purposes) from the other spouse. In other words, the spouse who winds up with the asset will have the same tax liability as they would have had if they had been the one to own the asset from the beginning.

Say, for example, that a business owner swaps their share of the house in exchange for keeping 100% of the stock in their business. This type of transfer would be tax-free, and the existing basis and holding periods for the stock and house would carry over to the person who receives them. 

This kind of transfer appeals to many business owners because their business is their source of pride and income. Most business owners have put in a lot of effort and sleepless nights to build or grow their business. They are often justifiably proud of what they’ve created.

Additionally, for small business owners, finding and keeping good employees can be a severe difficulty. This challenge often provides an extra incentive not to rock the boat by involving a soon-to-be ex-spouse in the business.

Tax-free window

The tax-free federal transfer rule for the existing basis and holding period applies during a divorce or when it becomes final. It can also apply after the divorce, so long as changes are made “incident to divorce”—meaning that the transfer must occur within a year of when the marriage ends or within six years of the marriage ending if the transfers are made under the divorce agreement.

Additionally, the tax-free transfer rule is now extended to ordinary-income assets, not just to capital-gains assets. If a business owner transfers receivables or inventory to their ex-spouse in a divorce, the transfer is tax-free.

Tax implications down the road

However, while assets can be transferred tax-free during the divorce, that doesn’t mean they won’t be taxed ever. The person who winds up owning an appreciated asset (an asset for which the fair market value exceeds the tax basis) must recognize taxable gain if and when the asset gets sold.

For instance, if the business owner’s ex-spouse ends up owning a percentage of their highly appreciated small business stock, the ex-spouse won’t face any tax consequences when they initially receive the shares. Instead, it will be as if they owned the shares all along. That said, when the ex-spouse ultimately sells the shares, they’ll owe capital gains tax. Since the business owner no longer owns those shares, they won’t owe anything.

Thus, the person who winds up owning the appreciated assets must pay the built-in tax liability when they decide to sell them.

Net-of-tax perspective

If you factor capital gains tax into the overall value of the appreciated assets, then their value isn’t the same as an equal amount of cash or assets that haven’t been appreciated. This net-of-tax perspective matters immensely for any business owner negotiating a divorce settlement.

Note that the same net-of-tax perspective would apply to any ordinary-income assets held or transferred during the divorce. When the asset is later sold, converted to cash, or exercised (in the case of non-qualified stock options), the person who owns the asset at that time must recognize the income and pay the tax liability.

Helping clients avoid surprises

For many people, getting divorced can feel like taking on an extra job. The legal process can make significant demands on a business owner's time, their most precious asset. However, it’s vitally essential for a divorce client to plan. 

If you’re handling a divorce case that requires careful tax considerations around a business’s appreciated value or if you have questions about the process, the experienced professionals at Smolin Lupin can assist you—get in touch.

By LEAP Legal Software

New Jersey attorneys need an easier way to manage the onerous task of creating, filing, and storing legal court forms. 

Microsoft 365 is an excellent place to start for any small to mid-sized New Jersey law firm. Programs like Microsoft Word are now “must-haves” for attorneys who also manage their practice but it still doesn’t complete a law firm’s practice management toolset. Even with if-then-else statements, merge fields, and Find and Replace, no attorney can argue that Microsoft Word is an application built specifically for legal professionals - whom have the responsibility of creating and filing multiple court forms without any room for error. 

The following scenario is all too common for law firms in New Jersey: you search for the right court form, consolidate client information from loose post-it notes and journals, and manually key in matter details only to find that you’re missing information from your client or you have accidentally made a mistake. 

Microsoft 365, although important to your business, is only the first step in properly managing court forms and legal documents. These applications still fail to sync information between client and matter information, provide data input, or follow the strict guidelines of integrity that are applied by New Jersey bar associations. It’s important to take these Microsoft 365 tools and enhance them for your practice with the latest legal technology. Doing so will make your workflows more efficient, your services more attractive for clients, and your firm more profitable.

Is there a solution that will allow your law firm to adopt this way of practicing? There is. 

LEAP Legal Software is a true-cloud practice management solution that offers New Jersey attorneys the ability to simplify legal court form and document management with strong Microsoft 365 integrations. In fact, these integrations are part of a feature simply called “LEAP for Word.”

With strong Microsoft 365 integrations, and a dedicated Design & Automation team with over 25 years’ of expertise, your management of court forms will look much like the scenario above with the adoption of strong legal software like LEAP. 

Now, consider how LEAP could improve court form and document management for your New Jersey law firm:

1. You have a client and need to fill out a form for a New Jersey court. Luckily, LEAP Legal Software has imported and customized the templates into your practice management software already. 
2. Don’t already have what you’re looking for? LEAP provides an ever-growing library of updated New Jersey court forms readily available. You didn’t have to search a court’s website or have multiple applications running at once - you find these forms in the same place where all your matter information is already located. 
   • See a full list of New Jersey court forms that are provided in LEAP:  https://leap.us/legal-forms/new-jersey/
3. LEAP for Word instantly pre-fills your legal forms with the detail from the electronic matter, allowing customizable options, saving you time and the worry about entering incorrect information on accident. 
4. You securely share the document with colleagues, clients, and third-parties as needed and request e-signatures once the form is complete. 
5. You file the form with your New Jersey court and then keep a saved electronic file in LEAP, readily available when needed. 

Court form and document management can be easier for your New Jersey law firm if you adopt the right tools.

LEAP Legal Software is everything that you need to run your New Jersey law firm. Learn more about what’s possible with LEAP by visiting www.leap.us. 

By Jeralyn Lawrence, AAML NJ Chapter President

A June 2021 ruling by the Appellate Division has clarified our law on the amount of evidence required to obtain discovery related to the cohabitation of a supported spouse in alimony cases.

Alimony in New Jersey may be terminated when the supported spouse remarries or cohabitates with another partner. In 2014, the New Jersey legislature created statutory amendments to the alimony statute (N.J.S.A. 2A:32-23n), laying out specific factors that may be evaluated to determine cohabitation. While it has long been understood that remarriage terminates alimony obligations, some recipients instead chose to live in marriage-like relationships, including having intertwined finances, in order to preserve their alimony. This legislative reform aimed to close that loophole, but it has been difficult to define exactly how a payor may document their argument.

The Appellate Division ruling in Temple v. Temple (A-0293-20 (N.J. Super. Jun. 17, 2021)), decided on June 17, 2021, lays out specific guidance about how a payor may make an argument for cohabitation and seek a plenary hearing for termination or alteration of their alimony obligation. It also may make it easier for practitioners to obtain the evidence they need to make this showing of cohabitation. The Temple decision was originally issued as an unpublished ruling but has since been published and as such is binding authority.

Landau v. Landau 

In Landau v. Landau (461 N.J. Super. 107, 218 A.3d 823 (N.J. Super. 2019)), decided in 2019, the Appellate Division addressed the effect of these amendments on a party seeking to prove cohabitation in order to terminate their obligations to pay alimony.

Specifically, the Landau decision confirmed that applicants seeking to terminate alimony obligations must establish a prima facie case for cohabitation before obtaining discovery on the issues. However, the court did not address how much evidence was sufficient for a prima facie case for cohabitation nor did it address the merits of any particular claims for cohabitation.

In the Landau case, the ex-husband argued that the ex-wife and her boyfriend traveled and attended social events together and that they slept over at each other's separate homes. While the court did not address the merits of these claims, it ordered discovery to be conducted, never ruling, however, that a prima facie case had been made.

The Landau court placed restrictions on the use of discovery to compel evidence relating to the private relationships of a supported spouse, upholding the privacy rights of the supported spouse. It upheld existing case law requiring a prima facie showing of cohabitation to order discovery rather than allowing for discovery to move forward to make that prima facie showing upon the filing of a petition for suspension or termination of alimony.

As the matter of what constitutes such a prima facie case was left undefined, practitioners were left without clear guidance on what was needed to fulfill the requirements of the statute.

Temple v. Temple

Temple v. Temple provides much greater clarity, noting the limitations of the Landau decision in providing an analysis of cohabitation and the need to balance the interests of both parties in arriving at a decision.

The parties in the Temple case were married in 1986 and divorced in 2004. Per their divorce settlement, the husband was required to pay $5,200 monthly in permanent alimony. However, in July 2020, the husband sought to terminate his alimony obligation on the basis that his ex-wife was cohabitating or remarried to another man. He further asserted that she had been in a relationship with this other party for at least 14 years. Based on the divorce agreement between the parties, cohabitation was a reason to modify or terminate the ex-husband's alimony obligations.

The trial court misapplied the Landau decision and held that the application made by the husband failed to make a prima facie showing of cohabitation. While the ex-husband provided a range of evidence obtained by a private investigator showing that the ex-wife had lived with the other person for some time, that the other person had called the ex-wife his "wife" on social media, and other indications of a shared lifestyle beyond that of a dating relationship, the trial court stated that the husband did not address all six of the factors specifically elaborated for cohabitation in the statute.

Statutory Definition of Cohabitation

The elements defined by N.J.S.A. 2A:34-23(n) to indicate cohabitation are as follows:

1. Intertwined finances such as joint bank accounts and other joint holdings or liabilities;
2. Sharing or joint responsibility for living expenses;
3. Recognition of the relationship in the couple's social and family circle;
4. Living together, the frequency of contact, the duration of the relationship, and other indicia of a mutually supportive intimate personal relationship;
5. Sharing household chores;
6. Whether the recipient of alimony has received an enforceable promise of support from another person within the meaning of subsection h. of [N.J.S.A.] 25:1-5; and
7. All other relevant evidence.

As noted by the Temple court, it is difficult to make a clear prima facie case for either points 1 or 2 without discovery, as people are generally private about their finances and financial planning. They do not make this information available publicly nor to their former spouses with whom they have been in litigation.

While the trial court implied that a showing of all six specific factors was necessary to make the prima facie case required for discovery, the Appellate Division indicated that such would present a nearly impossible barrier, making such cases "as rare as a unicorn." An applicant is not mandated to make a prima facie case of cohabitation for all six statutory factors before being granted discovery.

Approach Akin to Summary Judgment

The Temple court likened the issue to that of a summary judgment motion:"We cannot emphasize enough that judges must be cognizant that most information relevant to cohabitation is not readily available to movants. These motions are akin to summary judgment motions filed prior to the completion of discovery ... Although it is true family judges should be careful not to permit a fishing expedition into a supported spouse's private affairs on a weak claim, judges must also remain aware that movants ... do not have access to much of the information relevant to a dispute about cohabitation. In civil matters, courts often quite correctly deny or continue summary judgment motions until discovery is completed ... Contrary to that well-established approach, Jeffrey was put to the burden of demonstrating the factual sufficiency of his claim when most of the relevant information remains in Cynthia's possession."

Given that issues of material fact were presented by the payor and rebutted only by a statement denying those allegations by the supported spouse, the payor was entitled to an assumption of truth in order to determine whether or not discovery could be ordered in the case.

The trial court placed an undue amount of weight on the certification of Ms. Temple as opposed to that of Mr. Temple, even though the statements in the certification were unsupported by evidence. The certifications of both parties indicated the existence of a genuine dispute about the material facts in question that went beyond a mere fishing expedition in the private life of the supported spouse. In fact, many of the references to the relationship between the supported spouse and the other party were scrubbed from social media following them learning of the ex-husband's investigation.

Seventh Factor of Cohabitation

In the Temple decision, the court emphasized the importance of the seventh factor defined by the Legislature in determining whether a sufficient prima facie case was made out to order discovery to proceed. That is, "all other relevant evidence."

A dating relationship is not equivalent to cohabitation, and the financial factors are important in proving cohabitation sufficient to suspend, modify or terminate an alimony obligation, which is primarily a financial matter. However, in order to reach the point of a plenary hearing, it may be impossible for the payor to establish any sort of prima facie case on these matters without discovery. As the court noted, the six enumerated factors do not constitute "the alpha and omega of what ultimately persuade a court that a supported spouse is cohabiting."

Previous cases have indicated that discovery was not available to assist in making that case, while the Temple ruling establishes that a movant must show simply that the supported spouse and another person are in a mutually supportive, intimate personal relationship that indicates the undertaking of duties and privileges commonly associated with marriage, especially when taken together and when the statements presented by the payor are taken for the purposes of assessment as true. While social media posts and the like may not be sufficiently probative to actually terminate an alimony obligation, they can be considered by the court in determining whether discovery may be ordered.

It should be noted that the strength of the arguments presented in the Temple case vary significantly from the underlying facts in the Landau case and in several other Appellate Division cases since that time which have denied discovery related to a claim of cohabitation.

In the Temple case, Mr. Temple argued that Ms. Temple and the other party had shared the same home on multiple occasions, had been in a relationship for over 14 years, publicly referred to themselves as married, traveled together extensively and publicly and had spent significant time on vacation together. While the payor's presentation was not sufficient to make the prima facie case of cohabitation necessary for a plenary hearing, it was sufficient to receive discovery that could enable him to do so if the appropriate evidence regarding living circumstances and finances was brought forward in the discovery process.

Previous cases may be differentiated from the Temple case by the length of the cohabiting relationship alleged and the multiple public declaration by the other party that the supported spouse was his "wife," as well as other factors. While Mr. Temple may have presented a strong enough prima facie case to receive discovery to compel the financial information needed to prove cohabitation for the purposes of terminating alimony, the same is not necessarily true for movants with underlying claims that are weaker.

The Appellate Division reversed on the discovery matter and remanded the case for further proceedings at the trial court level.

Key Takeaways for Practitioners

The significant Temple decision may make it possible for more payors of alimony to make successful efforts to compel discovery in cohabitation cases. Should that evidence establish a clear claim of cohabitation, they may then move forward to a plenary hearing to prove their case and reduce, suspend or terminate their alimony obligations. It provides much greater clarity about the amount of evidence and types of claims necessary, when taken in totality, to move forward to discovery. It should also help to correct the misapplication of the Landau decision in cases where discovery is wrongly denied to movants, removing a seemingly impossible burden in many cases.

In all cases, the strength of a cohabitation claim depends on the underlying facts and legal argumentation, as well as proper timing of the filing. Cohabitation claims that are brought too quickly following the divorce or the inception of a new relationship may be far more likely to fail than ones that can demonstrate a lasting relationship that can be compared to marriage. Cohabitation inquiries are particularly fact-sensitive, and the unique circumstances of each situation may lead to different outcomes as the factors set out in statute are weighed.