Title: John D. Miller, II v. Margaret C. Miller

State: new-jersey

Issuer: New Jersey Supreme Court

Document:

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). COLEMAN, J., writing for a unanimous Court. The issue in this appeal is whether income should be imputed from a supporting spouse's investments for the purpose of determining his or her ability to pay alimony pursuant to an agreement. John Miller and Margaret Miller married in 1967 and divorced in 1988. When John Miller filed the complaint for divorce in early 1987, he was employed as Manager of Municipal Markets at Merrill Lynch, earning an annual salary of approximately $150,000. As part of his compensation package, John Miller also received an annual bonus based on his performance and on the overall profitability of Merrill Lynch. In 1987, his bonus peaked at $1,100,000. In addition to his salary and bonus, John's compensation package included an expectancy in an unspecified amount of restricted Merrill Lynch stock. Margaret Miller was a housewife throughout her twenty-one year marriage to John. In 1988, John and Margaret reached a property settlement agreement, which provided that John would pay Margaret alimony consisting of half of his monthly take-home salary plus half of the first $300,000 of his annual bonus. The agreement further provided that the alimony would not exceed $200,000 annually. As part of the settlement agreement, Margaret waived her right to receive a portion of 10,000 shares of restricted Merrill Lynch stock that John had already received by way of bonus for work performed during 1987, as well as any other shares he would receive as part of his compensation package in the future. All other marital assets were distributed equally, each party receiving approximately $1,000,000 in the equitable distribution. From 1988 through 1992, Margaret received close to the maximum alimony payments permitted by the settlement agreement. In December 1991, John became ill and discovered that he had a heart condition. In 1992, he assumed a new position at Merrill Lynch as a consultant to the Municipal Markets. He requested that change because his responsibilities as Manager of the Municipal Markets were too stressful for him. He received the same base salary as before, and believed that he was eligible for a bonus as well. However, he received no bonuses. In January 1995, John was terminated by Merrill Lynch. Starting in 1993, John fell behind in his alimony payments. During that year, Margaret sought to compel John to pay the arrearages, to modify the Final Judgment of Divorce, and to discover John's income. Following limited discovery, the trial court conducted a hearing to determine whether John's circumstances had changed in such a way that would warrant a reduction in his alimony obligation. At the conclusion of the hearing, the trial court determined that John's termination from Merrill Lynch was involuntary, constituting changed circumstances. The trial court further found that there was no proof that John conspired with Merrill Lynch to receive the restricted stock in lieu of cash bonuses in order to reduce his alimony payments to Margaret. The trial court also found that the property settlement agreement was not unconscionable because Margaret had more than adequate legal representation during both the original negotiations and throughout the present matter. On the issue of John's ability to pay alimony to Margaret, the trial court found that John had experienced a substantial change in circumstances that was not temporary in nature. The court found that John's annual income from all of his investments totaled approximately $137,500. It also determined that he was capable of earning $100,000 per year through self employment, independent consulting, or regular employment. The trial court found that Margaret earned $40,000 in 1994 as an interior decorator. It further found that her claimed annual expenses of $173,216 were inflated and unreasonable. Because of the changed circumstances, the trial court concluded that both parties could not maintain the same standard that they had at the time of the divorce, without having John deplete his substantial assets, which had been gained since the dissolution of the marriage. Based on its determinations, the trial court reduced the alimony to $48,000 per year, which would have been approximately one-half of John's imputed yearly net salary had he still been employed by Merrill Lynch. In arriving at its decision, the trial court considered Margaret's employment and investment income, John's investment income, and the fact that Margaret would share in John's Merrill Lynch pension. In an unpublished opinion, the Appellate Division affirmed the trial court's decision in its entirety, finding sufficient credible evidence in the record to support the trial court's findings. The Supreme Court granted Margaret's petition for certification. HELD: The original property settlement agreement between John and Margaret Miller should not be reformed based on Margaret Miller's allegation of unconscionability; income should be imputed from John Miller's investments based upon the average five-year historical rate of return on A-rated long-term corporate bonds. 1. Although courts have reformed existing property agreements based on unconscionability, there was no evidence of unconscionability, fraud, or overreaching in John and Margaret's settlement negotiations to justify reformation of their agreement. (pp. 10-11) 2. The duties of former spouses regarding alimony are always subject to review or modification based on a showing of changed circumstances. As part of the considerations governing a modification, a court may also take into account assets received by either party in the equitable distribution of the marital property. (pp. 11-12) 3. In an application for a downward modification in alimony, a supporting spouse's potential to generate income is a significant factor to consider when determining his or her ability to pay alimony. In addition, real property, capital assets, investment portfolio, and capacity to earn by diligent attention to business are all appropriate factors for a court to consider in the determination of alimony modification. (p. 13) 4. Although some assets may be exempt from those subject to equitable distribution, income derived from those excludable assets may be considered in the initial alimony decision or modification of an alimony award. (pp. 13-15) 5. A supporting spouse cannot insulate his or her assets from the alimony calculus by investing those assets in a non-income producing manner. (p. 16) 6. There is no functional difference between imputing income to the supporting spouse earned from employment versus that earned from investment. (pp. 16-17) 7. That it will be difficult for the courts to compute income from different types of investments is no reason to bar the value of that claim if it is otherwise established. (p. 18) 8. It is appropriate to impute a reasonable income from John's investments comparable to a prudent use of his investments, like his human capital. (p. 19) 9. Income should be imputed from John's investments based upon the average five-year historical rate of return on A-rated long-term corporate bonds. (pp. 19-21) Judgment of the Appellate Division is AFFIRMED AS MODIFIED, and the matter is REMANDED to the Family Part for further proceedings consistent with the Court's opinion. CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI, and STEIN join in JUSTICE COLEMAN's opinion. JOHN D. MILLER, II, Plaintiff-Respondent, v. MARGARET C. MILLER, Defendant-Appellant. Argued March 2, 1999 -- Decided July 15, 1999 On certification to the Superior Court, Appellate Division. James P. Yudes argued the cause for appellant (Mr. Yudes, attorney; Mr. Yudes, Kevin M. Mazza and Holly M. Friedland, on the briefs). Frederick J. Sikora argued the cause for respondent (Mr. Sikora, attorney; Mr. Sikora and James J. Moloughney, on the brief). The opinion of the Court was delivered by COLEMAN, J. This appeal involves cross-applications to modify an alimony award based on changed circumstances of the supporting spouse. The critical issue raised is whether income should be imputed from a supporting spouse's investments for the purpose of determining his or her ability to pay alimony pursuant to an agreement. The trial court and the Appellate Division declined to impute income from the supporting spouse's investments. We granted defendant's petition for certification. 157 N.J. 541 (1998). We hold that additional income should be imputed from the supporting spouse's investments. The trial court also found that the agreement was not unconscionable because defendant had more than adequate legal representation during both the original settlement negotiations and throughout the present matter. Defendant acknowledged that the terms and consequences of the agreement, including the alimony provision and her waiver of the restricted stock, were explained to her prior to executing the agreement. On the issue of plaintiff's ability to pay alimony to defendant, the trial court found that plaintiff had experienced a substantial change in circumstances which is not temporary in nature. The trial court found that plaintiff had a net worth of $6,561,644, $4.5 million of which was liquid. The trial court also noted that plaintiff had $1.5 million invested in Municipal Bonds, yielding a tax-free income of $87,500 per year. Plaintiff had invested approximately $3,000,000 in various growth stocks, paying interest and dividends of approximately $50,000 per year. Plaintiff's annual income from all of his investments totaled approximately $137,500. The trial court also determined that plaintiff was capable of earning $100,000 per year through self employment, independent consulting, or regular employment. In contrast, the trial court found that defendant earned $40,000 in 1994 as an interior decorator. Her assets included a home worth approximately $425,000, a Smith Barney Investment Account containing $723,801, and $14,000 in an individual retirement account (IRA). Defendant's claimed expenses of $173,216 per year were found to be inflated and unreasonable. Because of the changed circumstances, the trial court concluded that "both parties cannot maintain the same standard that they did at the time of the divorce without having the plaintiff deplete his substantial assets which have been gained since the dissolution of the marriage." Based on the foregoing determinations, the trial court reduced the alimony from $200,000 per year to $48,000 per year, which would have been approximately one-half of plaintiff's imputed yearly net salary had he still been employed by Merrill Lynch. In arriving at its decision, the trial court considered (1) defendant's employment and investment income, (2) plaintiff's investment income, and (3) the fact that defendant will share in plaintiff's Merrill Lynch pension. As a part of its ruling, the trial court also required that plaintiff either purchase a $250,000 life insurance policy or pay the equivalent sum for defendant's benefit in the event of his death. Finally, plaintiff was required to pay their son's college expenses, as well as defendant's attorney's fees. The Appellate Division, in an unpublished opinion, affirmed the trial court's decision in its entirety, finding sufficient credible evidence in the record to support the trial court's findings. We now modify and affirm. -A- CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI, and STEIN join in JUSTICE COLEMAN's opinion. NO. A-37 JOHN D. MILLER, II, Plaintiff-Respondent, v. MARGARET C. MILLER, Defendant-Appellant. DECIDED