In a recent decision, the Appellate Division of the Superior Court in New Jersey found that a divorcing party’s history of regular savings as part of their marital lifestyle requires the inclusion of savings as a component of alimony even where there is no need to create savings to protect the future payment of alimony to the recipient spouse.
In Lombardi v. Lombardi, the divorcing parties were college sweethearts married for twenty years. The husband was a financial analyst, making anywhere from $1 million to $2.2 million annually in the years preceding the divorce. The wife had initially worked at Bear Stearns making approximately $80,000 a year, but became a full-time caregiver after the birth of their first child early in their marriage. At the time of divorce, the wife worked part-time as a fitness instructor, making approximately $10,000 annually.
Despite their substantial combined marital income, the parties routinely saved the better part of the husband’s salary. The parties agreed to forego an extravagant lifestyle in the hopes of living comfortably after retirement. At the time that a final judgment of divorce was entered, the parties had approximately $4 million in savings. With their penny-wise lifestyle, the parties also managed to accrue minimal debt and to fund college savings accounts for all three of their children.
During the divorce, the parties settled issues of custody and parenting time, agreed to an equal division of the marital estate through equitable division and concurred that the wife would be entitled to long-term alimony, but disputed the amount of support. The unresolved issues were addressed during the parties’ twenty-eight day trial. The wife asserted that she required $16,291 in monthly support for herself and the three children to maintain the marital standard of living. She additionally sought $30,000 per month for savings. After considering the evidence, the trial court established an alimony award in the amount of $7,600 per month, without including an amount for savings. The court concluded that a monthly budget of $14,516, excluding savings, was reasonable. After deducting the $5,000 it was awarding for child support, the $3,610 monthly after-tax income it estimated could be generated by investment of the wife’s equitable distribution share and the $583 after-tax monthly earnings from her part-time work, the trial court concluded that the wife would need another $5,323 to meet her budget. Accounting for taxes, the trial court concluded that a gross award of $7,600 would cover the shortfall.
The trial court reached this support amount by reasoning that the wife would be receiving approximately one half of the $5.5 million dollar marital estate in equitable distribution. Moreover, the trial court found that the children’s education expenses were previously provided for, the husband would cover unaccounted-for child costs and the wife was retaining the marital home, unencumbered by a mortgage.
In declining to include a component of savings in the support award, the trial court concluded that savings was only a necessary component of alimony where it was required to ensure a recipient spouses’ economic security in the face of a later modification or cessation of support. It cited to, among other things, the fact that there was “overlap” in the alimony and child support budgets, the fact that the wife could claim the children as exemptions on her income tax return and the wife’s ability to work and retain savings in light of the fact that the parties’ children were older. The trial court further relied on the husband’s substantial assets, stating the unlikelihood that the husband would seek modification of his obligations.
The Appellate Division rejected much of the trial court’s reasoning in declining to consider savings as a component of the alimony award. The Appellate Court reiterated that maintaining the marital standard of living is the touchstone of the initial alimony award. While noting that the recipient spouse's need for insurance of the alimony benefit is one justification for incorporating a savings component, the Court asserted that it is not the only reason why a supported spouse requires savings, especially where regular savings have been a part of the established marital lifestyle. By way of example, the Court highlighted that there is no demonstrable difference between one family’s habitual use of its income to fund savings and another family’s use of its income to regularly purchase luxury cars or enjoy extravagant vacations – both go to the marital standard of living and should be equitably preserved to the extent possible by alimony.
The Appellate Court also relied on the inclusion of a line item for savings in Schedule C of the Case Information Statement, required to be filed in all family actions, as evidence of the need to recognize regular savings as part of the marital standard of living.
The husband asserted that the savings component was adequately addressed in equitable distribution. The Appellate Division rejected this argument, as equitable distribution is intended to supplement, but not substitute for, alimony awards. Moreover, the Court found it was not equitable to require the wife to rely solely on assets received through equitable distribution to support the standard of living while the husband was not confronted with the same burden. In setting forth this decision, the Appellate Division recognized that New Jersey is in the minority of jurisdictions which recognize savings as a component of the alimony award. The Appellate Court vacated the alimony award and remanded to the trial court for adjudication.
This decision impacts every divorcing party – from the coupon clippers to the impulse shoppers – where alimony may be an issue. While many think of the marital standard of living as accounting for how income is expended, this decision reinforces the notion that a marital lifestyle also consists of how income is saved. Therefore, parties should consider the overall allocation of marital income to negotiate alimony awards.