Percentage-Based Alimony Awards

Posted in Blog, Miscellaneous by on October 23rd, 2017

By: Attorney Muska Yousuf | Associate

In 2011, the Alimony Reform Act was enacted and completely Massachusetts-Attorney-Divorce overhauled the way alimony is awarded in Massachusetts. Recently, three big cases went before the highest court in Massachusetts, the Supreme Judicial Court, to address important questions about the Alimony Reform Act. These cases are (1) Young v. Young, (2) Popp v. Popp, and (3) Van Arsdale v. Van Arsdale. All three of these cases have the potential to considerably change how alimony is awarded in Massachusetts. I plan on discussing each of these cases in different blog posts because they warrant individual attention. Therefore, this blog post is dedicated entirely to the Young v. Young case.

FACTS OF THE CASE

During the course of their 24-year marriage, Joy Young was a stay-at home mother and Derek Young was an executive at Fidelity Investments. Due to Derek’s high-paying job, the couple enjoyed an affluent, upper-class lifestyle. However, Derek’s total yearly income would change from year to year because of the fluctuating nature of his compensation package. One year he might receive a large bonus, and another year he might receive no bonus at all. Whenever Derek’s income changed, Joy would adjust her lifestyle accordingly.

In 2016, Joy and Derek divorced and the court entered an alimony award to Joy. Under the Alimony Reform Act, the amount a recipient spouse receives in alimony depends on two factors: (1) the recipient needs at the time of the divorce, and (2) the payor’s ability to pay at the time of the divorce. A recipient’s “need” is based on how much he or she would need to maintain the same lifestyle they enjoyed during the course of the marriage. In this case, the court determined that Joy would need $643,500 per year (or $53,625 per month) in alimony in order to maintain the upper-class lifestyle that she enjoyed during the marriage. Similarly, the court determined that Derek was able to pay $643,500 per year to meet her need. However, instead of ordering Derek to pay this amount, the court ordered Derek to pay Joy alimony in the amount of 33% of his total annual income earnings. The judge reasoned, “Because the parties lived with the expectation and reality that [Derek’s] bonus level is on an upward trajectory, and given the fact that their needs historically followed this upward trajectory, and due to the complex nature of [Derek’s] compensation over and above his base salary and bonus, it is reasonable and fair in the circumstances to use a percentage for the future alimony particularly given the constantly shifting nature of [Derek’s] compensation. Derek appealed the court’s decision to grant a percentage-based alimony award and the issue went up to the Supreme Judicial Court of Massachusetts.

ISSUE BEFORE THE COURT

Whether percentage-based alimony awards violate the Alimony Reform Act’s procedure for determining how much a recipient spouse should receive in alimony when the supporting spouse’s income fluctuated from year to year during the marriage.

DEREK’S ARGUMENT

Derek main argument is that the Alimony Reform Act prohibits the court from setting alimony awards based on the recipient’s future need and the payor’s future ability to pay. The Alimony Reform Act requires the court to only consider the recipient’s need and the payor’s ability to pay as of the date of the divorce. Derek argues that percentage-based alimony awards arbitrarily set an alimony amount in the future without taking into consideration the recipient’s need or the payor’s ability to pay in the future.

For example, in 2017, if Derek’s total annual income came to $1,000,000, then Joy would be entitled to 33% of that, which comes to $330,000 in alimony—an amount that is less than what the court determined her need to be (remember, the court found that Joy needed $643,500 annually). In 2018, if Derek made $2,000,000.00, then Joy would be entitled to 33% of that, which comes to $660,000 in alimony—an amount that is greater than what the court determined her need to be.

According to Derek, the only way an alimony award can be modified in the future is if either party files a Complaint for Modification with the court. Under these circumstances, whoever files the Complaint for Modification must prove that a material change in circumstances has occurred which necessitates a modification in the alimony award. At the modification hearing, the court will re-examine the recipient’s need and the payor’s ability to pay as of the date of the modification hearing. In short, Derek believes that if Derek or Joy wanted to modify their alimony award every year, they must do so by filing a Complaint for Modification, instead of automatically modifying the alimony award based on a percentage of Derek’s income.

JOY’S ARGUMENT

Joy’s main argument is that the Alimony Reform Act permits percentage-based alimony awards in special circumstances in which the parties’ lifestyle during the marriage changed frequently due to the payor’s fluctuating income. As mentioned above, the court determines the recipient’s “need” by looking at the lifestyle the couple enjoyed during the marriage. In this case, the parties’ lifestyle varied from year to year depending on Derek’s income. Therefore, according to Joy, the only way to mimic that fluctuation in lifestyle during the marriage is to issue a fluctuating alimony award based on a percentage of the payor’s income.

For example, let’s say that in 2017, at the time of the divorce, Derek had an unusually rough year and only made $100,000. Then, let’s say that in 2018, a year after the divorce, Derek had an unusually lucrative year and made $3,000,000. Lastly, let’s say in 2019, two years after the divorce, Derek’s income goes up to $6,000,000. If at the time of the divorce the court issued a fixed, dollar amount of alimony based on Derek’s income in 2017, then the alimony award would not reflect the true fluctuating nature of Derek’s income and leave Joy with a much lower alimony award than if the couple had filed the divorce in 2018 or 2019.

OUTCOME OF THE CASE

On September 26, 2017, the Supreme Judicial Court ruled in favor of Derek. The Court first addressed how “need” is determined under Massachusetts law, and then addressed how and when percentage-based alimony awards can be awarded to meet a recipient’s “need.” As a result of this analysis, the Court determined that a percentage-based alimony award in the present case was not appropriate to meet the recipient’s “need.”

A. Determination of Need for Support

Alimony is defined in the Alimony Reform Act as “the payment of support from a spouse, who has the ability to pay, to a spouse in need of support.” In the present case, given Derek’s substantial ability to pay, the determination of alimony rested solely on Joy’s needs, that is, the amount necessary to allow her to maintain the lifestyle she enjoyed prior to the termination of the marriage. Where, as here, Derek’s income grew considerably over the years and the marital lifestyle grew with it, Joy’s need for alimony reflects the need to enjoy the more expensive lifestyle she had grown accustomed to before the marriage ended.

The SJC stated that the lower court erred in determining that Joy’s need for support is to continue to expand after the divorce commensurate with the anticipated “upward trajectory” of the husband’s income. The Court stated that “[e]ven if the parties enjoyed an upward mobile lifestyle for the duration of their marriage, nothing in the language of the statute or our case law suggests that the recipient spouse is entitled, by way of alimony, to enjoy a lifestyle beyond what he or she experienced during the marriage.”

B. Percentage-Based Alimony Awards

The SJC began by stating that the Alimony Reform Act does not bar alimony orders with variable or contingent provisions, however, such orders are “the exception rather than the rule, and must be justified by the special circumstances of the case.” The SJC quotes some examples of “special circumstances” that would warrant variable or contingent alimony awards. In particular, the SJC referenced the case of Wooters v. Wooters as a model for “special circumstances” that would warrant such an alimony award. In Wooters, the Appeals Court ordered the husband, who was a partner in a large law firm, to pay alimony in the amount of one-third of his gross employment income because he “was about to undergo a serious operation, and it was uncertain how much he would be able to work,” and because his compensation from his law firm “had considerable fluctuations.”

The SJC differentiated the present case from the Wooters case on three grounds. First, in Wooters the supporting spouse’s income was highly variable during the marriage, whereas Derek’s income did not fluctuate significantly during the marriage. Second, in Wooters the support spouse’s fluctuating income would sometimes severely limit his ability to pay a fixed alimony award that would meet his wife’s needs. In the present case, Derek’s fluctuating income did not materially affect his ability to pay a fixed alimony award that would meet the wife’s needs. Third, in Wooters the percentage-based alimony, averaged over time, did not exceed the needs of the recipient spouse to maintain her marital lifestyle. In the present case, the percentage-based formula allowed Joy’s lifestyle to become more lavish than the lifestyle she enjoyed during the marriage. Therefore, the SJC decided that the present case did not qualify as a “special circumstance” whereby the court may award a variable or contingent alimony award.

If you have questions regarding this case, or how it might relate to your alimony arrangement, please contact Attorney Yousuf at Wynn & Wynn for a consultation. She can be reached via email (myousuf@wynnandwynn.com) or phone (508-775-3665).

Reader Comments