Back in the Garage: Concluding the Divorce Action
Michael R. Magaril, Esq.
Like everything else, the quality of the conclusion of a divorce bears a direct relationship to the planning and execution that went before it. The most important thing in terms of that planning is to work with the client to set realistic goals early in the process. These goals should look beyond the divorce process and involve meaningful life planning by the client. What does the client want his or her life to look like in terms of living condition, employment, lifestyle, access to children, etc. The client should set goals for the periods ending one, three and five years after the divorce. By adequate and realistic planning, the uncertainty and stress that always surrounds the divorce process is lessened and with it the level of conflict for conflict’s sake.Careful goal setting goes hand in had with careful collection of objective information concerning the parties finances and needs and the careful preparation of settlement positions based upon those facts and an understanding of the tax consequences relating to them.
A. The Settlement Process
More than 95 per cent of all divorces filed in New Jersey settle. The settlement process is a relatively straightforward one.Typically, when parties are acting in good faith, the parties exchange financial information, usually informally. Often, the exchange of information, negotiation and preparation of a settlement agreement precede the filing of a complaint for divorce. In deciding whether to file before negotiating a settlement, the practitioner should consider issued relating to the valuation date for equitable distribution, the level of conflict between the parties, the current living and parenting time arrangements between the parties and any other factor that will impact on the attempt to negotiate a settlement without having a docket number on file that will give the client immediate recourse to the court.Either way, the settlement process is essentially the same and in large measure, encompasses activities necessary to early trial preparation as well.
1. Identify Child Related Issues and Address Them Separately
Step one in the Settlement/Trial Preparation process is to identify any existing custody or parenting time issues.If they exist, they should be addressed separately from the financial issues in the case, if possible. The parties may wish to engage a joint family therapist work out a therapeutic solution, or to jointly engage a custody evaluator to assist in the resolution of the issue, if possible. Because custody and parenting time issues are fact sensitive and have been dealt with elsewhere in these materials, the management of child-related issues in the preparation of a settlement will not be discussed at this juncture.
2. Identify and Value the Assets of the Marital Estate
Step two is to identify and value marshal the assets of the marital estate. The parties should exchange their financial information as soon as possible. The basic financial information that should be supplied includes but is not limited to the following:
(1) An executed Case Information Statement (CIS) from each party, including an accurate budget projection for the party submitting the CIS;
(2) Tax returns for at least the past three years for both parties and any businesses in which they have an interest.In this regard, where a party has a schedule K-1 attached to his or her income tax return, the other party should obtain the actual return filed by the entity that generated the schedule.There are excellent materials available concerning the interpretation of tax returns in the context of matrimonial actions.The careful reading of a tax return can identify otherwise undisclosed real property, sources of income and bank or brokerage accounts. Tax returns can also assist in determining if either party has intentionally limited his or her income in anticipation of the divorce.Tax returns also can identify valuable assets such as capital loss carry forwards, which can be used to assist in maximizing cash flow to the parties;
(3) Copies of bank, brokerage and retirement account records for at least three years prior to the date of the divorce;
(4) Copies of credit card statements;
(5) A statement of benefits from each spouse’s employer, including pension information and pension valuations, if available;
(6) Copies of all insurance policies, including life insurance policies, held by each party;
(7) Copies of documents that will identify all other debts held by the parties and the pay-off amounts for those debts, including mortgages, home equity loans, auto loans and other lines of credit;
Collection of complete and accurate financial information will serve two purposes. First, it will allow the parties to create a basis of objectively verifiable facts from which to negotiate.Second, full and complete disclosure of this information will allow each party to make a voluntary and knowing decision to enter into a settlement that cannot later be overturned. Third, in the event that settlement discussions do not succeed, the information exchanged in settlement discussions can provide a useful roadmap for discovery and trial.
►Comment: Practitioners nevertheless should serve discovery requests early in the litigation process, even if they expect full cooperation from the other side. Unforeseen issues can arise, and parties should not find themselves beyond discovery cut off dates without having served their requests.
Once the financial information has been exchanged, step two is to value the assets of the martial estate. Many of the assets can be valued simply by looking at a current account statement. Real estate can be valued for settlement purposes in one of several ways. First the parties may call a reputable local realtor and request that a comparative market analysis ("CMA") be prepared.The advantage to this approach is that there usually is no charge for a CMA and that it is usually done quickly. Because the CMA is essentially a marketing tool for realtors, CMA’s may sometimes provide an optimistic view of what the parties’ marital residence may sell for. Second, if the parties have recently purchased or refinanced their home, they can use the appraisal that was done in connection with that transaction. Again, the existing appraisal will not cost anything and will be readily available. Because the appraisal will have been done in order to protect the lender’s interests, however, the mortgage related appraisal might be conservative. The third option is to jointly retain a real estate appraiser. This may yield an accurate result, but it takes time and costs money. Of course, the parties may each retain appraisers as well Automobiles can easily be valued on the internet for no cost and the pay-off of any loans may be deducted from the market value of the vehicle.
Where there are active businesses, artwork, or other assets whose value may not be easily determined, the parties should consider establishing a mechanism for their valuation early on. Forensic accountants can be called in to value businesses and other appraisers can be retained for virtually every type of asset imaginable. Be forewarned that these experts can be expensive and parties should be counseled to consider the cost of such a valuation against the benefits it may yield. Whether for settlement purposes of for trial preparation, it is important to retain valuation and other experts as soon as it is clear that they will be needed in order to assure that their results are obtained in a timely manner.
3. The Initial Proposal
Once the marital assets have been marshaled and valued, the next step in the settlement process is for one side to send the other an initial proposal. This can be done by letter or through the use of a by term sheet that sets forth each area that typically appears in a property settlement agreement and the settlement position of the party as to that issue. Such issues include, but are not necessarily limited to the following: (1) Custody; (2) Parenting Time; (3) Child Support, including (a) the amount of child support payable; (b) the allocation of the dependency exemption for the children; (c) the allocation of the costs of health insurance and unreimbursed medical expenses; (d) education expenses, including private schooling and college; and (e) the treatment of child support for a child away at college;(4) Alimony, including (a) whether the parties will waive alimony, (b) whether the property settlement agreement will include and anti-Lepis clause making the waiver non-modifiable, (c) the amount of alimony and (d) the duration of alimony; (5) Equitable Distribution, including the disposition of : (a) the marital residence and other real estate;(b) Automobiles and other vehicles; (c) bank accounts and cash; (d) stocks and bonds; (e) the treatment of the parties’ pensions; (f) Retirement account as to which distribution would require a Qualified Domestic Relations Order (e.g. 401(k)); (f) IRA’s; (g) personal property; (h) credit card and other debts; and (6) any other terms or conditions that are material to the anticipated settlement.In the alternative, the party making the initial proposal could send a more formal draft property settlement agreement.
4. The Four-Way
In the Divorce Settlement process, parties often meet together with their attorneys in what is referred to as a "four-way" conference.The four-way can be held at the outset of the matter in order to identify what information needs to be exchanged or it can be held once the initial proposal has been sent and the issues between the parties have been framed.The purpose of the four way is to reach agreement on the essential terms of the property settlement agreement.
5. The Property Settlement Agreement
A detailed discussion concerning the drafting of a separation agreement is set forth elsewhere in the materials and will not be repeated here.It presented to illustrative purposes only and practitioners are cautioned to tailor the form and substance of the agreement in keeping with their client’s interests
B. The Trial of a Divorce Action
1. The Uncontested Hearing
As noted above, the overwhelming majority of divorce actions end in settlement. When a settlement is reached and a property settlement agreement has been drafted and executed, the parties must appear before the court for a final hearing. The purpose of the final hearing is to establish on the record that the statutory grounds for divorce have been met and that the property settlement agreement is authentic and is the result of the knowing and voluntary acts of the parties.
In cases in which an answer to the complaint has been filed, both parties must appear in court.If the named defendant has not answered, and the action is to proceed to judgment by way of default, only the plaintiff is required to attend the final hearing, although defendants are advised to attend to protect their interests. Often, the plaintiff may wish to have the defendant appear so that there will be no questions in the future as to whether the judgment should be vacated or the property settlement agreement overturned.
Proceeding by way of default after the execution of a property settlement agreement is a common practice in matrimonial cases. The defendant receives the complaint and executes an acknowledgement of service. The defendant at that point may waive in writing his or her rights both to answer within thirty-five days and to trial, sometimes in the acknowledgment of service itself. The plaintiff will then file with the clerk of the court the affidavit of service, along with a request for a default judgment and an affidavit of non-military service stating that the defendant is not in the United States Military. The clerk will then schedule the final hearing, often referred to as an "uncontested hearing."
The purpose of the uncontested hearing is to place on the on the record by live testimony that (1) the plaintiff and the counterclaimant (if any) have satisfied the statutory grounds for divorce; (2) the property settlement agreement is authentic; (3) the property settlement agreement is the product of informed and voluntary agreement by both parties; and (4) that the property settlement agreement should be made part of the final judgment of divorce.
On the day of the uncontested hearing, the plaintiff’s counsel should arrive in court with an original and five copies of the property settlement agreement and six forms of judgment. The form of judgment should contain a written consent as to the form of the judgment by the attorney who did not prepare the judgment and may also have consent lines for both counsel. Where children are involved, counsel also should include a child support guidelines worksheet with the judgment. The property settlement agreement is marked as Exhibit J-1 in cases in which there has been an answer and as Exhibit P-1 in cases proceeding by way of default.
The court will ask counsel to question the plaintiff on the cause of action for divorce, although some judges conduct the questioning themselves. The questions typically asked are as follow:
- Have you agreed today to withdraw your answer/ reply to the complaint/counterclaim filed by your spouse?
- What is the date of your marriage?
- How long have you lived in the State of New Jersey? Was this at least one year before the compliant in this case was filed?
- How long have you lived in this County? Did you live here on the date that the complaint was filed?
- Do you and your spouse have any children? What are their names and dates of birth?
- Have their been any other proceedings between you and your spouse in court relating to either the dissolution of your marriage, custody of your children or support?
- [For a separation cause of action] Have you and your spouse continuously lived in separate residences for 18 months or more?
- [For an extreme cruelty cause of action]
- Do you recall filing a complaint/ counterclaim in this action?
- Have you had a chance to review that pleading recently?
- Do you recall that in that pleading you alleged certain acts of extreme cruelty by your spouse? Were the allegations true when you signed the complaint? Are they true today?If I were to ask you about those acts, would your testimony today be substantially the same as the allegations in the complaint?Would your testimony be true?
- As a result of the acts of extreme cruelty alleged in your complaint/counterclaim, do you believe that it would be unreasonable to expect you and your spouse to continue to live together as man and wife?
- (Where applicable) Do you wish to resume your maiden name?Are you seeking to resume your maiden name for the purpose of avoiding creditors or to avoid criminal prosecution?Please state your social security number and date of birth.
The Court will then ask counsel to question the party on the property settlement agreement. The questions to be asked with respect to the property settlement agreement typically include some or all of the following:
- I direct your attention to what has been marked as Exhibit J-1 for identification.
- Do you recognize this document as being the property settlement agreement you signed in connection with your divorce?
- I direct your attention to page __ of the property settlement agreement.
- Is that your signature?
- Do you recognize your spouse’s signature on the agreement?
- Have you read the entire agreement?
- Do you understand that agreement?
- Have you had enough time to think about entering into this agreement?
- Was this agreement the result of negotiations and compromise between you and your spouse?
- Did an attorney in connection with the negotiation and execution of this agreement represent you?
- Who was that attorney?
- Was your attorney available to answer any questions you might have had in connection with this agreement?
- Are you satisfied with the representation you received from your attorney?
- Given the fact that the agreement is a product of negotiation and compromise and that it required give and take by both you and your spouse, under all of the circumstances in your case, do you believe that this agreement is fair and equitable?
- Has anyone forced you to sign this agreement?
- Has anyone induced you to sign this agreement by making any promises that are not contained in the agreement itself?
- At any time in the course of your negotiations, your decision to sign this agreement or as you sit here today, have you been under the influence of any alcohol, narcotics, or any other substance or illness that has affected your ability to make an informed decision as to whether or not you should enter into this agreement?
- Do you understand that you are not required to sign this agreement and that you could go to trial and let the judge decide your rights and your responsibilities?
- Do you understand that if you decided to go to trial, the court might grant you more than you are getting under this agreement and might also grant you less.
- Do you understand that you also have the right to insist on discovery, which is the formal disclosure of information by your spouse including information concerning his or her assets and income?
- Do you understand that by signing this agreement you are giving up you right to any discovery as to which you may otherwise be entitled if this case continued?
- Are you are satisfied that you know enough about his assets and income and any other information concerning your circumstances that you do not require additional discovery in this matter in order to make an informed decision to sign this agreement?
- And taking all of these understandings into account, have you nevertheless decided to settle your divorce case and make this property settlement agreement part of your final judgment of divorce?
- Are you asking the court to make this property settlement agreement part of that judgment?
- Do you agree to be bound by its terms?
- Do you have any questions for either the Judge or me?
After both parties have testified, assuming everything is in order, the court will enter the judgment of divorce incorporating the property settlement agreement. The court clerk will provide each party with a sealed and certified copy of the judgment. The parties divorce is then final.
2. The Contested Trial
In those few instances in which a trial is necessary, preparation is the key to success. In this regard, preparing for and trying a matrimonial action is no different from any other kind of case.
Rule 5:5-2 (c) of the Rules of Court require that, within twenty days of the date of a final hearing, the parties update their case information statements to bring them current.Also, in preparing a trial notebook, it is helpful to organize it in separate sections for (1) the Cause of Action; (2) Custody and Parenting Time; (4) Child Support (5) Alimony (6) Equitable Distribution and(7) Miscellaneous items including attorneys Fees. Each section should list each fact required by statute rule or case law and the evidence the attorney intends to introduce to satisfy each required element of proof. For each item of evidence, the trial book should identify the witness who will provide the proof to the court and any evidentiary issues that the testimony may present, along with appropriate objections and/or authority to support the admissibility of each item of evidence. In connection with the trial notebook, it would be helpful for the attorney trying the case to prepare a draft of findings of fact and conclusions of law that may be requested by the court.
a. Order of Presentation and Special Considerations
Many of the same facts are considered in connection with multiple issues present in a matrimonial trial.Some issues are dependent upon the resolution of other issues. A proper order of presentation will allow the court to track the findings it must make at the end of the case without confusion caused by repetitive testimony or avoid repetitive testimony. Trial presentation should begin with proving the cause of action. If Custody and Parenting Time are issues, proofs regarding them should be introduced immediately after the cause of action and before any of the financial issues in the case. This is so because determinations as to Alimony, Child Support, and Equitable distribution will have to take custody and parenting time arrangements into consideration. For example, the equitable distribution statute N.J.S.A. 2A: 34-23.1 (a) – (p) lists such factors as (1) the need of the children to remain in the marital residence; (2) the need to establish a fund to provide for the health and educational needs of the children. Similarly, the Alimony statute, N.J.S.A. 2A: 34-23b takes child-rearing responsibilities into account. Testimony on the issue of Custody, as well as all other issues, should track the statutory factors for each issue.It is likely that, if custody is an issue, expert testimony will be required. Equitable Distribution should be the third issue as to which proofs are submitted. This is so because the Alimony statute takes the nature of equitable distribution into account.In presenting proofs on the issue of equitable distribution, counsel should follow the three step process set forth in Rothman v. Rothman, 65 N.J. 219 (1974):
(1)Identify all assets of the marital estate; (2) Value all assets of the marital estate; and (3) Determine the manner in which those assets are to be distributed. If valuation is at issue, the testimony of forensic accountants or appraisers may be necessary. In as much as the tax consequences of the distribution of assets is a statutory factor, counsel should be sensitive to the tax implications of any distributions and, if necessary should present testimony on that issue as well.
The next issue as to which proof should be presented is Alimony. Alimony must precede child support because the children support guidelines add alimony to the recipient’s income and deduct alimony form the payor’s income. Counsel should make clear to the Court which type or types of alimony area being sought.It is important that the after-tax result of the payment of alimony on both parties, given their existing incomes be established. It also is important that this after tax result be compared to the budgetary needs set forth in the parties’ updated case information statements. IN addition, if the post-divorce plans of a party anticipate a change in the existing budget, counsel should be prepared to submit evidence on those changes as well. Such changes may include establishing a separate residence; paying for separate health insurance, paying for a parent’s educational expenses, costs related to traveling to see children and the like.
The next issue is Child Support.As noted above, the calculation of child support under the guidelines is dependent upon the number of overnight visits the children have with the non-custodial spouse and the amount of alimony paid and received by the parties. The proofs submitted should follow the line item instructions contained in Appendix IX of the Rules of Court so that the court can, in essence, fill in the guidelines worksheet as the testimony progresses. In situations in which the guidelines do not apply, such as where the parties’ joint after tax income exceeds $140,000 per year or there is an unemancipated child over the age of 18, proofs as to the actual expenses relating to he child and another reasons for an award in excess of the guidelines should be made.It is important to note that in "over income’ situations, it is not appropriate to simply extrapolate an amount of child support based upon the extent to which the parties’ after tax income exceeds $2,900 after taxes.
Finally, proofs should be made as to such miscellaneous items as the need to maintain life insurance to secure support obligations, educational expenses to be paid beyond child support, counsel fees and the like. In addition, because all prior orders of the court made pendente lite will merge with the final judgment, it is important to address any outstanding pendente lite issues, such as arrears in support.
C. POST-JUDGMENT MATTERS
1. Relief from Judgments
Once a settlement agreement has been incorporated into a final judgment of divorce, a party seeking to set the agreement aside must do so by way of application within a reasonable time following the judgment. Rule 4:50-2. An application to set aside a divorce agreement, if successful, will result in the destruction of the entire agreement leaving the parties as if no agreement ever existed.The Court may set aside a settlement agreement on marital grounds, on contractual grounds or on statutory grounds set out in R. 4:50-1.New Jersey Courts favor negotiated agreements to settle martial disputes, and therefore are reluctant to disturb them unnecessarily.Konzelman v. Konzelman, 158 N.J. 185, 193 (1999).
Statutory grounds are the same for martial actions as they are for any civil matter and may incorporate martial and/or contractual grounds. Specifically, R. 4:50-1 states:
On motion, with briefs, and upon such terms as are just, the court may relieve a party or the party's legal representative from a final judgment or order for the following reasons:
(a) mistake, inadvertence, surprise, or excusable neglect;
(b) newly discovered evidence which would probably alter the judgment or order and which by due diligence could not have been discovered in time to move for a new trial under R. 4:49;
(c) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;
(d) the judgment or order is void;
(e) the judgment or order has been satisfied, released or discharged, or a prior judgment or order upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment or order should have prospective application; or
(f) any other reason justifying relief from the operation of the judgment or order.
It is also important to note that for reasons (a), (b), and (c) R. 4:50-2 limits the "reasonable time" within which the parties may bring such an action to one year. Failure to bring an action within one year of the entry of judgment will procedurally preclude the parties from using these grounds to attempt to set aside the judgment.
Matrimonial grounds to set aside a judgment are those grounds unique to matrimonial practice and matrimonial contracts. Generally, matrimonial grounds are defined as "the product of fraud or overreaching by a party with power to take advantage of a confidential relationship." Dworkin v. Dworkin, 217 N.J. Super 518, 523 (App. Div. 1987). For example, in Weingarten v. Weingarten, 234 N.J. Super 318 (App. Div. 1989) the wife filed a post judgment motion to vacate their settlement agreement on the basis that she relied on the husband’s representations regarding his assets. The Court outlined the proof necessary to prevail on remand saying that the wife must prove that : 1) her decision to accept a settlement that was not fair and equitable was based on the husband’s fraudulent representations; 2) she was unaware of the husband’s undervaluation; 3) she either had no means to independently obtain or verify husband’s information or that she would have obtained the information, but for his actions; and4) she was unaware of husbands conduct at the time she signed the agreement. Weingarten, 234 N.J. Super at 327.
Contractual grounds to set aside a judgment are the same as in any civil contract matter and contest the validity of elements necessary for a valid express contract, such as the validity of consent, adequacy of consideration, mistake, fraud, duress, undue influence, unconscionability and the like.
2. Avoidance, Reformation, and Recession
Avoidance is the right of one party to an agreement to avoid certain provisions or cancel a contracton the breach or anticipation of a breach by the other party.It is a well established principal of contract law that a material breach by one party to a bilateral agreement excuses the other party from further performance under the contract. Magnet Resources v. Summit MRI,318N.J. Super 275, 286 (App. Div. 1998). However, this principal does not always translate to family law cases. For example, Courts will not excuse one party’s refusal to produce children for parenting time when the other spouse has not made child support payments.
Reformation occurs when a Court alters the language of an agreement to conform with the parties’ intentions.Courts of equity are limited in the circumstances they may apply reformation as a remedy. Both reformation and recession may be used as equitable remedies only for equitable reasons. Recession occurs when a Court acts to cancel a contract or as the Court in Driscoll v. Burlington –Briston Bridge Co., 29 N.J. Super 1, 4 (App. Div. 1959) put it, recession acts to undo the contract, to return "the parties to the very ground upon which they originally stood.".
When a marital settlement agreement has been incorporated into a judgement of divorce, either party may act to enforce it by way of a post judgment notice of motion which is in the nature of an action for specific performance. Another option available to either party is a motion to enforce litigant’s rights as provided in R. 1:10-3. Such motions may include contempt of court claims.
A modification of a marital settlement agreement will result in a change to the original agreement. By seeking a modification, rather than moving to set aside the agreement, the moving party acknowledges the validity of the agreement.The standard for granting modification motions is set out in Lepis v. Lepis, 83 N.J.136.To start, "The party seeking modification has the burden of showing such "changed circumstances" as would warrant relief."Lepis at 157. "A prima facie showing of changed circumstances must be made before a court will order discovery..." or attempt to determine whether the responding party has the ability to meet the requirement of the modification. Id.
Most commonly parties seek to modify alimony and support payments. The Lepis Court also sets out the elements the moving party must satisfy to make his or her prima facie case. "When the movant is seeking modification of an alimony award, that party must demonstrate that changed circumstances have substantially impaired the ability to support himself or herself. This requires full disclosure of the dependent spouse's financial status, including tax returns. When the movant is seeking modification of child support, the guiding principle is the best interests of the children." Id.
5. Effect of Reconciliation
If a couple reconciles