THE INVASION OF PENSIONS, RETIREMENT PLANS, AND IRAs FOR ALIMONY AND CHILD SUPPORT OBLIGATIONS
It should be noted at the outset, that for payment of alimony and child support, our
Courts have held that:
although the supporting spouse's current income is the primary source considered in
setting the amount of the award, his or her property, capital assets, and capacity
to earn the support awarded by diligent attention to his [or her] business' are also
proper elements for consideration.
Innes v. Innes
, 117 N.J. 496, 503 (1990), citing
, Bonanno v. Bonanno
, 4 N.J. 268, 275 (1950).
I. BENEFITS IN PAY STATUS
The Police and Fireman's Pension Fund was established by N.J.S.A. 43:16-7 and states
as follows:
All pensions granted under this chapter shall be exempt from execution, garnishment,
attachment sequestration or other legal process.
The pension Fund was created to provide for one who was retired from civil or public
service, a suitable standard of living such that he would not become impoverished
when his years of productivity had ended. The theory was that this would not only
heighten the morals of the workers while they were working, but also enhance the quality
of the service while they worked, and provide for them when they were unable to work
because of their age. It was to provide a measure of economic security for the pensioner and for his dependant family when he became older.
This exclusion from creditors was tested in the case of Fischer v. Fischer
, 13 N.J. 162 (1953) where the Court was faced with the issue of whether a statute
exempting pensions from execution, garnishment, attachment, sequestration or other
legal process would preclude the use of the pension funds to satisfy an alimony award.
In this particular case, the pension was in pay status and the retired police officer
was receiving $40.00 per month in pension benefits. The Court held that the spirit
of the law intended that a pensioner and
his dependents be protected from destitution and the need for public relief:
A holding barring recourse to the statutory pension to absolve the public from the
burden of supporting the pensioner's wife or children would be perversive of the
true intent and meaning of the act. Id.
At 168.
Therefore, the Court declined to read the exemption statute:
to enable the husband to claim the full benefit of the pension as against his dependent
wife and children, and thus to subvert the laws enjoining upon the husband the performance
of this basic obligation of the marriage state. Id.
Eleven years later, in Thiel v. Thiel
, 41 N.J. 446 (1964), the Court was again faced with the issue of whether there could
be satisfaction of a support obligation through the use of the obligor's pension.
This pension was also in pay status and the husband now resided outside of the State
of New Jersey, however, the pension was in
New Jersey. Here, however, it was not a statutory exemption, as in Fischer
, but an exemption provision written into the obligor's labor contract. The language
in the contract was as follows:
No assignment of any pension will be recognized or permitted nor shall any pension
or payment on account of any pension be subjected to attachment, execution or other
legal process against the pensioner.
This provision was put into the labor contract as a result of long negotiations between
the company and the Union. The provision was essentially similar to the statutory
exemption in Fischer
, and the Court noted the importance of pension plans in the state and federal economy.
But here, the obligor had moved out of New Jersey and the pension was the obligor's
only asset within the borders of New Jersey. The Court held:
Regardless of the precise and restrictive wording on an exemption provision, the restraint
created should not be a barrier against recourse to the fund when it provides the
only reasonably accessible asset for support of the wife within her state of residence. Id.
At 451.
The Court noted that the Fischer
case gave effect to the strong public policy in favor of the support of the wife
and children by ruling that the statutory exemption provision would not apply to
support obligations. Therefore, the Court refused to read the exemption in the labor
contract to preclude the use of pension benefits for support obligations.
In a case decided in 1978 wherein the Employee Retirement Income Security Act of 1974
(ERISA) was discussed, the Court in Ward v. Ward
, 164 N.J. Super 354 (App. Div. 1978), once again had occasion to decide whether pension
benefits could be used to enforce a support obligation. The twist here, however,
was that the pension in issue was regulated by Federal Law, namely ERISA. Contained
in ERISA were anti-alienation provisions prohibiting assignment and alienation of
pension benefits. The Court noted that under Fischer
(Supra) and Thiel
(Supra) New Jersey Courts allow the enforcement of support obligations against the
defaulting spouse's pension benefits despite restrictions on garnishment or other
involuntary alienation of those benefits contained in pension documents.
The issue here, however, was whether the ERISA Federal Law preempted State Law. The
Court held that there was no preemption under these circumstances:
The Courts have long recognized that the whole subject of the domestic relations of
husband and wife, parent and child, belongs to the laws of the states and not of
the United States. Id.
At 361.
Also, there was nothing in the legislative history of ERISA suggesting that the anti-alienation
provisions were intended to include family support payments. Moreover, the act was
designed not only to protect the employee-pensioner, but also his dependents. Therefore, the obligee was entitled to use pension benefits to enforce support
obligations. See also Biles v. Biles
, 163 N.J. Super 49 (Ch. Div. 1978) (holding that ERISA provisions do not preempt
State law thereby allowing use of pension benefits to enforce support obligation);
Wester Electric Co. Traphagen
, 166 N.J. Super 418 (App. Div. 1979).
II. BENEFITS NOT YET IN PAY STATUS
In Mallory v. Mallory
, 179 N.J. Super 556 (Ch. Div. 1981), the Court had occasion to determine whether
the corpus
of an IRA pension fund could be reached to enforce a support obligation. The Court
noted that no reported cases in any jurisdiction precisely addressed this issue.
The Court drew the distinction from earlier case law that had held that pension fund benefits
, not corpus, could be levied upon. Here, the obligor was the beneficiary of an IRA
(Individual Retirement Account) created pursuant to the Federal tax laws and part
of ERISA. The Court used an analysis similar to the analysis used in the earlier
cases dealing with pension benefits in coming to the conclusion that the corpus of an IRA
may be attached to enforce a support obligation.
The Court opined that the negative tax implications arising from premature withdrawal
of funds from the IRA "cannot be equitably equated with the untold hardship faced
by dependents who remain otherwise unsupported." Id.
At 562.
Judge Krafte, in the Chancery Division in Bergen County, further stated that to hold
otherwise, the Court would indirectly create an effective means for an obligor to
escape his support duties and thereby transfer the burden of supporting the family
to the welfare facilities of the State.
The Court also noted that Federal preemption is a non-issue. Citing earlier case
law, the Court pointed to the fact that the congressional objective is to protect
the pensioner and
his family. Finally the Court noted that an IRA is distinguishable from other ERISA
pension plans in that the corpus of the account is comprised solely of the obligor's
own funds. This is because an IRA is a non-employer contributory account, and is
set up solely by the individual with funds not yet taxed. For these reasons, the Court
held that the corpus of an IRA could be attached to meet support obligations.
In the Mallory
case above, there was a judgment that had been entered against the defendant/husband
in the Chancery Division for child support and alimony arrears, and the question
was whether or not the IRA could be levied on in order to satisfy that judgment.
The Court obviously held that it could.
III. PENSION INCOME AS A MEANS OF CALCULATIONS ALIMONY AND/OR CHILD SUPPORT.
In D'Oro v. D'Oro
, 187 N.J. Super 577 (Ch. Div. 1982), aff'd
193 N.J. Super 385 (App. Div. 1984) the issue was:
[o]nce a "present value" of a pension is equitably distributed, and the non-pensioner
receives her share in immediate cash, and the pensioner's share is deferred, specifically
leaving all pension benefits to the employee himself, can his monthly pension benefits upon his retirement be included in an income base for purposes of re-establishment
of alimony?
Judge Krafte held in the negative. Although the wife believed that the benefits flowing
from the pension should be used to calculate her husband's income in order to modify
her alimony upwards, the Court was of the opinion that the husband had not yet received the present use of the pension benefits and therefore those benefits could not
be used in order to calculate his income and could not be used to define his obligation
to the ex-wife.
In the above case, the husband was 64 years old at the time of the trial in February
of 1982. He was to become 65 the following July and intended to retire. The parties
were married for 35_ years and the wife was unable to seek gainful employment.
What the Court did not decide is that since the pension had a present value at the
time of the divorce of $53,000.00 and the wife was granted equitable distribution
of $17,675.00, leaving husband's share of the present value of the pension at $35,343.00,
what would happen to any addition pension earned after the Complaint for Divorce was
filed. If, in fact, he was getting $867.00 per month for life or $10,404.00 per
year, in three and a half years, he would have used up his $35,343.00. The wife
claimed that any money her ex-husband received after that time, or after three and a half years
of his pension being in pay status, he would then be receiving monies that were not
contemplated at the time of the divorce and were not part of the "present value"
of the pension. The Court stated that they were not going to consider whether or not
that would be income at that time which could be included in an analysis of alimony
and just did not decide the issue.
In Johns v. Johns
, 208 N.J. Super 733 (Ch. Div. 1986), pensioner's pension was equitably distributed
according to its present value at the time of the divorce. Here, as opposed to D'Oro
, the Court had to decide whether deferred benefits being received by pensioner, should
be included as income for the purpose of establishing child support. The Court held
that those benefits should be included in the obligor's income base, even though
previously equitably distributed, solely for the establishment of child support.
In that case, the husband filed a post-judgment Motion seeking to modify the unallocated
alimony and child support. His agreement provided for a distribution in a lump sum
to the wife of a portion of his pension, and his portion, was deferred until he retired. The issue came about because the husband who was earning $60,000.00 per year
was terminated from his employment and obtained a new job at $35,000.00 per year,
but he was also getting $14,400.00 per year paid monthly from his pension benefits
which were previously deferred. His application was to reduce his support obligation.
The Court held that the rationale of D'Oro
did not apply here. In D'Oro
, the wife did enjoy the present use of her share of the pension. However, here,
the children did not enjoy the benefit of the husband's distributed share and...
It is of no consequence, therefore, that the other income or assets may have been
equitably distributed between the parents either by agreement or Court Order.
The Court found that the additional income that he had from the pension could be used
to satisfy his child support obligation and thus denied his application for reduction
or modification. Id.
At 736.
In Staver v. Staver
, 217 N.J. Super 541 (App. Div. 1987), the Court was asked to decide the very issue
that the D'Oro
Court refused to decide. The question was whether or not the enhancement of the
husband's pension through earnings after divorce, in which the wife waived her rights
at the time of the divorce, should be included in obligor's income base for the purpose
of deciding whether to terminate alimony. The Court noted that D'Oro
did not apply here because the D'Oro
Court refused to decide this specific issue.
The husband received a monthly pension benefit of $1,500.00 per month. A portion
of that amount was from accumulated service before the filing of the Complaint for
Divorce, and as to this amount the Court held that the wife had waived her right,
and if we were to allow that amount to be used in calculating an income base for alimony,
it would be akin to "double dipping".
Twelve years had passed since the divorce and the husband continued to work and accumulate
pension benefits. The Court held that this amount had not been considered for purposes
of equitable distribution, and said that the approach in the D'Oro
case would be impractical. The Court also held that it would first allow the pensioner
to receive the full present value of the pension which was originally subject to
equitable distribution, and then subsequently acquired pension benefits would be
considered for the purpose of alimony.
The Court stated that another distinction from the D'Oro
the parties had only been divorced for ten months when the application was made,
and here the parties had been divorced for twelve years. The Court held that under
these circumstances, the portion of the monthly benefit that accrued after the date
of the Complaint for Divorce would be considered income for the purposes of determining
alimony.
The Supreme Court of New Jersey decided the Innes v. Innes
in 1990, (Innes v. Innes
, 117 N.J. 496 (1990). In that case the equitable distribution agreement provided
that the wife would receive her share of the husband's pension and that the wife
would waive and relinquish all rights to participate in his pension thereafter.
The issue presented was similar to the issues in D'Oro
(Supra) and Staver
(Supra) but with a new wrinkle. The Court had to decide whether husband's pension
benefits could be considered in determining whether alimony should be modified in
light of the recent amendment to the new statute N.J.S.A. 2A:34-23 which prohibited
"double dipping". The amendment essentially codified the D'Oro
case. The statute reads in part:
When a share of a retirement benefit is treated as an asset for purposes of equitable
distribution, the Court shall not consider income generated thereafter by that share
for purposes of determining alimony.
The Court, construing the amendment according to its plain meaning held:
The plain language of the pertinent amendment provides that income from pension benefits
that have been treated as an asset for equitable distribution purposes (those benefits
reflected work during the marriage partnership) is not to be considered in determining alimony. Conversely, under the amendment income from pension benefits earned
after the marital partnership has ended may be considered. Id.
At 505.
The Court further held that the amendment is applicable to both initial alimony orders
and modifications of earlier alimony awards. The amendment shall be retroactively
applied in order to make it workable and give it its most sensible interpretation.
In addition, the amendment applies to both consensual Property Settlement Agreements
and Court decrees.
The Court had to decide whether payments from an annuity, which obligor purchased
with funds received from the equitable distribution, should be included in his income
base. The Court first noted that the amendment to the statute N.J.S.A. 2A:34-23
did not apply to this issue. The Court held that the portion of the payment that represents
return of principle would not be used to calculate the husband's income base because
this amount was already subject to equitable distribution. The Court further held
that where, however, the payment represented income generated from the principle, that
portion can be included in the husband's income base. The Innes
Opinion was written by Justice Garibaldi.
Finally, in Slayton v. Slayton
, 250 N.J. Super 47 (App. Div. 1991), the Appellate Division applied the Innes
rule under N.J.S.A. 2A:34-23 to a different set of circumstances. In 1985, the husband
had agreed to pay alimony for a period of three and a half years and wife waived
her rights to his military pension. In 1989 she sought to have the alimony extended
for a variety of reasons and the Court granted her application and extended the alimony
through 1991, an additional two years. The husband did not appeal and ignored the
Order.
Later, when the wife sought to levy on his military pension, based on his failure
to make the payments in accordance with the Order of 1989 extending her benefits,
the husband moved for a termination of alimony. He lost and filed an appeal. In
the appeal he argued that the statute prevents "double dipping", the case of Innes v. Innes
prevented "double dipping" and the Court considered the availability of his pension
income in denying his Motion to terminate alimony and it should not have.
The Court held that the immunity provided in the Innes
case, and in the statute, was an immunity such that an asset which was equitably
distributed, may not thereafter e considered in an alimony calculation. The Court
figured out that only $1,500.00 of the $2,200.00 that he received on a monthly basis
from his pension was immune because the balance had been earned subsequent to the divorce.
The Appellate Division then held that the Trial Court was correct in denying his
application to terminate alimony and then also held that if, in fact, a valid debt
was incurred by the husband to the wife for alimony or child support, any asset that he
had, even those which were subject to equitable distribution previously, could be
used to pay that debt. The assets were not immune from execution in order to satisfy
a previously ordered legitimate alimony obligation. CONCLUSION
In conclusion, the trend that I observe in New Jersey of providing the means by which
a spouse can collect alimony and child support from any source, from any asset and
by any means, is continuing. The law now provides that the enforcement of child
support can be enhanced by the withholding of Federal tax refunds, State tax refunds, property
tax rebates and perhaps soon, even the reissuance of a driver's license or automobile
registration.
It will not be long before any license issued by the State will be withheld if, in
fact, child support or alimony obligations are not satisfied and that would include
mercantile licenses, taxi licenses, medical, dental and professional licenses and
otherwise. The State considers the payment of child support to be paramount in that there
are millions spent in the enforcement of Court Orders and the collection of child
support arrears, which would not have to be spent if, in fact, payments were made
as per the Orders when entered. The welfare roles are filled with people who are unable
to support themselves and do not receive the proper support from spouses, which is
creating a system whereby people who have no familial obligation are supporting families,
while those who are responsible for the support are not meeting their obligations.
I would expect that there would be, or could be, no asset which is immune from Orders
meant to enforce of child support Orders or alimony Orders, and specifically no asset
could be immune from being attached for valid obligations owed by that party and under
a valid pre-existing Order.
RONALD B. ROSEN, ESQ.
Chamlin, Rosen & Uliano
268 Norwood Avenue
West Long Branch, New Jersey