NJSBA Family Law Section

 View Only

A new rule of thumb for next month?

  • 1.  A new rule of thumb for next month?

    Posted 12-20-2018 01:21 AM
    Having discussed the issue at length with fellow ESP panelists, at bench-bar meetings, and earlier this week by a respected mediator / judge, it seems like a consensus is emerging as to a new "rule of thumb" for alimony (subject, as always, to adjustments up or down based on the equities of any given case).

    In essence, we've discussed using the current rule of thumb (1/3 the difference in incomes), and taking the mid-point between the benefit to the recipient and the cost to the payor under the current system. This comes to 22% of the difference in incomes.

    For example, using rough numbers on taxes:

    Payor earns $120,000
    Payee earns $30,000
    Difference is $90,000
    1/3 difference is $30,000 ($2,500 per month gross paid)

    The $30,000 costs the payor $18,000 at 40% deductibility
    The $30,000 benefits payee $22,500 at 25% tax liability
    Total is $40,500. Mid-point is $20,250 (about 22% of the difference in incomes).
    $1,688 per month would be the new "rule of thumb" number.

    Thoughts? Agree? Disagree?


    <x-sigsep></x-sigsep>

    David Perry Davis, Esq.
    ----------------------------------------------------
    www.FamilyLawNJ.pro
    ----------------------------------------------------
    57 Hamilton Avenue -- Suite 301
    Hopewell, NJ 08525
    Voice: 609-466-1222
    Fax: 609-466-1223



  • 2.  RE: A new rule of thumb for next month?

    Posted 12-20-2018 08:50 AM

    David and others,

      I've heard 20% to 25% numbers bandied about too; your 22% is right in the middle. I've recently had this problem too, on both sides of the ESP table.

    Problem #1:  The inevitable difficulty of these new rule of thumbs is this: tax rates stated as marginal, not average.

      For 2019, the tax rates are as follows for single taxpayers (credit to Forbes Magazine).

      Therefore, to use a 32% example, the next dollar you earn over $160,725 is tax at 32%; but the last dollar you earned below $160,725 is taxed at 24%. So this new rule of thumb only works if neither the payor of payee span tax brackets, both before and after the alimony is either added or deducted. A lower-earning payee, for example, may easily span the 12% and 22% brackets if alimony pushes that person from earning thousands less than $39,475 before alimony to thousands more after alimony.

    Problem #2:  Also, taxable income is not gross income, and the rule of thumb also doesn't consider that.

    Problem #3: Finally, the new rule of thumb is based on the old 33% rule of thumb, which was never enshrined in a rule or statute...

    Problem #4: State income tax is not considered, and the tax tables are different from federal.

     This of course is not to criticize anyone who is searching for a fair and repeatable method to determine alimony under the new rules. But compounding guideline over guideline will not work well.

       I think we must go back to the basics-the statute, lifestyle analysis, etc. Treat untaxed alimony as an untaxed gift (to the payee) and a non-deductible expense (to the payor). Not worry about the former 33% guideline, which was a partial fiction anyway.

    Best,

    Ed

     

     

    * * *

    Edward J. Zohn, Attorney at Law

    Zohn & Zohn, LLP; 7 Mount Bethel Road, Warren NJ 07059

    908.791.0312 office; 908.428.7988 direct; 908.660.4866 fax

    "Leges sine moribus vanae" (Laws without morals are useless) - U. of Penna. Motto

    www.zohnlaw.com

     






  • 3.  RE: A new rule of thumb for next month?

    Posted 12-20-2018 09:23 AM
    there is no "rule of thumb " percentage.  it was NEVER the Law under the old tax code and it NOT the law now.  The statute controls the determination of alimony. IMHO if attorneys do not consider all applicable factors in the statute and the appropriate numbers, tax consequences, marital budget, education, children etc in the determination of alimony, it is malpractice.

    Alice M. Plastoris, Esq.
    (973) 538-7070

    Sent from my iPad





  • 4.  RE: A new rule of thumb for next month?

    Posted 12-20-2018 09:43 AM

    I couldn't agree more with Alice's sentiment.  By the way, I recently heard through the grapevine that someone was boasting at a seminar that they created the so-called one-third rule of thumb.  As we noted in our NJSBA amicus brief in Gnall v. Gnall, New Jersey courts have been grappling with efforts to use the so-called one-third as early as 1917.  From our NJSBA amicus brief:

     

         A.   For Over 175 Years, New Jersey Courts Have Resisted the Temptation to Use Mathematical Formulas or Bright-Line Rules to Determine the Amount or Duration of an Alimony Award.

     

         In order to ensure that an alimony award does not punish a payor spouse, nor result in an unjustified windfall to a payee spouse, New Jersey Courts have continuously refused to sacrifice customized decisions rendered through a careful analysis of the particular facts of the case before it for the use of a mathematical formula that would result in the same amount and duration of alimony being awarded in marriages of comparable duration or earning capacity.

    In fact, as early as 1838, Chancellor Pennington held in the case of Richmond v. Richmond, 2 N.J. Eq. 90, 92 (Ch. 1838) that "it is impossible to frame a fixed, general rule for allowances of this character which would work justly in all cases; every case must depend very much on its own peculiar circumstances." Turi v. Turi, 34 N.J.Super. 313, 321 (App. Div. 1955).

    Accordingly, whenever litigants or attorneys have attempted to advocate to our appellate courts for a strictly formulaic approach to alimony in New Jersey, such as awarding a non-working spouse one-third of the other spouse's income (or a working, yet still dependent spouse, one-third of the disparity between the parties' respective incomes) our appellate courts have consistently rejected such notions. For instance, nearly sixty years ago, in Turi, supra, 34 N.J. Super. at 321-22, the Appellate Division admonished:

    "It may be noted, in passing, that the observation made in Dietrick that the amount allowed the wife is "usually about one-third of the husband's income" - see Hebble v. Hebble, 99 N.J. Eq. 53, 56 (Ch. 1926), affirmed Ibid. 99 N.J. Eq. 885 (E. & A. 1926), and Andreas v. Andreas, 88 N.J. Eq. 130, 133 (Ch. 1917), for a similar statement - has lost any significance it may have had in view of changing economic and social conditions. The one-third standard has never been more than a guide, and has been referred to as "not a rule, even in a loose sense." O'Neill v. O'Neill, 18 N.J. Misc. 82, 93, 11 A.2d 128 (Ch. 1939), affirmed 127 N.J. Eq. 278 (E. & A. 1940). This criticism is justified in view of the provisions of N.J.S. 2A:34-23 and 24, whose language has been followed by our highest courts. As observed in the O'Neill case, to follow the one-third rule would result in the total obliteration and undiscriminating exclusion of the many other factors that should be considered and which have more or less importance, depending on the circumstances of particular cases." (Emphasis added).

     

    See also Capodanno v. Capodanno, 58 N.J. 113, 119-20 (1971)(Court rejecting use of one-third rule and instead focusing on the particular facts of the case before it).

     

     

    _____________________________________

    Brian G. Paul, Esq.

    Certified Matrimonial Law Attorney

    Szaferman, Lakind, Blumstein & Blader, P.C.

    101 Grovers Mill Road

    Lawrenceville, New Jersey  08648

    Phone:  609-275-0400

    Direct Fax:  609-779-6065

    [email protected]

     

     

     






  • 5.  RE: A new rule of thumb for next month?

    Posted 12-20-2018 09:44 AM

    I think david was suggesting trying to share the new 'cost' of the non-deductibility with the dependent spouse, by using the midpoint.

    I say 'good luck with that' because it is not any different than sharing any other loss or liability and we've all met the often very severe resistance in general to that concept.

    Although they ought to divide as easily as assets, I think we can agree that parties are never as easily convinced to share equally the burden of a liability, or a new tax or cost.

     

    In this case the new cost or tax increase brought about by the new law, isn't something the payee is going to reduce his or her lifestyle to accommodate.  They'll expect the payor to absorb the bad news 100%, because at least in theory, the change in the tax law isn't causing them to eat less, or drive less, or vacation less...... IMHO.  

     

    As an esp panelist myself, if the dependent spouse has no budget for saving in her ESP or the real world, then he or she can't afford to absorb the loss, but the payee can in most cases (which is why trump changed the tax code).

     

    Best Regards,

     

    David C. Bendush, Esq.

    310 Springfield Ave., Suite 10

    Berkeley Heights, N.J. 07922

    908-771-0550 (tel)

    908-771-0715 (fax)

     

    CONFIDENTIALITY NOTICEThis message, together with any attachments, is intended only for the use of the individual or entity to which it is addressed and may contain information that is legally privileged, confidential and exempt from disclosure. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copying of this message, or any attachment, is strictly prohibited.  If you have received this message in error, please notify the original sender immediately by telephone or by return E-mail and delete this message, along with any attachments, from your computer. Thank you.

     






  • 6.  RE: A new rule of thumb for next month?

    Posted 12-20-2018 11:50 AM

    Alice:

     

    As you know because we were on the same panel last month, I agree there is no "rule of thumb".

     

    The issue for many attorneys and their clients (as well as ESP panelists hearing alimony claims in cases) is how to reach an equitable result without spending thousands of dollars to argue about each other's budgets, what the marital lifestyle really was, and the myriad of other factors in the statute than will be subject to dispute. I think that is why the unofficial one-third "rule of thumb" was used by so many attorneys.

     

    Robert E. Goldstein, Esq.
    Drescher & Cheslow, P.A.

    610 Bridge Plaza Drive

    Manalapan, NJ 07726

    (732) 972-1600
    Fax (732) 972-0038
    E-mail: [email protected]

     

    Visit my personal website:  www.mydivorcelawyernj.com

    Member, Middlesex County Bar Association,  Monmouth Bar Association, New Jersey Association for Justice and New Jersey State Bar Association

                                     

     

    IRS Circular 230 Notice: To ensure compliance with certain regulations promulgated by the U.S. Internal Revenue Service, we inform you that any federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code, or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein, unless expressly stated otherwise.

    This E-Mail message and any documents accompanying this E-Mail transmission contain information from the law firm of Drescher & Cheslow, P.A. which is "Privileged and confidential attorney-client communication and/or work product of counsel." If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution and/or the taking of or refraining from taking of any action in reliance on the contents of this E-Mail information is strictly prohibited and may result in legal action being instituted against you. Please reply to the sender advising of the error in transmission and delete the message and any accompanying documents from your system immediately. Thank you

     






  • 7.  RE: A new rule of thumb for next month?

    Posted 12-20-2018 12:05 PM

    Folks,

      I think the problem is deeper. I think that some attorneys and judges resist spending the small amount of time needed to analyze the information that is readily available: Part D of the CIS. And I also think that some clients resist spending the small amount of time needed to identify actual living expenses. I don't know why this is.

      The 33% "rule of thumb" only considers income; ignoring expenses (either actual, historical expenses or accurate projected expenses) is irresponsible for attorneys, judges and litigants. We need to take all parts of the CIS seriously. It's not too much to ask litigants to come up with accurate expense number and it's certainly not too much to ask attorneys and judges to analyze these numbers.

    Regards,

    Ed

     

    * * *

    Edward J. Zohn, Attorney at Law

    Zohn & Zohn, LLP; 7 Mount Bethel Road, Warren NJ 07059

    908.791.0312 office; 908.428.7988 direct; 908.660.4866 fax

    "Leges sine moribus vanae" (Laws without morals are useless) - U. of Penna. Motto

    www.zohnlaw.com

     






  • 8.  RE: A new rule of thumb for next month?

    Posted 12-20-2018 12:36 PM

    Does anyone recall Judge Pisanky's "Alimony Guidelines?"  He developed a chart and analysis many years ago that increased the duration and the amount of alimony based in significant part on the length of the marriage.  The longer the marriage, the greater the alimony.  For example, in an 8-year marriage, alimony might be 25% of the difference in incomes, but in an 18-year marriage, the amount might be 33% of the difference.  His chart and discussion also considered other factors, such as whether there are children (and who is caring for them), etc.  It was a bit more well thought-out than the short-cut "1/3 rule."

     

    One problem with the 1/3 formula is that, for couples in certain income brackets, it has served to virtually equalize their net disposable incomes after factoring in mandatory payroll taxes (i.e., FICA, Medicare, NJ Family Leave, etc). This is evident when you run the child support guidelines, and the percentage incomes at line 7 of the worksheets are nearly equal.  If the NJ Legislature thought it was a good idea to equalize incomes (or to have a formula), then that would be the law. 

     

    A client of mine, who was married for 35 years, had been told about the "1/3 rule."  She asked me the following question:  "If alimony should be 1/3 of the difference in incomes for a 10-year marriage, why wouldn't I be entitled to a higher percentage given that I've been married for 35 years?"   Not a crazy question.

     

    So, basing a "new formula" on an old short-cut that was never the law may be expedient, but doesn't seem to be an exercise of sound legal judgment.

     

     

     

    Amy Wechsler, Esq.

    Matrimonial Attorney, Mediator and

        Collaborative Practitioner

    908-753-3833

    908-753-4189 (fax)

    www.swldfamilylaw.com

     






  • 9.  RE: A new rule of thumb for next month?

    Posted 12-20-2018 02:21 PM

    Clients should not be spending thousands of dollars to figure out a CIS marital budget and for attorneys to do what lawyers do in applying the factors and reading tax returns and W-2s to determine what alimony should be.  Quite Frankly, we are lawyers who should know what we are doing and we should get paid for our services. 

     

    Alice M. Plastoris, Esq.

    Law Office of Alice M. Plastoris, Esq.

    82 Speedwell Avenue, 2nd Floor

    Morristown, NJ 07960

    Telephone No. (973) 538-7070

    Fax No. (973) 538-7088

    Email: [email protected]

     

    ***EMAIL CONFIDENTIALITY NOTICE*** The information contained in this electronic message may contain attorney-client privileged and confidential information intended only for the use of the owner of the email address listed as the recipient of this message.  If you are not the intended recipient of this email message, you are hereby notified that any disclosure dissemination, distribution or copying of this communication is strictly prohibited.  If you have received this transmission in error, plesae notify the sender by return email, and by telephone at (973) 538-7070.

     






  • 10.  RE: A new rule of thumb for next month?

    Posted 12-20-2018 05:46 PM

    Well said!

     






  • 11.  RE: A new rule of thumb for next month?

    Posted 12-20-2018 10:52 AM

    Dave:

     

    I was a panelist for NJAJ at the Meadowlands seminars last month and that was one of the topics. I presented a theory for a formula as I was assigned to do, based on something Kal Barson sent to me. The bottom line is a high bracket taxpayer paying non-deductible alimony to a low bracket taxpayer would have a rule of thumb of about 25%, but if the bracket differential is lower, the % would be 22% + or minus.

     

    But you cannot ignore the statutory factors.  These are just "guidelines" which might be used in a case where the parties don't want to spend a huge amount of counsel fees arguing about the statutory factors.

     

     

     

    Robert E. Goldstein, Esq.
    Drescher & Cheslow, P.A.

    610 Bridge Plaza Drive

    Manalapan, NJ 07726

    (732) 972-1600
    Fax (732) 972-0038
    E-mail: [email protected]

     

    Visit my personal website:  www.mydivorcelawyernj.com

    Member, Middlesex County Bar Association,  Monmouth Bar Association, New Jersey Association for Justice and New Jersey State Bar Association

                                     

     

    IRS Circular 230 Notice: To ensure compliance with certain regulations promulgated by the U.S. Internal Revenue Service, we inform you that any federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code, or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein, unless expressly stated otherwise.

    This E-Mail message and any documents accompanying this E-Mail transmission contain information from the law firm of Drescher & Cheslow, P.A. which is "Privileged and confidential attorney-client communication and/or work product of counsel." If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution and/or the taking of or refraining from taking of any action in reliance on the contents of this E-Mail information is strictly prohibited and may result in legal action being instituted against you. Please reply to the sender advising of the error in transmission and delete the message and any accompanying documents from your system immediately. Thank you