Curtis,

I received this from you through the group:

One spouse comes into the marriage and is the only one to invest money in the house at closing, entirely out of premarital assets. The property is first acquired as tenants by the entirety. Thereafter, joint marital funds are utilized and the initial investor spouse earns more than the other spouse.

The burden of proof to establish the immunity of an asset from distribution rests upon the spouse asserting the immunity. Painter v. Painter, 65 N.J. 196, 214 (1974). Therefore, it is the burden of the party asserting that a gift is exempt from equitable distribution to prove that asset's exemption.

Interspousal gifts are not exempt from equitable distribution. The analysis becomes whether gifts to one of the parties was a gift to both, whether the gift was commingled during the marriage, and whether one spouse intended to make a gift to the other spouse.

In the case of Pascarella v. Pascarella, 165 N.J. Super. 558 (App. Div. 1979), for example, the defendant acquired the marital home on his own, prior to the marriage. However, during the marriage, he signed a deed conveying title to the plaintiff and himself as tenants by the entireties. The Court found that this conveyance constituted a gift to the plaintiff and, therefore, that marital home was not exempt and was property subject to equitable distribution.

Then we are back to the tension between heuristic processing, and thoughtful, more granular processing. There's really no table here, but of course rules of thumb are attractive nuisances. IMO it always comes back to the statute, and there is no bright line rule. Adding to the fun and merriment, the ED statute provides a non-exhaustive set of criteria.

It's always good to begin with the establishment of donative intent and then working from there. In you real example, David, all these inheritance infusions during a 17 year marriage from 2005-2012 ($225,000) and then on May 10, 2012 ($500,000) received and then used to pay off the mortgage are all gifts to the joint enterprise of the marriage. This is different from Pascarella, since the distributions are spread over time.

So... We're left with Rothman prong #3 and the statute (emphasizing factors that jump out at me in your case):

a.     The duration of the marriage or civil union;

b.    The age and physical and emotional health of the parties;

c.    The income or property brought to the marriage or civil union by each party;

d.    The standard of living established during the marriage or civil union;

e.    Any written agreement made by the parties before or during the marriage or civil union concerning an arrangement of property distribution;

f.    The economic circumstances of each party at the time the division of property becomes effective;

g.    The income and earning capacity of each party, including educational background, training, employment skills... and the time and expense necessary to acquire sufficient education or training to enable the party to become self-supporting at a standard of living reasonably comparable to that enjoyed during the marriage or civil union;

h.    The contribution by each party to the education, training or earning power of the other;

i.    The contribution of each party to the acquisition, dissipation, preservation, depreciation or appreciation in the amount or value of the marital property, or the property acquired during the civil union as well as the contribution of a party as a homemaker;

j.    The tax consequences of the proposed distribution to each party;

k.    The present value of the property;

l.    The need of a parent who has physical custody of a child to own or occupy the marital residence or residence shared by the partners in a civil union couple and to use or own the household effects;

m.    The debts and liabilities of the parties;

n.    The need for creation, now or in the future, of a trust fund to secure reasonably foreseeable medical or educational costs for a spouse, partner in a civil union couple or children;

o.    The extent to which a party deferred achieving their career goals; and

p.    Any other factors which the court may deem relevant

I would review all the factors for both relevance and weight and go from there.

In my humble experience, many judges are very much influenced by the length of the marriage and sometimes more so than the timing of the otherwise exempt revenue injections. "The income or property brought to the marriage or civil union by each party is not really on a vesting schedule." Stated differently, I don't think it is correct, as a matter of law, to treat these installments as a series of contingent gifts, with the contingency being time in the saddle or durational period from when such an investment is made and the close of the coverture period. I have noticed, with absolutely no level of statistical precision, when one approaches the six to seven duration of the marriage mark, quite a few judges start leaning toward 50/50, concluding that it's not just all in the pot, but equally portioned and doled-out as well. Food for thought I hope. Not exactly easy thought unfortunately. Hope you settle. There is a pretty valuable certainty equivalent component in a case like yours. Good luck.

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I respectfully disagree with Curt's analysis of (A) the import of Smith vs. Grayson and (B) the degree to which the "one third of the difference" approach is "notorious" or "ignorant".

Maybe Curt could have been the defense expert, but the plaintiff's expert stated and supported her legal theory of liability and damages in that legal malpractice case.

Many lawyers, and many judges sub silentio, have been known to use a "quick math" method to derive alimony.  Lots of people don't want – or won't pay for – CPA's or divorce financial planners to do things by the book.

Some jurisdictions actually codify that approach in statutory law and Rules of Court, in their alimony guidelines. New Jersey is not one of them.

While I prefer the method Curt discusses at length, not everyone wants to take the time or funds to work by the numbers.

The Appellate Division in Smith vs. Grayson did not say the one-third-of-the-difference approach was the standard of care; rather, they reversed summary judgment entered below because (A) plaintiff's expert used that method to (1) opine about what should have been done to settle this alimony case, and (2) quantify the expected financial gain in so doing; and (B) the expert's opinion wasn't a net opinion:

"As to the quantum of alimony, the expert pointed to a rule of thumb amongst matrimonial practitioners that alimony should be one-third of the difference in the parties' incomes. Based on the husband's historical earning capacity of between $225,000 and $250,000,2 the expert opined that plaintiff would have been awarded permanent alimony at trial in the range of $60,000 to $72,000 per year. Of course, this figure may be adjusted upwards or downwards depending on the statutory factors. In the expert's view, "in a long-term marriage with older parties, an established standard of living and a large disparity not only in income but in the ability to generate future income, the alimony will be substantially more." An additional consideration weighing in favor of a higher award to plaintiff is the fact that alimony is tax deductible to the payor and taxable to the payee.

Despite the certainty of such an outcome at trial, the expert nevertheless recognized that the parties are "free to negotiate for duration of alimony less than the court would award in a permanent alimony case." In fact, the expert acknowledged that it would have been advantageous for plaintiff in this case to trade permanent alimony for either additional assets in equitable distribution, a higher amount of alimony for a shorter period of time, a satisfactory buyout of the permanent alimony obligation, or any combination of these alternatives, none of which, however, plaintiff obtained in the settlement.

As to one of these options, the expert attempted to calculate the husband's cost to buyout his permanent alimony obligation. According to the expert, the appropriate methodology "would have been to calculate the amount that would otherwise be paid as permanent alimony. This amount is then reduced by the taxes [plaintiff] would be required to pay and is further adjusted by a present value discount factor since she is receiving the money, theoretically, up front." Using this approach, and assuming a seven-year term, the expert calculated the lump sum buyout would be in the range of $225,000 to $300,000. So measured, the expert concluded "[t]here is no justification for the $50,000 payment in lieu of permanent alimony" in this case and that Grayson's failure to engage in this calculation "was a deviation from the standards of matrimonial practice." Instead, the expert concluded, a waiver of the husband's interest in the marital home, assuming his equity share to be $240,000,3 "would have been a reasonable compromise in a settlement." The expert went on to estimate plaintiff's damages in the range from $240,000 to $320,000 plus interest, "based upon a settlement that would have included a waiver of permanent alimony less the $50,000 paid for that waiver, adjustment for the reduced amount of limited duration alimony and consideration of the counsel fee award which [the husband] would have been obligated to pay."

Smith vs. Grayson wasn't a family law case; it was a legal malpractice case arising out of family law representation; and the current thinking in those cases is not to "try a case within a case" but rather to have a legal liability and damages expert opine as to what "should" have happened and to quantify the damages if it did not happen.  Here, the expert talked about an alimony buy-out figure, based on the "one third of the difference" rule that is often used in negotiating a settlement (Smith's case was settled, not tried); permanent alimony due to length of marriage; then brought back to present value; and further discounted for income taxes that would not be paid on a lump sum settlement:

"[W]e now address whether the facts of record support plaintiff's claim of attorney negligence in order to defeat defendant's summary judgment motion, in particular, whether plaintiff's expert rendered a net opinion as determined by the motion judge. For reasons that follow, we find the court's evidential ruling to be a mistaken exercise of its discretion.

N.J.R.E. 703 requires that an expert's opinion be based on "facts or data" lest it be inadmissible as a "net opinion." Polzo v. Cnty. of Essex, 196 N.J. 569, 583 (2008). The net opinion rule has been succinctly defined as "a prohibition against speculative testimony." Grzanka v. Pfeifer, 301 N.J. Super. 563, 580 (App. Div.), certif. denied, 154 N.J. 607 (1997); see also Vuocolo v. Diamond Shamrock Chems. Co., 240 N.J. Super. 289, 300 (App. Div.), certif. denied, 122 N.J. 333 (1990). An expert is required to give the "why and wherefore" of his opinion, not just a mere conclusion. Jimenez v. GNOC, Corp., 286 N.J. Super. 533, 540 (App. Div.), certif. denied, 145 N.J. 374 (1996); see also Rosenberg v. Tavorath, 352 N.J. Super. 385, 401 (App. Div. 2002); accord Kaplan v. Skoloff & Wolfe, P.C., 339 N.J. Super. 97, 102 (App. Div. 2001) (stating the rule in a legal malpractice case). When an expert opinion "'is based merely on unfounded speculation and [unqualified] possibilities,'" Grzanka, supra, 301 N.J. Super. at 580 (quoting Vuocolo, supra, 240 N.J. Super. at 300), or is unsupported by factual evidence, it is inadmissible. Jimenez, supra, 286 N.J. Super. at 540. Consequently, experts must "identify the factual bases for their conclusions, explain their methodology, and demonstrate that both the factual bases and the methodology are

. . . reliable." Koruba v. Am. Honda Motor Co., 396 N.J. Super. 517, 526 (App. Div. 2007), certif. denied, 194 N.J. 272 (2008). They must be able to point to generally accepted, objective standards of practice and not merely standards personal to them. Ibid. We review a trial court's determination that an expert's opinion is net for an abuse of discretion. Riley v. Kennan, 406 N.J. Super. 281, 295 (App. Div.), certif. denied, 200 N.J. 207 (2009).

In challenging the expert's opinion in this case as "net," Grayson contends the expert failed to explain (1) why plaintiff would have received permanent alimony had she gone to trial; (2) the basis for her projection as to the quantum of the annual award; (3) how she calculated the worth of a lump sum buyout of that award as well as plaintiff's resultant damages. We disagree.

First and foremost, the expert articulated the legal duty an attorney owes a client, supported by citation to case law and the rules of professional conduct. In particular, the expert relied on Ziegelheim, supra, involving a claim of legal malpractice arising out of a matrimonial matter, which held that "lawyers owe a duty to their clients to provide their services with reasonable knowledge, skill and diligence . . . .

[Necessary] steps [in the proper handling of the case] will include, among other things, a careful investigation of the facts of the matter, the formulation of a legal strategy, the filing of appropriate papers, and the maintenance of communication with the client." 128 N.J. at 260-61.

The expert then measured Grayson's performance in the representation of plaintiff against the objective standard of matrimonial practice to determine whether there was a breach of the legal duty owed her client. In doing so, the expert first determined that, under the specific facts and circumstances presented, plaintiff would have been entitled to permanent alimony given her age, income, earning capacity and financial needs; her husband's ability to pay; the marital standard of living; and, most significantly, the long duration of the marriage. On this score, in her report, the expert analyzed all applicable factors of N.J.S.A. 2A:34-23 relevant in this instance to the determination of the type of alimony to be awarded and, in her deposition, further explained why other statutory considerations either did not apply or were entitled to little weight.5

Of all the statutory factors implicated, the expert placed greatest weight on the long duration of the marriage, based, in part, on our decision in Cox v. Cox, 335 N.J. Super. 465 (App. Div. 2000), which held that because a parties' marriage was a 22-year marriage, permanent alimony should have been awarded absent a clear statement of reasons to the contrary, N.J.S.A. 2A:34-23(b), (c). Id. at 483. Most tellingly, the expert added that even the husband's counsel admitted this was a permanent alimony case. Thus, for all those reasons, the expert opined that in applying the pertinent factors of N.J.S.A. 2A:34-23 and the rationale of Cox, a court would award permanent alimony to plaintiff given the couple's long-term marriage, her former husband's significant income and earning capacity, and their comfortable marital standard of living.

Consequently, the expert opined that the accepted standard of care required Grayson to recognize that plaintiff would be entitled to permanent alimony and to act accordingly. So measured, the expert concluded that the settlement in this case was substantially below the range of award she most likely would have received at trial because plaintiff waived her entitlement to permanent alimony in exchange for a lump sum $50,000 payment; gave up her right to receive an award of counsel fees for no apparent consideration; and abandoned her option to retain the marital home worth $720,000 for only her rightful one-half share of the equity therein.

The expert laid the foundation for this conclusion, detailing step-by-step the methodology she employed. Before quantifying the amount of anticipated alimony to be awarded at trial, the expert correctly recognized citing Crews v. Crews, 164 N.J. 11 (2000), and Lepis v. Lepis, 83 N.J. 139 (1980) that the purpose of alimony is to allow the dependent spouse to enjoy the standard of living she had during the marriage and that the other spouse should pay alimony in that amount, if he is able to. The expert then estimated the range of yearly permanent alimony to be between $65,000 and $72,000 based on each party's historical earnings and utilization of a formula widely accepted amongst members of the matrimonial bar.

As to the former, the expert used the average of the husband's income over several years to account for spikes and dips in his solo law practice, and arrived at a range of between $200,000 and $250,000 annually. Plaintiff, on the other hand, after returning to work in 1999, averaged about $42,000 per year. The expert then derived a yearly alimony figure by taking one-third of the difference between the spouses' incomes. In doing so, the expert relied on a generally accepted objective standard of matrimonial attorney practice and not simply a standard personal to her. See Fernandez v. Baruch, 52 N.J. 127, 131 (1968). She also opined, based on her experience, that the ultimate alimony award would be in the higher estimated range because the weight of statutory factors the couple's age, established standard of living, and large disparity in income and earning capacity heavily favored plaintiff and therefore justified the upward adjustment.6

From there, the expert estimated that a lump-sum buyout of plaintiff's anticipated permanent alimony award would have been $225,000 to $300,000. Once again, she detailed the basis for her calculation, which was dependent in part upon the estimated amount of annual alimony and the number of years of alimony. In her report, the expert expressly states that the "appropriate methodology would have been to calculate the amount that would otherwise be paid as permanent alimony. This amount is then reduced by the taxes [plaintiff] would be required to pay and is further adjusted by a present value discount factor since she is receiving the money, theoretically, up front."

Utilizing this approach, the expert multiplied what she calculated to be a fair, yearly amount of alimony ($65,000 to $72,000) by the number of years until the husband retired. In this regard, she assumed a normal retirement age of 65 or 66, and therefore used a conservative seven-year remaining term. Since alimony is taxable to the payee, the expert then deducted from the total alimony figure the amount plaintiff would have paid in taxes, and assumed, in this respect, a 28 percent tax rate. Moreover, because damages for future expenses must be discounted to present value, Green v. General Motors Corp., 310 N.J. Super. 507 n.20 (App. Div.), certif. denied, 156 N.J. 381 (2008), the expert further adjusted the figure downward by an interest factor, using a computer program standard in the profession. Because her figures on the yearly alimony were expressed as a range, so was the amount of her estimated lump sum buyout.

The expert calculated the value of the permanent alimony buyout, in part, to determine whether Grayson was negligent in recommending that plaintiff accept the $50,000 lump sum buyout feature of the settlement agreement. On this score, the expert compared the settlement figure not only to her own estimated range of $225,000 to $300,000, but as well to the $165,000 price tag in Epstein's original proposal.7 Regardless of the calculation used, the point emphasized by the expert is that Grayson failed to recognize plaintiff's entitlement to permanent alimony and therefore neglected to calculate the value or worth of plaintiff's waiver thereof. Indeed, according to the expert, not only did Grayson fail to estimate the cost of a reasonable lump sum buyout, she advocated a woefully inadequate amount. In the expert's view, at the very least, "a waiver of the [husband's] interest in the [marital] home would have been a reasonable compromise in the settlement."

In fact, plaintiff's strategy from the outset had been to use her right to permanent alimony as leverage or in exchange for securing more assets in equitable distribution (i.e. the marital home) or a higher limited duration alimony award. She got neither. Instead, according to the expert, the settlement, inexplicably and incredibly, got turned "upside down":

instead of [plaintiff] getting the house, [husband] would buy her out. He simply flipped the deal: instead of [plaintiff] keeping the house and paying [husband] $75,000, he gets the house, pay [plaintiff] her half of the equity and instead of [plaintiff] paying him $75,000, [he's] going to be [a] nice guy and throw in an additional $50,000. . . . Grayson simply forgot that the entire point of [plaintiff] getting the equity in the house was to compensate her for the waiver of alimony. This is a stunning lapse and a deviation from the standard of care owed by . . . Grayson to her client.

 In other words, Grayson allowed the settlement negotiation to be "flipped," in which plaintiff yielded both her right to permanent alimony and her retention of the marital home due to her attorney's failure to give her proper advice. Compounding the matter, Grayson "also negotiated away a $25,000 award of counsel fees to [plaintiff] pursuant to a court order without any apparent consideration." Moreover, "there was no significant enhancement in child support that would justify the $50,000 for a waiver of permanent alimony . . . . Based upon the current Guidelines, [husband] agreed to pay child support that represented a slight deviation from the Guidelines but was not sufficient to justify the alimony waiver."

Having set forth with particularity the legal duty owed plaintiff and the breach thereof, the expert went on to estimate the damages caused by Grayson's deviation and to describe how she calculated the range of award $240,000 to $320,000 plaintiff would have received had the settlement reflected her likelihood of recovery at trial. To that end, the expert derived a figure based on the calculated buyout cost "less the $50,000 [actually] paid for that waiver, adjustment for the reduced alimony of limited duration alimony and consideration of the counsel fee award which [husband] would have been obligated to pay."

As is evident, the expert report states much more than a bare conclusion and contains the requisite "why and wherefore" of her opinion. The expert properly identifies the facts and data on which her opinion is founded; accurately analyzes the relevant law, both statutory and common; correctly describes the generally accepted professional standard; and adequately explains the methodology employed in ascertaining breach and measuring damages.

To be sure, alimony calculations, by their very nature, are inexact, but such imprecision does not render any less valid the expert's use of her knowledge and experience in the matrimonial field to estimate the range of an alimony award she would have received had she rejected the settlement agreement and proceeded to trial. By the same token, while the type of alimony awarded is broadly discretionary, Steneken v. Steneken, 367 N.J. Super. 427, 434 (App. Div. 2004), aff d as mod., 183 N.J. 290 (2005), that discretion is not limitless and the expert here has provided sufficient guidance to aid the trier of fact in a legal malpractice action to understand how that discretion may have been exercised in the underlying divorce trial.

Admittedly, the expert opinion at issue here is not without challenge. But the deficiencies identified by defendant go to the weight, rather than the admissibility, of this proof, and are appropriate for attack on cross-examination. After all, an expert's opinion "is not inadmissible merely because it fails to account for some particular condition or fact which the adversary considers relevant." State v. Freeman, 223 N.J. Super. 92, 116 (App. Div. 1988), certif. denied, 114 N.J. 525 (1989). Rather, "[t]he adversary may on cross-examination supply the omitted conditions or facts and then ask the expert if his opinion would be changed or modified by them." Ibid. So too, the fact that alimony awards may contain a subjective element does not render them undeterminable. "Mere difficulty or lack of certainty in the proof or finding of the quantum of damages does not inhibit an award to the successful party." Donovan v. Bachstat, 181 N.J. Super. 367, 374 (App. Div. 1981) (internal quotations omitted), modified, 91 N.J. 434 (1982).

For all of these reasons then, we conclude that the expert opinion in this case contains the requisite factual foundation and therefore the motion court mistakenly exercised its discretion in disallowing its admission into evidence."  (Emphases added)

In my opinion, what the App. Div. did in Smith vs. Grayson was unremarkable and very much in keeping with modern professional liability theory and practice:  instead of "trying a case within a case", the expert on liability and damages quantifies what the deviation from standards of care has cost the plaintiff.  In this case, the expert quantified plaintiff's damages resulting from what she deemed a grossly improper settlement.  Ironically, the case was not published because what it said broke no new legal ground, not so that its contents should be ignored.

Bottom line: a dependent spouse who takes $50,000 for an alimony buyout that arguably should have been 5 to 6 times higher most likely did not benefit from the legal standards of care to which she was entitled.

Hanan

	Hanan M. Isaacs, Esq.   t 609.683.7400   f 609.921.8982 e [email protected]   w www.hananisaacs.com 4499 Route 27, Kingston NJ