Is it proper, at the conclusion of a divorce action, to offset pendente lite child support arrears against the support obligor’s right to receive a share of the custodial parent’s pension or other deferred compensation plan assets?
That question was apparently answered in the affirmative by the Appellate Division, Third Department, in its October 25, 2012 decision in Bennett v. Bennett.
At the conclusion of the divorce action, the wife moved to amend the Judgment of Divorce, among other things, to clarify that she was allowed to offset her arrears in child support payments to the husband against payments owed to her from husband’s pension. Saratoga Supreme Court Justice Thomas D. Nolan Jr. granted that motion and the husband appealed.
The Third Department upheld the authority of Justice Nolan to amend a divorce judgment to “cure mistakes, defects and irregularities that do not affect substantial rights of [the] parties.” This authority included the authority to amend “a judgment to make it reflect what the court’s holding … clearly intended.”
Here, the original judgment provided that the sums owed for the pension payments “may be off-set against” the wife’s child support arrears, reflecting the language in Justice Nolan’s prior decision and order. When the husband objected to his wife’s attempt to claim the offset, Justice Nolan amended the judgment to provide that wife “shall be entitled” to the offset.
The Third Department held that the amended judgment appropriately clarified the intent of the Justice Nolan’s original holding. In doing so, the appellate court noted, Justice Nolan did not affect the amount of child support owed by plaintiff or the amount of the husband’s pension to which the wife was entitled. Thus, no substantial rights of the parties were altered.
The appellate decision does not contain enough facts to fully understand its impact or rationale.
First, it would appear that the wife was allowed to offset an after-tax obligation with pre-tax dollars. Child support is neither deductible to the payor, nor taxable income to the payee. The payor pays the child support arrears with after-tax dollars. The payee gets to keep the entire amount without incurring tax obligations.
Allowing an offset of child support arrears against a pension changes that. For the wife to pay $1,000 in child support, in all probability she would have to earn more than that, say $1,300, and then pay $300 in Social Security, Medicare and income taxes. On the other hand, with an offset, the husband does not now receive the $1,000 in child support arrears to which he and the children are entitled. Rather, he gets to keep $1,000 in pension benefits. When he takes that $1,000 in pension benefits, that sum will be reduced by the taxes he has to pay. Thus, “substantial rights of the parties” would appear to have been altered by the offset.
Moreover, the Third Department, itself, previously recognized the inequity of allowing the child support obligor to offset arrears against assets (or by assuming liabilities). In Koren v. Koren, 279 A.D.2d 829, 719 N.Y.S.2d 347 (2001), the Third Department stated:
[T]there is a strong public policy against the use of a parent’s child support obligation as an offset in resolving other financial issues related to equitable distribution in the absence of consent by the custodial parent and a determination by the court that the child’s needs will be met. To be clear, such financial issues should not be resolved in this manner at the expense of the children. . . . In our view, using child support obligations in this manner as an offset . . . obligations effectively canceled the child support arrears to which plaintiff and the child were entitled.
To resolve these issues, it should not be the option of the parent in arrears in the payment of child support to offset the arrears against a right to receive property being distributed. The parent entitled to receive the child support should be given the choice.