The alleged failure of the mediator and the husband’s counsel to advise the husband that a court need not apply the C.S.S.A. formula to the husband’s entire agreed-upon income of $1,200,000.00 per year income is not a basis to set aside a divorce settlement agreement, or its $29,500.00 per month child support obligation. So held Westchester County Supreme Court Justice Lawrence H. Ecker in his January 16, 2014 opinion in A.B. v. Y.B.
The couple involved separated after 12 years of marriage. Following three years of mediation, the parties entered into an agreement that resolved issues of custody and access to the parties’ three children, maintenance, child support, and equitable distribution. The husband is a 50% equity partner in a brokerage firm. The wife is owner and operator of her own business.
Upholding the agreement, Justice Ecker took pains to quote several of its provisions. One acknowledged that the parties had waived the “compulsory financial disclosure” requirements of the Domestic Relations Law and court rules, and agreed not to exchange Net Worth Statements. Nonetheless, the parties represented to each other that each made a full and complete disclosure of assets, liabilities, income and expenses, and that they relied on the information provided.
The agreement recited the husband’s disclosure, to the best of his knowledge, of his gross personal 2010 income as approximately $156,427.00. The parties agreed to use the 2010 income because their 2011 income was not yet available. The Husband disclosed that in no event was his income from any and all sources more than $156,427.00 in said year.
Nonetheless, for purposes of the agreement, the parties agreed to use an imputed income of$1,200,000 in computing the child support calculation under the Child Support Standards Act.
The parties acknowledged that they reached their agreement with the aid of the mediator, but that the mediator provided no legal representation to either of the parties. Further, although “the mediator may have provided information or opinions concerning the state of the law generally, neither party has relied upon such information or opinions in executing this Agreement.”
The parties further represented that each had ample opportunity to obtain independent legal counsel, and counsel [apparently recommended by the mediator] for each spouse was named.
As to the basic child support obligation, the agreement provided it was agreed that the the husband’s would pay $29,500 per month [$354,000 per year] for 12 years, 5 months, subject to a cost of living increase biennially. The husband was further responsible for 100% of discretionary expenses and add-on expenses, including private school tuition for all three children, private college expenses, camp and summer programs, religion education expenses, Bar and Bat Mitzvah expenses, health insurance and unreimbursed medical expenses.
The agreement contained the following C.S.S.A. recitation:
The parents to this Agreement have been informed of the provisions of the Domestic Relations Law, § 240 (1-b)a statutory provision commonly known as the Child Support Standards Act (“C.S.S.A.”) as well as the interpretation and consideration of the statute which it has been given by the Court of Appeals of the State of New York in the case of Cassano v. Cassano, 85 NY2d 649 (1995). The parents acknowledge they have been informed of the provisions of the statute and decision, understand them, and have had a full opportunity to discuss them with counsel. The parents further acknowledge that they are aware that the Child Support Standards Act provides a formula for calculating child support based upon twenty-nine percent (29%) of the parents’ yearly combined income up to at least the new threshold amount effective January 1, 2012 of $136,000.00, or $37,000.00 for three (3) children, and potentially twenty-nine percent (29%) of the parents’ yearly combined income over $136,000.00 to establish the basic child support obligation for three children and the non-custodial parent’s pro rata share thereof. The parents understand that, in addition to the non-custodial parent’s pro rata share of the basic child support obligation, he or she must also pay a pro rata share of the child’s health care expenses and the child care expenses and may be directed to contribute to the child’s present or future educational expenses and that health insurance coverage is included in basic child support. [emphasis added]
Thereafter, the agreement set forth the calculation of child support as to the first $136,000 of combined income and total combined income over $136,000 “based upon the plaintiff’s gross income of $1,200,000 reported on his most recent income tax return for 2010, or $1,175,978.40 after FICA / Medicare deductions pursuant to the C.S.S.A.” Defendant’s gross income was $18,348.00, or $16,944.37 after FICA / Medicare deductions. The husband’s monthly basic child support obligation on the first $136,000 of combined income was stated as $3,286.67 and his monthly basic child support obligation, “as he agreed to,” is $28,466.67.
Nevertheless, “in full knowledge and understanding of the foregoing, the above child support calculation is presumptively correct, the Father agrees to pay to the Mother $29,500.00 per month for basic child support . . . .”
The parties’ stated the reasons they were deviating from (exceeding) the presumptively correct C.S.S.A. amount:
1. The physical and emotional health of the children and his/her special needs and aptitudes.
2. The standard of living the children would have enjoyed had the marriage or household not been dissolved.
3. A determination that the gross income of one parent is substantially less than that of the other.
4. The tax consequences to the parties.
5. The Father has substantial income from investments.
6. The Father believes his business will improve and the agreement provides for a reduction in support in the event that the father’s business does not improve.
Justice Ecker then noted that while the husband agreed to use his 2010 income of $1,200,000 when he signed the agreement on April 6, 2012, the parties’ 2011 federal tax return [ultimately] declared “gross income from all sources” to be $1,893,409. Morever, in this action, on August 15, 2013, more than a year after the agreement was signed, the husband had filed a Statement of Net Worth that stated his current income from partnership, royalties, and sale of assets was $1,515,000 per annum, with the 2012 federal tax return on extension.
Justice Ecker additionally noted that under their agreement the parties waived the statutory provisions for child support modification and charted their own methodology. A modification would be available if as a result of a downturn in the husband’s business:
the husband had depleted his liquid assets down to a value of $500,000, not including retirement funds unless same were deposited within six months immediately preceding the modification; and
the capital requirement in the husband’s brokerage firm is at or below the SEC minimum; and
the husband had downsized his personal expenses (i.e. smaller apartment).
Some 15 months after signing the agreement, the husband commenced this action for a divorce on the grounds of irretrievable breakdown and moved to rescind the child support provisions of the agreement, or alternatively, to rescind the entire agreement.
The husband contended that the child support provisions of the agreement were “overreaching, egregiously inequitable, manifestly unfair and unconscionable.” He claimed he was not adequately advised by the mediator, or competently represented by legal counsel regarding the agreement.
Specifically, he claimed he was never advised that courts may “cap” income for child support purposes when it exceeds $136,000, and that it is “standard” for courts to cap income for child support purposes at an amount less than 100% of the combined parental income when it exceeds $136,000; that a court “would almost invariably” have capped his income for child support purposes at an amount far less than 100% of his income, likely between a range of $250,000 to $400,000.
Justice Ecker noted that the parties also agreed that irrespective of husband’s earned income for 2011, his imputed income would be $1.2 million in computing child support under the C.S.S.A.; an amount based upon the husband’s draw from his business, which the husband claimed was not reflective of his actual earned and investment income.
The wife countered that it was the husband who drove the negotiations and was fully aware of the deal he was making. According to the wife, her husband was always focused on the “total nut” he was outlaying, not on specific characterizations of child support, maintenance, or equitable distribution. The wife also argued that the agreement reflected three years of negotiating and mediating a global settlement with the rights, obligations and waivers of the parties being inextricably intertwined.
Upholding the agreement, Justice Ecker held that a divorce settlement agreement which is fair on its face will be enforced according to its terms unless there is proof of fraud, duress, overreaching or unconscionability. Moreover, an agreement is not unconscionable “merely because in retrospect, some of its provisions were improvident or one-sided.”
Here, the husband was a savvy businessman and financial expert, and negotiated the very deal he obtained. Moreover, there is no requirement that a court or parties “cap” combined parental income at any specific amount over the initial $136,000.
Justice Ecker believed the following e-mail from the husband to the mediator and both lawyers shed additional light on his thought processes during the negotiations and his “depth of awareness and understanding that a court might order him to pay less child support.” The husband wrote:
“Point is, I think (the mediator) and our lawyers and accountants should plug in the figures that I would be asked by a court to pay in alimony and child support based upon my earnings and then compare that to what I have offered in most recent effort to explain our differences in understanding and settle amicably…A little guess from me is that the new number might be half or less of what I am offering to try to live up to…”
“I may fail, and not be able to earn enough to pay for the deal I am willing to sign, but I know it is a better deal than the one you will get if we push into litigation…and we know what the absolute worse part of that will be.’
Applying the legal principles, Justice Ecker held the husband failed to establish a sufficient basis, on the facts or the law, to find the child support provisions of the agreement were overreaching, inequitable, unfair, or unconscionable, or that the husband was entitled to relief from the agreement on the basis that he was not adequately represented by legal counsel.
“An unconscionable bargain is one which no person in his or her senses and not under delusion would make on the one hand, and no honest and fair person would accept on the other, the inequality being so strong and manifest as to shock the conscience and confound the judgment of any person of common sense.” In other words, an unconscionable contract is one “which is so grossly unreasonable as to be unenforceable because of the absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.”
Similarly, a party attacking the validity of the agreement has the burden of coming forward with evidence showing fraud, which will not be presumed, and must have as its basis evidence of overreaching; the concealment of facts, misrepresentation or some other form of deception by the other party. Here, the husband failed to submit proof to support his conclusory allegations in this regard.
Regarding the husband’s claim of unfairness, Justice Ecker noted the party challenging the agreement “bears the very high burden of showing that it is manifestly unfair and that this unfairness was the result of overreaching on the part of the [other party].” Here, there was no evidence whatsoever that wife overreached in the lengthy process of negotiations and execution of the agreement.
Justice Ecker found that the husband, who is possessed of sophistication, expertise, and intellect in financial matters, was personally involved in all aspects of the extensive negotiations, that he personally proposed the deal that was ultimately accepted, repeatedly refined his own proposal, and signed the agreement. Throughout the negotiations and preparation of the agreement, he was represented by legal counsel.
As to the husband’s claims of the inadequacy of his legal representation, misadvice by the mediator, and his ignorance as to the application of the cap within the context of the C.S.S.A., such Justice Ecker ruled, were completely belied by the language in the agreement.
The court finds that the Agreement was negotiated over a lengthy period of time, was prepared by independent counsel, and reviewed by plaintiff’s own counsel. At all times, plaintiff was assisted by his own counsel who actively participated in the negotiations, preparation, and execution of the Agreement. The court notes plaintiff has produced no affirmation from prior attorney or anyone else corroborating any of his allegations regarding her failure to properly advise him, or that she operated under a conflict of interest because the mediator recommended her.
Comment: I don’t believe I have handled a divorce in which my client hasn’t asked, “What would a court do?” A precise answer cannot be given, but a reasonable range can. It is routine to discuss the “cap,” and what courts have done when a parent’s income exceeds the cap. My guess is that this case was no different.
The point remains we don’t know what the husband was told. The mediator didn’t say. The husband’s old lawyer isn’t going to take one for the team, or admit malpractice, or call his client a liar.
All the more reason that with an agreement of this magnitude, if not complexity, perhaps a second opinion is in order. Perhaps a “C-Y-A” letter (see, for example, these Minnesota and Oregon blog psosts) should be insisted upon by both the lawyer and the client.