Focus.jpgUnder a 2004 stipulation of settlement that was incorporated, but survived the entry of the judgment of divorce that ended the parties seven-year marriage, the ex-husband/father was to pay $250,000.00 in annual maintenance and $140,000.00 in annual child support emancipated.

The stipulation further provided that the father would be able to apply for a reduction of his child support and spousal maintenance obligations in the event of an “involuntary, substantial, adverse change” in income. Moreover, if a downward modification were to be granted, the parties’ stipulation would be deemed amended to the extent of any relief afforded. The particular provision provided:

Anything herein to the contrary notwithstanding, in the event of an involuntary, substantial, adverse change in the Husband’s income, including income produced by his assets (such as involuntary loss of employment), he shall have the right to make application to a court of competent jurisdiction, which must include a sworn statement of net worth, for an appropriate modification of child-related support and/or spousal maintenance obligations hereunder, and if granted, the parties’ Agreement shall be deemed amended to the extent of any relief afforded on such application.

The September 10, 2012 decision of Westchester County Supreme Court Justice John P. Colangelo in Mark P. v. Teresa P., resolved such an application to reduce his support obligations. The father based his application on the reduction of his annual income from $3.3 million in 2004, when the stipulation was signed to $651,000.00 in 2011, and an anticipated $251,000.00 in 2012. The father, a securities trader, claimed that the reduction in his income was due to “changes in the securities industry, the economy and a general decline in securities’ sales volume . . . .”

The ex-wife/mother contended that the agreement’s support reduction paragraph should be read only to provide the threshold setting the father’s right to apply for a support reduction, but not necessarily to obtain such a reduction. The mother claimed that the provision did not alter the standards for granting a reduction in child support (a substantial unanticipated an unreasonable change in circumstances) or spousal maintenance (extreme hardship).

Justice Colangelo agreed with the mother, and denied relief to the father. Although the Court acknowledged that the parties had “sought” in their stipulation to provide a “less restrictive standard than that provided by prevailing law,” the Court held that the any easing of the standard was “more circumscribed” than the father argued. Justice Colangelo noted that “conspicuous by its absence is any standard to apply once the threshold to apply for reduction was met.” Thus, the Court would apply “well established principles of whether a reduction in amount is warranted.” The father failed to meet that standard.

Justice Colangelo discussed several decisions which honored agreement provisions that only lowered the threshold to apply for relief, but also held that meeting the threshold did not mandate a reduction.

Only by an explicit agreement . . . may the parties successfully substitute a different standard for support payment reduction from the well-worn standards established by statutory and case law.

Justice Colangelo provided an example of such a standard-reducing agreement when referring to Dallin v. Dallin, 225 A.D.2d 768, 640 N.Y.S.2d 148 (2nd Dept. 1996). In that case, the agreement provided that “any decrease in the Husband’s income below $300,000 shall entitle him to a reduction . . . .” The Stipulation under review by Justice Colangelo did not provide for such an entitlement.

Here, the father argued that for the Court to adopt the mother’s interpretation would render the provision meaningless. Justice Colangelo disagreed, holding that the provision “alerts the Court to factors that the parties deem important in assessing any payment reduction request.” Moreover, meeting threshold effectively insulated the father from a claim that the application was so frivolous as to warrant sanctions or attorney’s fees. Indeed, the mother submitted a cross-motion to Justice Colangelo for attorney’s fees.

Justice Colangelo held that the father’s current $5.5 million in liquid assets precluded a finding that a maintenance reduction was warranted due to “extreme hardship.”

Moreover, the father failed to meet even the less restrictive child support reduction standard because the father offered no evidentiary facts to demonstrate that the father had actively and diligently sought more remunerative employment. The father did not claim to have looked for work at different, perhaps larger brokerage firms, or madeefforts to seek out new clients, or sought additional work to supplement his income. This permitted the Court to conclude that the father’s current economic situation, and the failure to improve it, was at least partially of his own making. The father’s failure to demonstrate his efforts called for the denial of his application without an evidentiary hearing.

The Court did deny the mother’s cross-motion for counsel fees. Although the mother’s income was substantially lower than the father’s, because the stipulation specifically gave the father the right to apply for a downward modification, there was nothing to suggest that the father’s application was frivolous or made in bad faith. The involuntary substantial reduction in the father’s income made it “unfair to award counsel fees under the circumstances, when the Stipulation specifically provides for a modification application.”

The parties’ provision here under review was certainly not meaningless. To the contrary, on a different aspect, the provision significantly changed the results at law. At law, if a couple fixes the child support obligation by an agreement which survives the entry of a divorce judgment or support decree, then a judicial reduction of that support obligation only affects the “ordered” amount of support; the amount collectible using support collection machinery. Only the reduced amount could be payable through the Support Collection Unit process; contempt would only be available for a willful failure to pay the reduced amount; a garnishment could collect up to 65% of the parent’s “disposable income” to satisfy the support obligation and collect arrears.

However, such a judicial reduction would not eliminate contract-law remedies to collect the balance of the support obligation. The portion eliminated from the ordered amount would nevertheless be collectible under contract law. A money judgment could be obtained; there could be a levy made against the property of the obligated parent; an income execution limited to 10% would be available (although not simultaneously with the greater Income Deduction Order or Income Execution available for enforcement of support orders).

Certainly, the agreement threshold was less than the “extreme hardship” legal test for a reduction in agreed-upon spousal maintenance. However, if the “extreme hardship” test is met, the statute, itself, provides for the suspension of the contractual maintenance obligation. The balance of the original amount of maintenance would not be collectible under contract law. D.R.L. 236B(9)(b)(1) provides in part.

Where, after the effective date of this part, a separation agreement remains in force no modification of a prior order or judgment incorporating the terms of said agreement shall be made as to maintenance without a showing of extreme hardship on either party, in which event the judgment or order as modified shall supersede the terms of the prior agreement and judgment for such period of time and under such circumstances as the court determines.

It is not clear whether, in fact, the parties’ provision reduced the threshold to make the application for a reduction in child support, or, indeed, was intended to do so. It is not clear whether the “involuntary, substantial, adverse change in the Husband’s income” which the parties’ agreement made the threshold for a judicial application is, in fact, different than the “substantial unanticipated and unreasonable change in circumstances” standard established by case law to obtain a judicial reduction of a child support obligation. (D.R.L. §236B(9)(b)(2)(i) only requires a “substantial change in circumstances.”)

Nonetheless, if the Court’s interpretation of this provision was accurate as only as reducing the threshold to apply for relief, but not establishing an entitlement to relief, such a provision should be against public policy. Such a provision would allow parties to waste the time and resources of the courts; allowing parties to agree that modification proceedings may be brought, even though they lacked entitlement. Such a result would seem absurd.

Nevertheless, Justice Colangelo correctly threw the ball back into the parties’ “court.” Couples are allowed to change judicial standards, but if they are going to do so, they must be precise. Courts should not be left to guess what the parties intended.

Thus, it is the job of every draftsman, and every divorcing spouse, to fill in the blanks: if ___________, then ___________. Is a modification threshold dependent only upon a change of income, or may assets be considered. Once the threshold is met, what is the court to do? Is the court to make a de novo determination, or not? How will the court base its decision?

Experienced matrimonial lawyers have the perspective to ask the divorcing couple, perhaps exhaustively, what do you want to do if A happens, or B, or C? The couple is, then, empowered to plot their future. However, it is not the job of the court to guess what would have been intended had the parties expressly answered those questions.

In this context, reviewing a divorce settlement stipulation should be reminiscent of the three-year-old who will not stop asking “why.” Here, the divorcing couple will best serve themselves by asking “what if” with that same tenacity.

The father was represented by Jerry Kugmas, Esq., of White Plains. The mother was represented by Christopher Mangold, Esq., of Danziger & Mangold, LLP, of White Plains.