The parties’ 2013 divorce stipulation of settlement provided that child support for their two children would be adjusted annually. Beginning May 1, 2014:
“the parties shall set by April 30, a payment schedule of the Parent’s total obligation for base child support ‘made pursuant to the formula set forth below and income caps for the fiscal year beginning May 1 and continuing through April 30th of the following year. This schedule shall be based on the actual income’ for the previous calendar year. The Father shall then pay this base child support’ amount to the Mother in monthly installments.” [emphasis added]
For the purpose of computing base child support, the stipulation defined “income” as “the gross earned income solely attributable to a party and as listed on the Form 1040 United States Individual Income Tax Return filed by the parties, less (1) FICA taxes actually paid; (2) Medicare taxes actually paid; less (3) New York City or Yonkers income or earnings taxes actually paid.”
In 2016, the mother received a salary of $86,801 for her work as a veterinarian. She also received $39,631 in “[o]rdinary dividends” and $245,629 in “[r]ental real estate, royalties, partnerships, S corporations, trusts, etc.” In 2017, the father calculated his base child support obligation using the mother’s adjusted gross income of $369,092. The mother disputed the calculation, contending that the income derived from her ownership interest in the LLCs was not “earned” income and therefore did not fall under the stipulation’s definition of “income.”
The mother filed a petition to enforce the child support provisions of the stipulation. Westchester County Family Court Support Magistrate Esther R. Furman, denied the mother’s motion for summary judgment defining the term “gross earned income” in the parties’ stipulation of settlement, and granted the father’s cross motion for summary judgment. Magistrate Furman determined that if the parties had intended to calculate child support obligations “based only upon income generated by employment or payment for work/services and to exclude their passive income, it would have been incumbent upon the parties to expressly so state in their Stipulation.” Accordingly, the Support Magistrate deferred to the definition of “income” in the Child Support Standards Act (CSSA), i.e., gross [total] income that was or should have been reported on the most recent tax return (see Family Court Act §413[b][i]).
The mother filed objections to the Support Magistrate’s order, arguing that, as a matter of law, “gross earned income” excluded passive income. Family Court Judge Arlene Gordon-Oliver denied the mother’s objections to the Magistrate’s order. The mother appealed.
In its June 17, 2020 decision in Matter of Abramson v. Hasson, the Appellate Division, Second Department, modified the order below by denying the father’s cross-motion, instead remitting the matter for a hearing to determine the parties’ intent when defining “income” as “gross earned income” in the context of their stipulation.
The Second Department noted that “whether a writing is ambiguous is a matter of law for the court, and the proper inquiry is whether the agreement on its face is reasonably susceptible of more than one interpretation.” In making this determination, the court also should examine the entire contract and consider the relation of the parties and the circumstances under which the contract was executed.
The appellate court held here that the term “gross earned income,” in the context of the parties’ stipulation, is ambiguous. However, instead of deferring to the CSSA’s definition of “income,” the Support Magistrate should have held a hearing to determine the parties’ intent in including the word “earned.” Accordingly, the court remitted the matter for a hearing to determine the parties’ intent. [Ambiguity is not an excuse to abandon the parties’ agreement.]
The problem has certainly surfaced before. In a 2011 blog post, I discussed the fact that the C.S.S.A. statute calculates the parents’ “income” by beginning with “gross (total) income as should have been or should be reported in the most recent federal income tax return.” However, IRS Form 1040. “Gross” income is a term in the statute, but not the 1040.
"Gross (Total) Income" for the Purposes of Child Support and Temporary Maintenance
As noted in a 2018 blog post, among the problems when drafting a settlement agreement provision for the allocation of liability for a jointly-filed tax return is that the IRS Form 1040 personal tax return does not use term “income” by itself. At that time, line 22 of the 1040 identified the couple’s “total income.” After allowing for certain deductions, the parties “adjusted gross income” was found at line 37. Then, after allowing for other itemized or the standard deduction, the couple’s “taxable income” was found at line 43.
Drafting an Income Tax Allocation Provision for Returns Filed During the Divorce
The 1040 has now changed, however. Now, wages, etc., are shown on line 1 (no longer 7); “total income” is shown on line 7b (no longer 22).
It is suggested that when drafting an agreement provision that calls for a calculation based on “income,” as a starting point make reference to a specific line on the 1040, and then make any specific adjustments to which the parties agree.
Moreover, make use of the parties’ most recent tax return and show, or at least know how the calculation would be made using the income for that year.
There are no guarantees that the draftspeople will anticipate all future situations or calculations, but answering the question, “What if?”, or taking the time to “Show me” may make things easier down the line.
Robert A. Spolzino, of Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara, Wolf & Carone, LLP, of White Plains, represented the mother. Lawrence B. LaRaus, of Buonamici & LaRaus, LLP, of White Plains, represented the father.