A couple that used “employment” of the ex-wife by the ex-husband as a device to provide post-remarriage support to the ex-wife was bound to employment rules. The wife could be fired for misconduct. So held the Appellate Division, Fourth Department, in its September 26, 2014 decision in Anderson v. Anderson.

The Separation and Property Settlement Agreement that was incorporated into, but survived the entry of the parties’ divorce decree, provided that if the wife remarried, terminating the husband’s maintenance obligation, the husband would “employ” the remarried wife as a “consultant” for a stated weekly salary. That “employment” was to continue until husband’s child support obligations under the Agreement terminated. Although the Agreement did not require the wife “to work any particular number of hours,” it did require her to “be available at reasonable times and from time to time to consult, as needed by the [husband], with respect to [his] various business interests.”

After her remarriage, however, the wife opened a business in competition with her prior husband. He moved to terminate the consultation fees being paid to his former wife on the ground that she, as his employee, had breached her duty of loyalty.

Niagara County Supreme Court Justice Frank Curso denied the motion, concluding in relevant part that “the employment provision is not a contract for employment, but rather . . . is a support provision which allow[ed] the defendant’s business to make payments to plaintiff instead of the defendant himself.”

The Appellate Division, Fourth Department, reversed. The appellate court concluded that the Agreement provision constituted an employment contract, thereby permitting the husband to terminate the payments upon the wife’s breach of her duty of loyalty to him as her employer.

The separation agreement was required to be “enforced according to the plain meaning of its terms.” The Fourth Department did agree with the wife and Justice Curso that the clear and unambiguous intent of the Agreement was to provide a substitute source of monetary support for the wife after the husband’s maintenance obligation terminated. Nevertheless, the appellate court concluded that:

the reason defendant agreed to employ plaintiff does not change the fact that the Agreement established an employment relationship with corresponding rights and obligations for both parties.

An employee may not compete with his or her employer’s business during the time of his or her employment. Here, when the wife opened a business in direct competition with the husband’s business, the wife breached her duty of loyalty to her employer, thereby permitting the husband to terminate the consultation fees and the employment relationship.

Comment: If, indeed, the “employment” of the ex-wife was simply a device to continue to provide support to the ex-wife despite her remarriage that was tax deductible to the husband (and includable in the income of the wife), the device seems wholly unnecessary. Post-remarriage maintenance (alimony) payments need not lose their tax deductibility if other tests for deductibility under the Internal Revenue Code are met. The obligation must terminate if the ex-wife dies before the end of the stated support period (I.R.C. §71[b][1][D]).

Lawrence J. Vilardo, of Connors & Vilardo, LLP, of Buffalo, represented the husband. Joseph M. Finnerty, of Hiscock & Barclay, LLP, of Buffalo, represented the wife.