In a recently unreported case, Hersch v Hersch, the court once again was called upon to interpret New Jersey alimony laws. The parties had been married 15 years when they decided to divorce in 2010. They had two children of the marriage, who, at the time of this final decision, were teenagers. The husband enjoyed a high-power job as an executive compensation and benefits specialist in finance. The wife also enjoyed a fairly good job, earning over $80,000.00 as a product manager at the time the parties divorced. After lengthy negotiations, aided by legal counsel, the parties reached a marital settlement agreement, including 10 pages concerning child support and alimony alone. In the initial agreement, the parties determined that the husband owed $704 each month in child support, and that he would also pay eight percent of any bonuses or stocks that he received from his job as additional child support, whether or not it was cash. On top of this, it was agreed that Mr. Hersch would pay his wife a base alimony for two years and three months in bimonthly installments of $1,125.00. The agreement included the calculation for how the parties arrived at these figures, as well as language accounting for any additional bonuses, commissions or extra compensation the Mr. Hersch may earn during the period which he owed alimony.
In between signing the final decree and the present suit, Mr. Hersch was laid off, re-hired, laid off and hired multiple times, usually earning slightly more at each new job than the last. He also often received large severance packages for each time he was laid off. If the severance packages were considered compensation, then he would owe additional alimony under the agreement. The issue then is, under the New Jersey alimony laws, are these severance payments also considered compensation to be factored into alimony payments?
The court first started by confirming that marital settlement agreements were contracts under the law, and they should therefore be interpreted as such, using contractual principles. The court reasoned that, under the plain language of the settlement, severance pay would be income for purposes of alimony, because the language was broad and excluded only the issuance of signing bonuses. Additionally, under the rules of the I.R.S., the court noted that severance pay is intended to be replacement income, rather than defendant’s characterization of the payment as releasing a specific damage claim. The essence of the agreement was that Mr. Hersch’s obligations are based on what he is required to report as earned income in any given year. In light of this language, New Jersey alimony laws, and the requirements of the IRS, the court held that such severance pay would be absolutely reportable as income earned on his federal tax return. In fact, Mr. Hersch actually did report his severance payment on his IRS returns, including them under the “wages, salaries, tips, etc.” category.
The court was clear and unequivocal when it confirmed that under New Jersey alimony laws, the government treats severance the same way the federal government does – as a form of wages. Citing to the New Jersey Supreme Court in the Adams v. New Jersey Cent. Power & Light Co. case, the Hersch court affirmed the idea that severance pay was not merely payment to replace income for the period of unemployment. Rather, severance pay had other objectives, such as readjusting the life of the employee to altered circumstances, and should not be considered a gratuity, but rather compensation earned by service. This first issue, was therefore disposed of rather quickly by the trial court, and the appellate court felt no need to disturb this ruling on appeal.
The second argument Mr. Hersch raised at the trial level was that the additional amounts of child support were not properly calculated because the court failed to shift any alimony paid by him and add it to her income before calling for additional child support, as required in the guidelines. However, the court rejected the notion that this was in the guidelines, and there was nothing in the parties’ 38-page agreement that indicates they intended alimony paid to Ms. Hersch should be deducted from Mr. Hersch’s income prior to the calculation of additional child support. The agreement was clear that a flat eight-percent sum should be taken from any additional compensation. Using contractual principles, the trial judge did not interpret the contract to make a better deal for Mr. Hersch, nor supply terms that the parties had not clearly agreed upon. The appellate court agreed with the rationale and holding of the trial judge, and also declined to disturb this ruling on appeal.
To add to their confidence in the trial judge’s ruling, the court thought it important to note that the agreement was based on Mr. Hersch’s basic income of $225,000. In the years following the divorce, he had earned, at minimum, $330,000 each year, and in some cases, earned $695,000.00. Therefore, Mr. Hersch was not placed at a disadvantage, and certainly any argument that the agreement should be modified based on changed circumstances could not be carried. It is also worth noting that the appellate court mentioned Mr. Hersch’s consistent attempts at hiding or delaying the true financial picture of his earnings, causing delays, court costs, and overall headaches in this litigation. Such behavior is frowned upon by the court, and will not be awarded with innovative interpretations in favor of the party in the wrong.
It seems clear then, that under New Jersey alimony laws, severance packages shall be included as compensation for purposes of spousal and child support. If you have any questions about how much a divorce could cost you, particularly in terms of alimony, get in touch for a free consultation with Peter Van Aulen at the Law Offices of Peter Van Aulen by calling 201-845-7400.