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. Continue reading