Court of Appeals partially reduces Husband’s alimony reduction in case Husband probably wishes he never filed

Posted Friday, September 9th, 2016 by Gregory Forman
Filed under Alimony/Spousal Support, Attorney's Fees, Of Interest to Family Court Litigants, Of Interest to Family Law Attorneys, South Carolina Appellate Decisions, South Carolina Specific

One of my harder tasks practicing family law in South Carolina is advising ex-spouses with alimony obligations whether and how much their obligation might change based on reduced income. The July 27, 2016 Court of Appeals opinion in Woods v. Woods, 418 S.C. 100, 790 S.E.2d 906 (Ct. App. 2016) does not provide additional clarity on this topic.

In Woods, Husband agreed to pay Wife $8,000 per month in alimony at the time of their 1999 divorce. The agreement contained two provisions regarding modifiability of alimony that appear to partially contradict the other:

The parties agree that this permanent, periodic alimony shall not be modifiable by [Husband] for a period of [three] years from the date of the approval of this Agreement so long as [Husband’s] total gross income (as defined by the Internal Revenue Code, including but not limited to tax exempt income) is not less than [$500,000] per year. In the event that [Husband] conveys any of his interest in Gilliam & Associates, Inc., in any form, including but not limited to an acquisition, merger, recapitalization, restructure, or other transference or disposal in any fashion whatsoever which provides a benefit to [Husband] and which reduces his income to below [$500,000] per year, [Husband] acknowledges that this conveyance shall be subject to review by the Family Court for the Second Judicial Circuit for the purposes of a reduction of alimony.

And

It is the intent of the parties that the provisions of this Agreement shall govern all rights and obligations of the parties as well as all rights of modification; and, further, that the terms and conditions of this Agreement and any Order approving the same shall not be modifiable by the parties or any court without the written consent of the Husband and Wife. The parties specifically agree, except as set forth herein, that neither the Family Courts of the State of South Carolina nor any other court shall have jurisdiction to modify, supplement, terminate, or amend this Agreement or the rights and responsibilities of the parties hereunder, except as to child support, custody and visitation, which the parties understand to be modifiable as a matter of law.

In 2010 Husband filed an action to reduce his alimony, claiming his income had substantially decreased. Wife sought to dismiss Husband’s action, arguing that the second paragraph of the agreement referenced above deprived the family court of jurisdiction to modify alimony. Ultimately the family court denied Wife’s motion to dismiss, reduced Husband’s alimony to $4,000 per month, and denied Wife’s request for attorney’s fees. It further ordered that alimony would be further reduced by the amount of social security benefits to which Wife would be entitled when she reaches age sixty-two even if she defers taking benefits at that time.

Husband filed a motion for reconsideration, seeking retroactive application of the reduced alimony amount. His attorney initially served Wife’s attorney with this motion via facsimile, and Wife’s attorney stipulated that he received this motion via facsimile. The family court granted Husband’s motion and Wife asked the family court to reconsider this ruling, holding that Husband’s motion was untimely. Ultimately the family court found the motion to be timely. Wife appealed both the final order and the order from Husband’s motion to reconsider.

The Court of Appeals first determined that the parties’ divorce decree did not divest the family court of jurisdiction to modify alimony. It noted that one provision of the divorce decree specifically anticipated alimony modification if Husband’s income was reduced.

However, the Court of Appeals reduced Husband’s alimony reduction to $6,000.00 per month. It acknowledged Husband’s reduction in income but questioned whether it was unanticipated. It noted Wife’s failure to seek employment since 1999. It noted that Husband’s alimony obligation often exceeded his annual income. In setting alimony at $6,000 the Court of Appeals appeared concerned over Wife’s disincentive to work.

The financial analysis provided in this opinion makes it difficult to understand how the Court of Appeals settled on the $6,000 figure. The analysis at one point notes:

Wife’s financial advisor testified … [i]f Wife received no alimony and liquidated her approximately $838,000 in assets, she estimated the money would last approximately seven years at her current rate of a little over $5,000 in monthly expenses.

Liquidating $5,000 per month for 84 months would be $420,000. Even assuming a 30% tax rate and no return on the remaining assets, it isn’t clear how $838,000 in assets would be liquidated at that rate in that time period.

In a subsequent section addressing attorney’s fees, the Court of Appeals noted:

Husband’s net worth increased from approximately $1 million at the time of the divorce to $3.3 to $3.4 million at the time of the alimony modification trial. During that same period, Wife’s net worth decreased from approximately $1 million to $837,437, and she had redeemed a total of $86,651 from her investments to pay her litigation expenses.

Such information might have been useful to the alimony modification analysis. At $8,000 per month, Husband’s alimony obligation is just under 3% of his net worth annually. His $2.3 million increase in net worth since the divorce is sufficient to cover almost 24 years of his original alimony obligation. Suddenly any alimony reduction seems generous. On the other hand, the original obligation does appear to have been a disincentive to Wife working.

The Court of Appeals reversed the family court for setting an automatic alimony reduction when Wife reached age 62. It noted that Wife was not required to seek Social Security benefits at that time, and that the family court could not anticipate Husband’s ability to pay at that time. The Court of Appeals found Husband’s motion to reconsider was timely, based on Wife’s attorney’s acknowledge of timely receipt of that motion via facsimile. It noted that service via facsimile was neither specifically authorized nor prohibited, but held that “[a]ctual and timely service defeats any claim that service was not in accordance with the Rules.”

Finally the Court of Appeals required Husband to contribute one-half of Wife’s attorney’s fees and costs in the amount of $48,835.00, noting that “Husband was in a better financial position to pay his own attorney’s fees and to contribute toward a substantial portion of Wife’s fees.”

Two takeaways from Woods. First, Woods demonstrates the trap divorcing spouses fall into when they enter agreements with language that appears to divest the family court of jurisdiction to modify alimony except by agreement. I have seen similar “boilerplate” language in numerous separation agreements and do not believe a supporting spouse ever believed he (it was always a he) was waiving his right to seek alimony modification, but merely indicating that he couldn’t unilaterally change his alimony unless his ex-wife agreed. If parties intend to divest the family court of its statutory authority, I believe the language doing so should be explicit and prominent–much like the required language for agreements requiring arbitration.

Second, it is rarely a good idea to seek to reduce an alimony obligation when the supporting spouse can maintain his or her (generally his) lifestyle under the current obligation. Here, Husband has spent $150,000 on his own attorney’s fees and costs, and is required to pay $48,835 of Wife’s fees and costs, all to see his alimony reduced by $2,000 per month. Not considering the lost income from divesting almost $200,000 to pay fees, it will be 100 months until he breaks even. And that does not even consider the stress and time devoted to this litigation.