L.J.S. v. J.E.S.

• Decision Date: 08 February 2013
• Docket Number: SJC–11093.
• Parties: L.J.S. v. J.E.S.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

464 Mass. 346

982 N.E.2d 1160

L.J.S.

v.J.E.S.

SJC–11093.

Supreme Judicial Court of Massachusetts, Norfolk.

Argued Oct. 2, 2012.

Decided Feb. 8, 2013.

W. Sanford Durland III for the defendant.

Adam S. Avratin (Karen J. Wayne with him) for the plaintiff.

Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, GANTS, DUFFLY, & LENK, JJ.

IRELAND, C.J.

We granted the defendant husband's application for further appellate review limited to the issue whether the Probate and Family Court judge erred by not considering the husband's potential Federal tax consequences pursuant to I.R.C. § 71(c)(2) (2006) when he denied the husband's motion to alter or amend the alimony provisions of the divorce judgment. In an unpublished memorandum and order issued pursuant to its rule 1:28, the Appeals Court affirmed. J.E.S. v. L.J.S., 79 Mass.App.Ct. 1117, 2011 WL 1776014 (2011). Because we conclude that, if presented with evidence of potential tax consequences, a judge should consider those consequences when creating or modifying alimony provisions in a divorce instrument, we vacate the order on the husband's motion to alter or amend the divorce judgment to the extent that the judge did not consider the uncertainty of potentially unfair tax consequences, and remand the case for further proceedings consistent with this opinion.

Statutory scheme. Under I.R.C. § 71(c)(2) of the Internal Revenue Code, alimony payments may be recharacterized as child support for Federal tax purposes:

“[I]f any amount specified in the [divorce] instrument will be reduced—

“(A) on the happening of a contingency specified in the instrument relating to a child (such as attaining a specified age, marrying, dying, leaving school, or a similar contingency), or

“(B) at a time which can clearly be associated with a contingency of a kind specified in subparagraph (A),

an amount equal to the amount of such reduction will be treated as an amount fixed as payable for the support of children of the payor spouse.”

Regulations promulgated pursuant to I.R.C. § 71(c)(2) state that support payments, even if otherwise determined to be alimony, will be characterized as child support (1) if they are reduced within six months before or after a child attains the age of eighteen, twenty-one, or the local age of majority; or (2) if payments are reduced twice or more within one year before or after a child reaches any age between eighteen and twenty-four. Treas. Reg. § 1.71–1T(c), Q & A (18) (1984).

In addition to the examples of child-related events constituting a specific contingency set out in the statute, the regulations offer examples of contingencies, such as a child attaining a specified income level or gaining employment. Treas. Reg. § 1.71–1T(c), Q & A (17) (1984). The regulations also state that “a contingency relates to a child of the payor if it depends on any event relating to that child, regardless of whether such event is certain or likely to occur.” Id.

Tax consequences arise under these provisions because a payor may deduct alimony, but not child support.¹I.R.C. § 71(c)(2).

Facts and procedure. The husband and the wife sought a divorce on the ground of irretrievable breakdown of marriage in 2007. The judge issued a judgment of divorce nisi on November 17, 2009. The relevant sections of the divorce judgment, as stated in the judgment and a corrected order of clarification, are the following.

The husband will pay $1,000 each week as child support and $1,325 each week as alimony. The wife will occupy the home, and pay the mortgage on it, as well as certain related expenses, “until the youngest child of the parents graduates from High School, anticipated to be in June 2013. At such time the parties shall place the marital home ... on the market for sale.” After the house is sold, the husband's alimony obligation will be reduced to $500 each week and will continue until the death of either party or until the remarriage of the wife.

Based on the language of I.R.C. § 71(c)(2), the husband moved to alter or amend the divorce judgment on November 24, 2009, requesting, among other things, that the judgment reflect that a future reduction in alimony would not depend on a child-related event. He requested that the wife continue to have the use and occupancy of the marital house until August 1, 2013, rather than “until the youngest child of the parents graduates from High School, anticipated to be June 2013.” He also proposed May 1, 2013, as the date the house be put up for sale with the provision that no sale should take place before August 1, 2013. Additionally, he proposed that alimony be reduced to $500 each week as of September 1, 2013, after the house was on the market for sale for four months. With these alterations to the judgment, the husband asserted that he would avoid the possibilityof having to pay taxes on the alimony as if it were child support under I.R.C. § 71(c)(2). At the hearing on the motion, the judge addressed the alimony provisions in the divorce judgment. He stated that the provisions concerning alimony were based on the ability of the husband, the “major income producer,” to pay, and the need of the wife. He also stated that the wife's financial needs will change after the house is sold at some uncertain future date, and that he intentionally did not include a date for reduction of alimony because “we don't know when the marital house is going to be sold.”

The judge stated that he wanted to be “fair and equitable” and ordered the house to be put on the market, with “something trigger[ing] it off.” He acknowledged that the house might not sell immediately, explaining that he “anticipated there will be equity in the home when it's up for sale, and this will be some of the equity that [the wife] will then have to work with, which triggers off to a great degree why alimony is then reduced.” He further stated his intent to reduce alimony after the sale of the marital home: “So that it's the graduation from high school and then it's the sale of the house, and it's left in that particular fashion for that purpose.”

Regarding the issue of alimony and tax consequences, the judge told the parties that I.R.C. § 71(c)(2) did not apply: “[Y]ou talk about the Internal Revenue Code and the interpretation of the Internal Revenue Code, and I don't necessarily interpret it that way. I think it's factually driven.” The judge also explained his considerations of the tax consequences of alimony, stating, “that's why the alimony is higher, giving [the husband] the tax advantage now ... so that's geared intentionally in that fashion.”

The judge issued an order on the motion to alter and amend the judgment of divorce on December 4, 2009, which did not include the husband's proposals concerning reduction in alimony. The husband appealed. The Appeals Court concluded that I.R.C. § 71(c)(2) does not apply to this alimony provision and affirmed the judgment.

Discussion. A judge has broad discretion in creating an equitable division of the parties' marital property. Kittredge v. Kittredge, 441 Mass. 28, 43–44, 803 N.E.2d 306 (2004). Alimony may be granted to either spouse based on a weighing of all relevant circumstances. Schuler v. Schuler, 382 Mass. 366, 370, 416 N.E.2d 197 (1981). We rarely disturb a judge's conclusions where they are based on consideration of the factors listed in G.L. c. 208 § 34. Kittredge v. Kittredge, supra at 43–45, 803 N.E.2d 306 (judge's determination affirmed where findings demonstrated consideration of all required factors, and conclusions flowed rationally from findings and rulings). See Bianco v. Bianco, 371 Mass. 420, 423, 358 N.E.2d 243 (1976) (in case of first impression, we interpreted G.L. c. 208, § 34, to define scope of judge's discretion).

The wife asserts that the judge's ruling was proper because it reflected the husband's ability to pay and her need for support. See Gottsegen v. Gottsegen, 397 Mass. 617, 624, 492 N.E.2d 1133 (1986). She does not directly address I.R.C. § 71(c)(2), but instead argues that the judge considered the factors listed in G.L. c. 208, § 34, and properly assigned alimony obligations.² Because the reduction in alimony will occur only after the sale of the marital home, she argues, the change in alimony reflects “a reduction in her expenses rather than the child graduating [from] high school.”

The husband bases his argument on the premise that a judge must consider tax consequences when adjudicating divorce judgments. We agree that, in the context of fashioning divorce judgments or modifications of such judgments, where the issue of tax consequences has been raised and the judge has been provided with “appropriate evidence in the record,” Wolfe v. Wolfe, 21 Mass.App.Ct. 254, 258 n. 7, 486 N.E.2d 747 (1985), the judge should consider the tax consequences arising from a judgment.³ See Fechtor v. Fechtor, 26 Mass.App.Ct. 859, 866, 534 N.E.2d 1 (1989). In some circumstances, tax consequence issues may be raised during trial; in others, the issues may be more appropriately raised in a postjudgment motion to amend the judgment under Mass. R. Dom. Rel. P. 59(e), or for relief under Mass. R. Dom. Rel. P. 60(b). See Fechtor v. Fechtor, supra at 867 & n. 7, 534 N.E.2d 1 (“When tax consequences seem likely to present significant problems, the judge can perhaps deal with them by issuing a tentative order submitted to counsel in advance of judgment for criticism and suggestions”). Here, the husband filed a postjudgment motion specifically requesting that the judge consider the potential adverse tax consequences of the alimony and support order, providing citations to the tax code and other relevant authorities.

As the Appeals Court stated in Wolfe v.Wolfe, supra, “the importance of consideration of the tax consequences of divorce and of the division of property and payments incident thereto,” has long been recognized by our appellate courts. The Massachusetts Child Support Guidelines (effective Jan. 1, 2009) (2009 guid...