Alimony can be one of the thorniest issues in a New Jersey Divorce. In cases where the parties have no children, it is often the most difficult issue to negotiate. Over the past several years, the New Jersey Alimony Reform Statute and recent changes to the Federal Tax Code have made alimony even more difficult to calculate.
Alimony and Business Owners
Alimony (also sometimes referred to as spousal support) involves payment due from one spouse to the other post-divorce in order to equitably preserve the marital lifestyle between the party’s post-marriage.
The standard type of alimony case initially considered by our courts was the situation where one spouse put everything into their career and maximized their income potential whereas the other spouse stayed home to raise the children, and thus deflated their earning potential. Alimony has since grown to become far more prevalent than perhaps initially intended, though was recently scaled back in New Jersey by certain alimony reforms.
As with most issues in a New Jersey divorce, alimony is only further complicated when one or both parties own a business, or are otherwise not considered a W-2 employee. When you have a commission-based job, the analysis can become very fact-specific.
Alimony and Commissions
Let’s imagine a couple of alimony scenarios to help us better understand alimony and its real- world implications.
Let’s say (by way of example) that the Husband’s salary is entirely commission based. He has earned an average of $150,000 per year for the last four years prior to the divorce filing, but only $100,000.00 the year before the filing, and he claims to only be on track for about $90,000 this year.
Meanwhile, Wife has a W-2 job where she earns $50,000.00 per year. She is not eligible for any bonuses and her raises essentially equal inflation.
The Husband will argue that his income imputation for alimony purposes should be based on the last year, or perhaps the average of the last three years as the parties proceed further into the negotiations. Whether this flies or not will depend on several factors, including whether the commission structure changed, there is something impacting the Husband’s particular industry, there is a global recession, and so forth.
The Wife will argue that the Husband is intentionally deflating his commissions as an attempt to reduce alimony, and that he is engaging in divorce planning. The Court, should this matter proceed to trial, will look at all of the facts before it and render what it believes to be an equitable decision.
The Wife will also argue that income should be imputed to the Husband taking into account the average of a longer time span. Say, an average of the last five years, with three years perhaps serving as her middle-ground as well.
Careful attention should be paid to the difference between commissions and bonuses, as the terms are often used interchangeably. A commission almost always is tied directly to sales, reflecting a percentage given to the salesperson for each sale or tranche of sales. A bonus on the other hand may be tied to sales metrics, but also others. When it comes to bonuses (and whether they should be included in alimony income imputation or not), careful consideration is often paid to whether a bonus reflects company-wide or individual metrics (or some combination thereof).
The thought process being, it is unfair to demand a certain bonus amount from someone working at a large corporation when the bonus is tied to company-wide or even department-wide rather than individual goals. For individual goals, however, the court’s concern shifts to divorce-planning, and the alimony payer’s ability to reduce their bonus through their own individual efforts (or lack of effort).
Although commission-based salaries can complicate a New Jersey divorce, there is no reason they cannot be resolved with proper care and attention as part of a global divorce settlement agreement.
Partner with Carl Taylor, Esq.
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