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Imputation of Income for the Calculation of Child Support and Alimony in New Jersey

The New Jersey Appellate Division this week published the case of Elrom v. Elrom, in which the Husband appealed the provision in the parties’ divorce judgment where the trial court imputed income to the parties for purposes of determining the amount of alimony and child support the Husband had to pay to his former Wife.  The Wife in this case was an attorney licensed to practice in New York and New Jersey.  She earned $175,000 per year as a full-time lawyer in New York City prior to having children.  After having children, she stopped working for a time, before finding part-time work that paid $67.50 per hour for approximately 26 hours per week.  Prior to trial, the Wife found a full-time job as an associate attorney in a New Jersey law firm that paid $80,640 per year.  The Wife argued that she could not earn what she previously earned as an attorney in New York given her current parenting obligations, and that her income for support purposes should be imputed at the rate of $80,640 based on her last full-time job.

The Husband was a software engineer, technical writer, web developer, and entrepreneur.   The Wife presented proofs at trial that demonstrated some of the Husband’s income, but she also successfully showed that the Husband had not complied with the Wife’s demand for discovery prior to trial.   The Wife alleged that the Husband had engaged in divorce panning, and that he had not fully disclosed his income.  The Wife retained a forensic accounting expert who testified at trial about the parties’ cash flow. The Husband did not present any rebuttal accounting expert.  Instead, he presented the testimony of an employability expert, who opined that the Wife could earn between $108,740 and $177,850 per year, and that the Husband’s imputed income for support purposes should be $120,000 per year as a software engineer and technical writer.   However, as noticed by the Appellate Division, the employability expert never interviewed the Wife and never factored into his decision the Wife’s parenting obligations in his calculations.  Additionally, the expert did not examine the Husband’s employment contract, did not consider the Husband’s income as a consultant, and based his opinion only on the Husband’s resume and a telephone interview.

The Appellate Division affirmed the trial court’s finding that the Wife’s income for alimony and child support purposes was $80,640, which was the Wife’s income at her last full-time job as an associate in a New Jersey law firm.  The Appellate Division also affirmed the trial court’s rejection of the Husband’s request to impute only $120,000 of income to him for alimony and child support purposes.  The Court agreed that “after considering [husband’s] historic earnings, which were ‘readily ascertainable from his limited liability company and personal bank statements over the past three years … as examined and quantified by [wife’s] forensic accounting expert, [Frankel],’ the judge imputed gross income to defendant of $230,731 .42 per year, calculating the three-year average gross receipts and factoring an ‘expense-out rate of 20%.’”

In affirming the trial Court’s decision, the Appellate Division cited established case law stating that imputation of income is a “discretionary matter not capable of precise or exact determination[,] bu rather require[es] a trial judge to realistically appraise capacity to earn and job availability.” Gnall v. Gnall, 432 N.J. Super. 128, 158 (App. Div. 2013)(quoting Storey v. Storey, 373 N.J. Super. 464, 474 (App.Div. 2004).  The Appellate Division also noted that trial courts are permitted to impute income for alimony or child support purposes when one or both parents is voluntarily unemployed or voluntarily underemployed without cause. See Caplan v. Caplan, 182 N.J. 250, 268–70 (2005)(stating that a parent’s ability to earn income, or “his [or her] human capital” should be “theoretically activated for the purpose of evaluating his [or her] support obligation” and that amount of income should be imputed to him or her).   In matters of alimony and child support, the courts “have always looked beyond the [parents’] claims of limited resources and economic opportunity.  They have gone far to compel a parent to do what in equity and good conscience should be done for the children.”  Mowery v. Mowery, 38 N.J. Super. 92, 102 (App. Div. 1955).  Thus, the courts have every right to appraise realistically a [party’s] potential earning power, and to consider a litigant’s potential earning capacity, rather than actual income, when determining support obligations. Id. at 102; Halliwell v. Halliwell, 326, N.J. Super. 442, 448 (App. Div. 1999).

The Appellate Division also noted that the Child Support Guidelines in New Jersey, Rule 5:6A, allow imputation of income if either parent is voluntarily unemployed or underemployed without just cause, and that earning capacity and potential income is based on the parent’s work history, occupational qualifications, educational background, and prevailing job opportunities in the region.  The Rule also permits the court to impute income based on the parents’s former income at that person’s usual or former occupation or the average earnings for that occupation as reported by the New Jersey Department of Labor.  If those potential earnings cannot be determined then income can be imputed based on the parents’ most recent wage or benefit record.

The Appellate Court reasoned that the same legal precepts apply when determining a party’s obligation to pay alimony, citing Tannen v. Tannen, 416 N.J. Super. 248, 261 (App.Div. 2010); Storey v. Storey, 373 N.J. Super. 464, 474.  It is well settled in New Jersey that a litigant “cannot find himself in, and choose to remain in, a position where he has diminished or no earning capacity and expect to be relieved of or to be able to ignore the obligations of support to one’s family.” Arribi v. Arribi, 186 N.J. Super. 116, 118 (Ch. DIv. 1982).   Imputation of income may also be justified when examining the reported income of self-employed litigants, who may be more in control of their own means and methods of earning. See Donnelly v. Donnelly, 405 N.J.Super. 117, 128–29 (App.Div.2009) (stating that a self-employed obligor is “ ‘in a better position to present an unrealistic picture of his or her actual income than a W–2 earner”).   Accordingly, “[b]oth when setting child support and in reaching a proper alimony award, a judge must examine not only each party’s income, but also his or her earning ability.” Gnall, supra, 432 N.J.Super. at 159.

The fact cannot be ignored that the Husband in the Elrom, who was not represented by an attorney, was ill prepared for his own trial.  The Court noted that he did not cooperate in the discovery process prior to trial, and he failed to produce an accounting expert of his own to rebut the testimony of the Wife’s accounting expert.  Additionally, his employability expert lacked sufficient information to present an informed opinion on the issues in dispute.  One thing about which the case is illustrative is the importance of knowing what proofs one needs at trial and how to present them when there are complex issues such as this.  The attorneys at James P. Yudes, P.C. are here to assist litigants at every phase of their case.