Dolan v. Dolan, 213 Conn. App. 112 (2022) (modification of alimony; modification of definition of compensation)
Officially released June 7, 2022
In Short: When modifying alimony as defined in a separation agreement, the language of the separation agreement can supplant the language of § 46b-82 in determining what modification is permissible by the trial court in the future. In this case, the Appellate Court found that the trial court’s modification of the definition of “pre-tax compensation from employment” to include items originally excluded from that definition, such as capital gains, was not abuse of discretion.
The parties were married in 1993, had four children and divorced by separation agreement in 2013. Pursuant to the separation agreement, Husband was to pay unallocated alimony and child support until death, remarriage, cohabitation, or May of 2023.
Husband’s unallocated obligation was to pay a percentage of his “pre-tax compensation from employment” each year. The percentage was 50% for income of $0-$250k, 35% for income from $250k-$450k, 25% from 450k-$600k and 0% above that. Until and unless modified, Husband had a minimum obligation of $10,416/month.
“Pre-tax compensation from employment” was defined as:
“[A]ny and all earnings of any nature whatsoever actually received by [Husband] in the form of cash or cash equivalents, or which [Husband] is entitled to receive, from any and all sources relating to the services rendered by [Husband] by way of his current or future employment, including, but not limited to, salary and bonus, exercisable stock options, stock grants, equity units, contract payments, commission payments, voluntary payments to qualified and non-qualified retirement plans, disability income, board of directors’ fees, severance payments, excess compensation, consulting fees, director’s fees and restricted stock and stock options granted after the date of dissolution of marriage, received by [Husband] from employment. Income from restricted stock and stock options shall be considered [pre-tax compensation from employment] in the year [Husband] must report this income on his federal tax return.
Capital gains, interest and dividends and all other income earned by [Husband] due to his investment of assets or sale of stock distributed to him in connection with the divorce proceeding or earned by [Husband] based upon assets acquired outside of his employment by [Husband] in the future shall not be considered in the definition of [Husband’s pre-tax compensation from employment] herein….
(emphasis and paragraph break added)
The separation agreement further provided that the trial court could modify the definition of “pre-tax compensation from employment” so as “to ensure that both parties are treated fairly in accordance with the spirit of this agreement. Neither party shall be required to demonstrate a substantial change in circumstances with regard to any such modification.”
Alimony was to be non-modifiable as to extending the duration, but modifiable as to amount. Wife was afforded a safe harbor of $35,000 which would not constitute a substantial change in circumstances.
In 2019, Husband filed a motion to modify, representing that a chronic medical condition forced him to leave his employment resulting in dramatic reduction in income. Husband requested that the trial court delete the minimum $10,416/month requirement, arguing that two of the children had reached the age of majority and graduated college and the minimum required Husband to pay 90% of his disability income. Husband also requested that the percentages be reduced, the life insurance obligation be lowered, and that the parenting plan be modified.
Husband’s proposed orders mirrored his motion. Wife’s proposed orders requested that the unallocated award continue as written in the separation agreement, but that the definition of “pre-tax compensation from employment” be modified to include income from all sources, including passive income from capital gains, interest and dividends and income from business interests and other investments, that Husband be released from the minimum payment for one year, but that Husband also pay 20% of the gross amount over $600k/year.
The trial court held a hearing in one day and issued orders thereafter.
The trial court found that for years, Husband earned income exceeding the maximum amount of unallocated support under the separation agreement formula. Husband’s issues had become overwhelming, including mental health issues and alcohol abuse. Husband had qualified for short-term but not long-term disability payments. Husband claimed to have no income, but acknowledged that he received interest and dividend income that he failed to list on his financial affidavit. Husband had cash value of assets of $2.1m.
The trial court found that Wife had income of $14k/year, with expenses of $168k/year and cash value of assets of $1,1m. She also suffered from mental health issues and was hospitalized in 2018, during which time Husband assumed role of primary parent for the minor children.
The trial court found a substantial change in circumstances and granted the motion to modify. It found that the presumptive child support award was $92/week from Husband to Wife, but that strict application of the guidelines would be inequitable and inappropriate based on total coordination of family support and the parties’ shared parenting plan. The trial court ordered that the definition of “pre-tax compensation from employment” be modified to include income from all sources, including “passive income from capital gains, interest and dividends, and income from business interests and other investments.” The trial court eliminated the minimum monthly payment and ordered Husband to provide notice of any job offers or acceptances and documentation of full disability with copies of the checks. The trial court reduced Husband’s life insurance obligation.
Husband appealed.
The Appellate Court noted that § 46b-86(a) provides that “Unless and to the extent that the decree precludes modification, any final order for the periodic payment of permanent alimony or support, an order for alimony … an order requiring either party maintain life insurance … may, at any time thereafter, be … continued, set aside, altered or modified by the court upon a showing of a substantial change in the circumstances of either party …” Interpretation of a separation agreement is guided by contract principles, which presents a question of law when the contract is unambiguous within its four corners. The Appellate Court set forth the standard for abuse of discretion review.
Husband argued that the trial court abused its discretion when it modified the definition of “pre-tax compensation from employment” of the separation agreement to include “income from all sources, including passive income from capital gains, interest and dividends, and income from business interests and other investments.” Husband argued that Gay v. Gay, 266 Conn. 641 (2003) precluded this as a matter of law. In Gay, the Connecticut Supreme Court held, inter alia:
“At least where, as is generally the case, capital gains do not represent a steady stream of revenue, the fact that a party has enjoyed such gains in a particular year does not provide a court with an adequate basis for assessing that party’s long-term financial needs or resources…. [t]he fact that capital gains on property distributed at dissolution may not be considered income under § 46b-82 does not mean, however, that changes in the value of such property, whether realized or not, may never be taken into consideration by a court in considering a modification of alimony….”
The Appellate Court found that Gay was materially different on the facts. The Appellate Court found that the language of the separation agreement expressly permitting modification of the definition of income within the spirit of the agreement intended to provide broad discretion within the context of that agreement. The Appellate Court cited Clark v. Clark, 66 Conn. App. 657 (2001) for the principle that a court is not required to consider all the § 46b-82 criteria when modification of alimony is sought pursuant to a separation agreement. In simpler terms, if you enter into a separation agreement defining the contours of modification, you are contracting outside of the margins of § 46b-82 and the court can look to the agreement rather than statute.
The Appellate Court found no abuse of discretion. The Judgment was affirmed.
This seems a tougher call to me than the Appellate Court gave it with this fairly short-shrifted and unanimous decision. The separation agreement defined alimony entirely around income “from employment” and, further, explicitly stated that “[c]apital gains, interest and dividends and all other income … earned by [Husband] based upon assets acquired outside of his employment by [Husband] in the future shall not be considered in the definition of [Husband’s pre-tax compensation from employment] herein….” The “spirit” of the agreement seems to contemplate only income from employment, as that was the very basis of the definition.
The lesson here appears to be that if the separation agreement references “fairly” or “spirit” in the context of modification or otherwise reduces barriers to modifiability in any way, it opens the door for the trial court to exercise extraordinarily broad discretion in a modification. When representing the spouse of someone with complicated finances, including such language may make it easier to modify definitions in the future as may be needed.
