Part I: The Early Retiree
Suppose that in a divorce, an award of spousal maintenance is granted stating that the husband’s retirement at age 65 or older will be considered in good faith and will constitute a substantial change in circumstances.
In this situation, what happens if the husband retires at an earlier age and wishes to cease spousal maintenance? Can he do that?
In Minnesota, the answer seems to depend on whether an obligor (the person that pays the maintenance) leaves their job and enters into retirement in “good faith” or “bad faith”.
When an obligor raises a colorable claim of bad faith, they must show that the decision to retire early was not primarily influenced by a specific intent to decrease or terminate spousal maintenance.
In order to evaluate a person’s motives, there are three established factors to consider:
1. The obligor’s health and employment history
2. The availability and expectations regarding early retirement at the time of the divorce
3. The prevailing managerial policies and economic conditions at the time of the retirement.
4. And whatever subjective reason is offered by the obligor
The MN Court of Appeals in the Walker case applied these factors in deciding that when a husband was terminated from his position at 59 and then made the decision to retire and not seek further retirement, it was not a “bad faith” decision.
In the Hemmingsen case, the Court expanded these factors by stating that, though not determinative, the fact that an “obligor retires at a normal or customary retirement age weighs strongly in favor of finding good faith.”
Trial courts will consider the obligor’s motives for retiring if the obligee raises a “colorable” claim of bad faith retirement. However, there is no specific definition of “good faith” retirement. And the good faith standard does not necessarily keep pace with the labor market.
Part II: When Retirement is Anticipated
Suppose that in a different divorce*, an award of permanent spousal maintenance is granted to the wife stating that the husband will continue his obligation until: 1) the wife remarries, 2) either party dies, or 3) the husband’s good faith retirement.
However it is clear that husband intends to retire within a year. Can the court, as a part of the divorce order, determine the step-down or termination of maintenance?
The Court of Appeals in the Carrick case examined such an issue. The husband testified at trial that he lost the ability to work overtime and was going to be demoted from his current employment position. As a result of husband’s testimony, the trial court calculated husband’s spousal maintenance obligation based on his anticipated reduced income. However, the Court of Appeals held “the trial court erred in relying on the change in income before it had actually occurred. Respondent’s maintenance obligation should have been calculated based on his income at the time of trial.”
An anticipated reduction in income may not be sufficient to establish a substantial change in circumstances for the purposes of modifying spousal maintenance.
Part III: Retirement Savings Plan Not Followed
Suppose that in yet a different divorce*, a spousal maintenance award is granted stating that: “Upon a motion for modification of spousal maintenance, each party shall be held to a “prudent investor” standard. Neither party is expected to withdraw from his or her retirement assets unless it is for an emergency or as a part of retirement.
In this hypothetical suppose that the wife in this scenario was granted $8,000 per month in spousal maintenance. However in the following decade, she buys a cabin, takes numerous elaborate vacations and pays for her son’s entire college education. These expenditures almost entirely deplete her savings and she now relies heavily on the maintenance. However, her ex-husband now plans to retire and hopes to modify his maintenance obligation.
Will he be permitted to do that?
In the Fink case, the Court of Appeals held that courts are statutorily required to consider the investment income a spousal maintenance obligee will earn from the assets that he/she received as part of the dissolution proceeding.
In the Maxwell case, the trial court found that the wife “had depleted and diverted income-producing assets,” and as a result, instead of actually taking stock of her monthly income in the amount of $1,564 that those assets would have generated, the court imputed that same monthly income to her. Relying on wife’s imputed income, the trial court determined that wife did not have a need for spousal maintenance and terminated husband’s obligation. In reaching this conclusion, the trial court found that wife had “an obligation to utilize her assets prudently,” and questioned a number of wife’s financial decisions. Specifically, the trial court challenged wife’s decision to purchase a new lake cabin, refinance her home, and withdraw $273,600 from her IRA accounts to pay for taxes, vacations and other expenses. While wife argued that these expenses were “reasonable,” the trial court disagreed. The trial court did not believe wife’s claim that spousal maintenance “was insufficient to pay taxes and other expenses.” Moreover, the trial court found that wife’s “spending had outpaced her income and that she had exceeded the marital standard of living by purchasing the cabin.” The Court of Appeals upheld the award.
Courts must consider an obligee’s investment income at the time of an initial determination of spousal maintenance and upon a motion for modification of maintenance. Spousal maintenance obligee’s are expected to prudently invest the assets awarded to them in the dissolution. The Court of Appeals has analyzed the “reasonableness” of an obligee’s investment decisions in the context of the marital standard of living.
Part IV: The Wealthy Retiree
Suppose in yet another divorce *, a wife is awarded permanent spousal maintenance in the amount of $4,000 per month. The husband, 68, has been retired for over two years but continues to pay spousal maintenance.
However the husband now seeks to terminate his maintenance obligation. The ex-wife argues that 1) she cannot meet her monthly living expenses without the spousal maintenance and 2) her ex-husband has accumulated over $1million in retirement assets since their divorce.
Can the husband prevail?
In the Kruschel case, a husband wanted to modify his spousal maintenance obligation at the time of his retirement. The Court of Appeals stated that the husband’s pension “should be viewed as property or income, not both.” Further that the husband could not be expected to “deplete his property award” in order to pay spousal maintenance. Only when the husband “received from the pension an amount equivalent in its value as determined in the original property distribution” could his pension benefits be considered income available to pay spousal maintenance.
The Lee case expanded this analysis of pension benefits in the context of a motion to modify spousal maintenance. There the Supreme Court divided the husband’s pension in to three categories: 1) pension benefits earned by the husband prior to the parties’ marriage (pre-marital benefits; 2) pension benefits earned by the husband after the parties’ divorce (post-marital benefits); and 3) pension benefits earned by husband during the parties’ marriage. (marital benefits). The Supreme Court also considered whether the benefits in question were previously awarded to the husband as property in the dissolution proceeding. With regard to pre-marital and post-marital pension benefits, the Supreme Court held that they should be included as income when determining ability to pay spousal maintenance. However, the Supreme Court also determined that benefits awarded to the husband during the divorce could not be considered income when determining his ability to pay spousal maintenance.
Courts should consider pre-marital and post-marital retirement assets when determining an obligor’s ability to pay spousal maintenance. They cannot, however, consider the portion of retirement assets awarded to an obligor as property when determining the obligor’s ability to pay maintenance.
Part V: Spending and Saving
Suppose that in another divorce* the parties both have living needs of approximately $6,500. At the time of the divorce, the wife lived in the family home which had a mortgage of 250k. She was also driving a 5 year old Lexus SUV that had no debt.
Their divorce decree stated that the husband would pay spousal maintenance enough to meet their budgets and monthly living expenses. However, upon retirement in anticipation that both parties will be able to meet their needs with a social security income, spousal maintenance will be discontinued.
The husband, now retiring, wants to terminate his spousal maintenance. However, now the wife claims that her ongoing maintenance needs increased and her social security income is not enough. The mortgage is now 400k, after being refinanced to pay for their children’s college tuition that the husband refused to pay. The wife also now pays $900 per month for her Range Rover. In addition, the wife also makes monthly payments on credit cards of $1,300 and currently pays $425 per month on her children’s college loans that she cosigned.
The husband’s income increased significantly after the marriage so that his assets are now valued at $300,000,000. Will the husband prevail in trying to terminate his spousal maintenance?
In the Snyder case the wife sought to increase her spousal maintenance award based on the husband’s increased income and the fact that she was unaware of the tax consequences of her award. The Appeals Court there stated that “increased earnings of the husband, standing alone . . . cannot be a basis for an increase in alimony.
In the Cisek case the wife brought a motion for increased spousal maintenance based primarily on the fact that the husband’s income had increased by 429% since the divorce. The Court of Appeals denied this request stating that “ a favorable change in an ex-spouse’s income, absent an ‘unreasonable and unfair’ showing of proof, does not by itself constitute a divorce decree”.
Voluntary increases in the standard of living are not necessarily reasonable living needs. An increase in the obligor’s income does not constitute a change in circumstances that would warrant an increase in spousal maintenance.
Part VI: Using “Principal” Awards
Suppose in another divorce* that a wife was awarded permanent spousal maintenance and retirement assets at the time of the dissolution from her husband. Both parties are now 68 and the husband is seeking termination of his spousal obligation based on his retirement. It is undisputed that the wife can meet her current monthly living expenses if she invades the “principal of the retirement account” she was awarded in the divorce.
What is the result?
In the Winer case, the Appeals Court affirmed the termination of a husband’s spousal maintenance obligation and reserved jurisdiction over a future spousal maintenance award. The wife in Winer could currently meet her monthly living expenses using the investment return on her retirement assets awarded to her from the divorce. However, it was uncertain whether that would always be the case, or if eventually, the wife would need to invade the principal to support herself. Therefore the Court decided that because the wife could currently meet her living expenses, spousal maintenance could be terminated. But the “speculative” nature of the invasion of principal was reserved for some point in the future.
It is also important to note that, under the Dougherty case, to require a spouse to invade the principal of their property settlement . . . would have required the parties to include a provision in their judgment an decree stating their intention.
Spouses are not expected to invade the principal of their property settlement to meet their monthly living expenses
Absent a specific provision in the parties’ judgment and decree, an oblige is not required to use the principal in his/her retirement account during retirement years.
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