MARCI SPIRO VS. SCOTT SPIRO (FM-02-0185-17, BERGEN COUNTY AND STATEWIDE) ( 2021 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3548-19
MARCI SPIRO,
Plaintiff-Respondent,
v.
SCOTT SPIRO,
Defendant-Appellant.
__________________________
Argued June 9, 2021 – Decided July 16, 2021
Before Judges Alvarez and Geiger.
On appeal from the Superior Court of New Jersey,
Chancery Division, Family Part, Bergen County,
Docket No. FM-02-0185-17.
David H. Pikus argued the cause for appellant
(Bressler, Amery & Ross, attorneys; David H. Pikus
and Ross A. Fox, on the briefs).
Ira C. Kaplan argued the cause for respondent.
PER CURIAM
In this post-judgment matrimonial matter, defendant Scott Spiro appeals
from two orders: a December 20, 2019 order denying his motion to reduce
alimony and alimony security term life insurance and awarding plaintiff Marci
Spiro's counsel fees; and an April 7, 2020 order denying reconsideration and
awarding plaintiff counsel fees. We vacate both orders and remand for further
proceedings.
Plaintiff filed a complaint for divorce in 2016, after a thirty-one-year
marriage. Defendant is sixty-one years old and is the sole owner and manager
of American Asset Sales, LLC (AAS), a fragrance distributor to retailers in the
cosmetics industry. Plaintiff was declared disabled as of 2015 and has received
Social Security Disability benefits since January 2018.
Defendant was ordered to pay plaintiff pendente lite spousal support of
$178,343.88 per year effective September 1, 2017. The parties engaged in
negotiations that resulted in an April 20, 2018 Property Settlement Agreement
(PSA). As part of that process, the parties retained a joint forensic accountant,
Carleen Gaskin, CPA, to calculate the amount and duration of alimony. Gaskin
calculated the amount of alimony by averaging defendant's income during the
previous six years, 2012-2017. The six-year average was $327,442, based on
his income of $402,651 in 2012, $321,913 in 2013, $115,901 in 2014, $430,477
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in 2015, $399,745 in 2016, and $303,000 in 2017. In contrast, during 2018,
plaintiff received gross Social Security disability benefits of $935.60 per month,
from which $428.60 was deducted for Medicare premiums and income-related
adjustments, yielding net benefits of $507 per month or $6084 per year.
The PSA requires defendant to pay plaintiff open durational alimony in
the amount of $145,000 per year. The PSA provides that alimony may be
"modified or terminated in accordance with New Jersey case and statutory law
. . . based upon a significant change in either party's circumstances," including
cohabitation and good faith retirement. A dual judgment of divorce (JOD),
which incorporated the PSA, was entered on June 7, 2018.
As security for the alimony obligation, the PSA also required defendant
to maintain term life insurance in the amount of $1,500,000 for the first 5 years,
$1,000,000 for the next 5 years, and $500,000 for the next 5 years, naming
plaintiff as the irrevocable beneficiary.
In August 2019, defendant moved pro se to reduce alimony and decrease
the amount of alimony security term life insurance he was required to maintain.
Defendant claimed his business had declined significantly since late 2018 due
to events beyond his control. In October 2018, Kmart, AAS's second largest
client, filed bankruptcy and downsized from 1300 stores to 202 stores. In late
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2018, Rite Aid, AAS's third largest client, downsized from 4300 stores to 2400
stores.
In addition, the ten percent tariff imposed in September 2018 on imports
from China further reduced AAS's profitability. The tariffs increased to twenty-
five percent in June 2019. Defendant asserted that AAS's "retail clients were
unwilling to absorb any price increases of the fragrances, resulting in retailers
reducing business with [defendant or AAS], resulting in a catastrophic loss in
commissions to [defendant]."
Defendant certified these events reduced his 2018 gross income to
$207,758, representing a 36.5 percent decrease from the 6-year average used to
calculate alimony. Defendant's earned income for the first six months of 2019
was $50,811, far less than the $72,000 he paid in alimony and $5872 he paid in
term life insurance during that same period. Defendant averred that he was
forced to deplete an emergency business savings account from $75,000 to zero
to make up the difference. He claimed he was paying his personal expenses by
using credit cards and personal lines of credit, which he maxed out. Defendant
alleged he owed more than $180,000 in credit card debt. He claimed this left
him unable to pay his significant 2017 and 2018 state and federal income tax
debts.
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Based on AAS's financial situation, defendant estimated his 2019 gross
earned income would be approximately $169,452, representing a 48.2 percent
drop in income from the amount used to calculate alimony. Considering his
annual $145,000 alimony obligation and alimony security life insurance
premiums of $11,748, he would be left with only $12,704 to live on.
Defendant averred that in response to his declining income he lowered his
personal expenses, including downsizing his residence to a one-bedroom
apartment, terminating his personal life insurance, and not contributing to his
retirement account. He also reduced the LLC's payroll by "getting rid of his
most qualified and expensive employee . . . ."
Defendant provided nearly 200 pages of documents, including: a Case
Information Statement (CIS); 2017-2019 sales reports; commission agreements
with various vendors; a profit and loss statement; bank statements; alimony
payment records; credit card information; federal and state tax debt information;
and defendant's retirement account statement.
At plaintiff's request, the motion was adjourned for almost two months.
Plaintiff strenuously opposed defendant's motion and cross-moved to enforce
litigant's rights, establish and compel payment of arrears, impose sanctions, and
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award attorney's fees. Defendant then cross-moved to strike plaintiff's cross-
motion and for sanctions.
Plaintiff argued it was not appropriate for defendant, the sole manager of
the LLC, to present the financial information regarding his company. Rather,
defendant should have obtained a report from a forensic accountant. She further
argued that defendant failed to make a prima facie showing. Plaintiff contended
defendant knew his income would decline from nearly $400,000 to
approximately $300,000 based on the LLC's reduced sales. She also claimed
the projected nine percent decrease in income from 2018 to 2019 was not a
substantial change in circumstances warranting an alimony reduction.
Plaintiff also asserted that defendant's application was "contrived"
because he remained current on his alimony payments until just before filing the
motion and that he acted in bad faith by discontinuing payments during the
pendency of the motion. Lastly, plaintiff argued that defendant's business was
not at risk of "drying up." Although some of defendant's clients were
downsizing or filing bankruptcy, potential clients, like dollar stores, are thriving.
As to the fee application, plaintiff's counsel claimed he expended at least
eight to ten hours and billed plaintiff at the rate of $350 per hour. Counsel did
not provide an affidavit of services as required by Rule 5:3-5.
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Defendant responded that he stopped remitting payments because he was
unable to come up with the money—the reason for filing the motion. He also
argued that N.J.S.A. 2A:34-23(l) does not require a movant to retain a forensic
accountant to establish a substantial decrease in income.
On December 20, 2019, the trial court issued an order and oral decision
denying defendant's motion without the benefit of an evidentiary hearing. The
court stated:
The defendant is seeking to modify his . . . alimony
obligation. The statute N.J.S.A. 2A:34-23(l): self-
employed payer must show economic and non-
economic benefits that the payer receives from the
business, compare them to the benefits that were in
place at the time the order from which the relief is
sought. Defendant provided various articles which
really have no evidentiary value and he provides, and I
do agree with [plaintiff's] counsel's argument in this
regard, . . . the business analysis, he does provide this
based upon information that he provided . . . of his own
business which would be self-serving.
The court found "defendant is in complete control of the business and
finances." It noted "that during the divorce [defendant] did not assert that the
business was failing but that the retail economic climate was significantly
changing downward, which has come to fruition." The court concluded:
I cannot find, based upon my findings so far, that the
defendant has shown by a preponderance of the
evidence that he would be entitled to a modification and
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I am going to deny that and the other relief he is seeking
as they all stem from that.
As to the request to terminate alimony at full
retirement age, that has to be denied because again,
there's nothing in the [PSA] and that's all hypothetical.
As to plaintiff's cross-motion, the court found defendant was in violation
of litigant's rights, having made no alimony payments in October, November, or
December 2019. The judge ordered defendant to remit $5000 within two weeks
or a warrant would issue in accordance with the JOD. As to plaintiff's request
to award counsel fees, the court noted the JOD stated that "if there is a party
default, then counsel fees shall be awarded." Without addressing the failure to
submit an affidavit of services or expressly considering the factors set forth in
Rule 5:3-5(c), the court awarded plaintiff $2500 in counsel fees.
Defendant moved for reconsideration. Plaintiff opposed the motion and
cross-moved to compel payment of all alimony arrears and for an award of
counsel fees.
The court considered the motions without oral argument and issued an
April 7, 2020 order and accompanying written decision denying reconsideration.
The court found "defendant makes much of the same arguments that he proffered
at the December 20, 2019 oral argument. He also adds news arguments, such as
the pandemic." The court noted it could not "consider new arguments on a
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motion for reconsideration that were not raised in the original motion." The
court noted "defendant had acknowledged that he was in a business that was
trending downward." The court stated it "would not look back to the 2012 for
changed circumstances. Rather, the court would look to the last order/judgment
addressing establishment or modification of support in making its
determination." It found defendant's arguments unpersuasive.
In addition, the court ordered defendant to pay $250 bi-weekly towards
arrears with defendant remaining on warrant status. The court awarded plaintiff
$500 in attorney's fees, finding counsel's rate of $350 per hour "fair given his
experience as a Family law practitioner regularly appearing in Bergen County."
(Da3). It noted plaintiff, who receives Social Security Disability benefits, relies
on the alimony payments and has previously been awarded counsel fees. While
not "maliciously filed," defendant's reconsideration motion "placed plaintiff in
the position of having to respond" to defendant's "voluminous" submissions.
On appeal, defendant argued:
POINT I
THE TRIAL COURT ERRED BY DENYING
DOWNWARD MODIFICATION OF ALIMONY
BASED ON CHANGED CIRCUMSTANCES, AS
DEFENDANT SET FORTH A SUBSTANTIALLY
UNREFUTED PRIMA FACIE BASED FOR
MODIFICATION.
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POINT II
THE TRIAL COURT ERRED IN FAILING TO HOLD
A PLENARY HEARING ON THE ISSUE OF
ALIMONY BECAUSE DEFENDANT'S
CERTIFICATION AND EXHIBITS
UNEQU[I]V[O]CALLY CREATED A MATERIAL
ISSUE OF FACT AS TO HIS ABILITY TO PAY.
POINT III
THE AWARDS OF LEGAL FEES SHOULD BE
REVERSED.
An alimony order establishes only the present support obligation and is
"always subject to review and modification on a showing of 'changed
circumstances.'" Crews v. Crews, 164 N.J. 11, 28 (2000) (quoting Lepis v.
Lepis, 83 N.J. 139, 146 (1980)). When a party moves for a reduction in alimony,
the trial court undertakes a two-step inquiry. The court first determines whether
the moving party has made "a prima facie showing of changed circumstances."
Miller v. Miller, 160 N.J. 408, 420 (1999) (citing Lepis, 83 N.J. at 157-159).
"Specifically, the party seeking modification of an alimony award 'must
demonstrate that changed circumstances have substantially impaired the ability
to support himself or herself.'" Crews, 164 N.J. at 28 (quoting Lepis, 83 N.J. at
157). "Upon such a showing, a court may order discovery and hold a hearing to
determine the supporting spouse's ability to pay." Miller, 160 N.J. at 420 (citing
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Lepis, 83 N.J. at 157-59). A plenary hearing is held only if a party clearly
demonstrates the existence of a genuine issue as to a material fact. Lepis, 83
N.J. at 159.
One factor that gives rise to "'changed circumstances' that warrant
modification" is an "increase or decrease in the supporting spouse's income."
Lepis, 83 N.J. at 151 (citations omitted). When a post-judgment alimony
reduction is sought, "a substantial change in the financial condition of the
supporting spouse after the entry of the divorce decree [is] relevant." Crews,
164 N.J. at 30. "That information [is] material in determining whether the
moving party . . . can show that changed circumstances have substantially
affected his or her ability to support himself or herself and the supported spouse,
as required by the first prong in a Lepis review." Id. at 30-31.
When seeking a modification of alimony, "the movant shall append copies
of the movant's current [CIS] and the movant's [CIS] previously executed or
filed in connection with the order, judgment or agreement sought to be
modified." R. 5:5-4(a)(4). Defendant met that requirement.
If "a prima facie case is established, tax returns or other financial
information should be ordered." Lepis, 83 N.J. at 157. In addition, "the court
shall order the opposing party to file a copy of a current [CIS]." R. 5:5-4(a)(4).
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The PSA did not contain an anti-Lepis clause.1 The PSA provides that
alimony may be "modified or terminated in accordance with New Jersey case
and statutory law. Both parties retain any and all rights either may have to seek
a modification . . . of alimony based upon a significant change in either party's
circumstances . . . ."
The parties disputed whether defendant's reduced income constituted a
substantial change in circumstances. Plaintiff argued defendant should have
provided a forensic accountant's report analyzing defendant's actual income,
including personal expenses paid by AAS as perquisites, and without an expert's
report, defendant did not establish a prima facie case. We note, however, that
Gaskin analyzed the perquisites in the form of payment of personal and
discretionary expenses in her report. Those expenses were categorized as
automotive, insurance (other than health), mobile communications/Blackberry,
parking and tolls, office expenses (potentially groceries), and personal expenses
(meals and entertainment). Taking into consideration the portions of those
expenses deemed personal, she estimated that the LLC paid personal expenses
1
An anti-Lepis clause sets "a fixed payment or establish[es] the criteria for
payment to the dependent spouse, irrespective of circumstances that in the usual
case would give rise to Lepis modifications of their agreement." Morris v.
Morris, 263 N.J. Super. 237, 241 (App. Div. 1993).
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of $12,000 in 2012, $18,000 in 2013, and $13,000 in 2014. While personal
expenses grew in 2016, that was before the PSA was entered. Gaskin did not
find the personal expenses paid by AAS to be excessive or unusual.
There is no indication in the record of any dramatic increase in personal
expenses paid by the LLC after 2014. Nor has plaintiff pointed out any specific
personal expenses now paid by the LLC that were not paid prior to the divorce.
Even if we were to add a similar amount of personal expenses paid by the LLC
to defendant's 2018 income and projected 2019 income, his income would still
be far below his average income during 2012 to 2017.
Plaintiff also argued that defendant's income reduction was foreseeable.
Defendant disagreed, noting that Gaskin estimated AAS would experience long-
term growth, not continued revenue decline. Gaskin opined:
On an adjusted basis, the Company's revenues have
been on a decline since 2014.
Industry data states that the wholesale agent and
broker industry is expected to grow at an annualized
rate of 3.1 percent in the years leading to 2021.
However, GDP is only expected to grow at 2.2 percent
during the same timeframe. In addition, mass fragrance
sales have been in a continuous decline since 2000.
Given the amount of uncertainty within the wholesale
agent and broker industry, the overall declines in the
sales of mass fragrance and the Company's current
declines, we estimate the Company's long-term growth
to be approximately 1.5 percent.
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Moreover, defendant is not precluded from obtaining an alimony
reduction even if his decreasing income was foreseeable. Regarding an
application to reduce support, "'changed circumstances' are not limited in scope
to events that were unforeseeable at the time of divorce." Lepis, 83 N.J. at 152.
Defendant argues that the motion judge erred by denying a downward
modification of alimony because defendant did not produce a forensic
accountant's report analyzing the economic and non-economic benefits
received from AAS, his wholly owned LLC that he completely controls,
compared to the benefits that were in place when the JOD was entered. The
judge noted that during the divorce, defendant acknowledged "that the retail
economic climate was significantly changing downward, which has come to
fruition." The judge found that "defendant [had] not shown by a preponderance
of the evidence that he was entitled to a modification" of alimony. We decline
to defer to the judge's findings that were made without an evidentiary hearing.
See Bisbing v. Bisbing, 445 N.J. Super. 207, 213 (App. Div. 2016) (declining
to defer to a family court's decision where the court "did not hold a plenary
hearing").
The judge relied on N.J.S.A. 2A:34-23(l), which provides:
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When a self-employed party seeks modification of
alimony because of an involuntary reduction in income
since the date of the order from which modification is
sought, then that party's application for relief must
include an analysis that sets forth the economic and
non-economic benefits the party receives from the
business, and which compares these economic and non-
economic benefits to those that were in existence at the
tie of the entry of the order.
Neither N.J.S.A. 2A:34-23(l) nor Rule 5:5-4(a)(4) requires submission of a
forensic accountant's report to make a prima facie showing of changed
circumstances where the movant is self-employed. While the court has the
discretion to order a self-employed party to produce an expert report in advance
of a plenary hearing, the judge misapplied his discretion by imposing that
requirement as part of a prima facie showing.
Our careful review of the motion record reveals that defendant met his
burden of showing a prima facie case of changed circumstances. The amount
of alimony was based on defendant's average income of $327,442 during the
six-year period from 2012 to 2017. Defendant's moving papers, which included
tax returns, profit and loss statements, and other financial documents, indicated
that he experienced a substantial reduction in income following the execution
of the PSA and entry of the JOD. He claimed that his 2018 income was
$207,000, a 37 percent decrease from his average income during 2012 to 2017
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and estimated that his 2019 income would be only $169,452. This substantial
reduction was reflected by his change in lifestyle and clearly affected his ability
to afford paying plaintiff alimony of $145,000 per year.
The parties disputed defendant's income and his ability to afford the
alimony obligation. This "genuine, material and legitimate factual dispute"
required discovery and resolution at a plenary hearing. Segal v. Lynch, 211
N.J. 230, 264-65 (2012). See also Lepis, 83 N.J. at 157, 159 (explaining that if
a prima facie showing of changed circumstances is made, a court will order
discovery, and if that discovery reveals there is a genuine issue of material facts
in dispute, a plenary hearing will be held). The trial court erred by denying
the motion without the benefit of an evidentiary hearing.
Defendant further argues that the attorney's fees awarded to plaintiff
should be reversed. Considering our reversal of the denial of defendant's Lepis
application, we agree. See Slutsky v. Slutsky, 451 N.J. Super. 332, 368 (App.
Div. 2017) (setting aside a fee award that was based on the trial court's
"insufficient, and now, vacated findings"). We recognize that the fees were
awarded because defendant owed alimony arrears. However, those arrears
appear to have accrued after the motion was filed. Presumably, any
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modification granted on remand will be made retroactive to the motion filing
date.
In addition, on the first motion, plaintiff's counsel did not submit an
affidavit of services in support of plaintiff's fee application in direct violation
of Rule 5:3-5(d) and Rule 4:42-9(b). Both rules provide that "[a]ll applications
for the allowance of fees shall be supported by an affidavit of services
addressing the factors enumerated in RPC 1.5(a)." R. 5:3-5(d); R. 4:42-9(b).
"The filing of a conforming affidavit is ordinarily a prerequisite to an allowance
under [Rule 4:42-9]." Pressler & Verniero, Current N.J. Court Rules, cmt. 3.1
on R. 4:42-9(b) (2021) (citations omitted). See also Kingsdorf v. Kingsdorf,
351 N.J. Super. 144, 158 (App. Div. 2002). That principle applies with equal
force to Rule 5:3-5(d). The court should have given plaintiff an opportunity to
provide the required affidavit of services before ruling. Kingsdorf, 351 N.J.
Super. at 159. Moreover, the court did not address the factors set forth in Rule
5:3-5(c) or make substantive findings of fact and conclusions of law required
by Rule 1:7-4(a), when it granted plaintiff's initial fee application. See Giarusso
v. Giarruso, 455 N.J. Super. 42, 53-54 (App. Div. 2018). For these additional
reasons we vacate that fee award.
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We reverse the December 20, 2019 and April 7, 2020 orders and remand
for the trial court to conduct an evidentiary hearing. We leave it to the sound
discretion of the trial court to determine the extent and timeframe for discovery
and whether expert reports shall be required. We express no opinion as to the
outcome of the evidentiary hearing.
Reversed and remanded. We do not retain jurisdiction.
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