MARGARET FATTORE VS. FRANK FATTORE (FM-11-0224-97, MERCER COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3727-16T1
MARGARET FATTORE,
Plaintiff-Respondent/ APPROVED FOR PUBLICATION
Cross-Appellant, February 5, 2019
v. APPELLATE DIVISION
FRANK FATTORE,
Defendant-Appellant/
Cross-Respondent.
_____________________________
Argued January 16, 2019 – Decided February 5, 2019
Before Judges Alvarez, Nugent, and Mawla.
On appeal from Superior Court of New Jersey,
Chancery Division, Family Part, Mercer County,
Docket No. FM-11-0224-97.
David Perry Davis argued the cause for appellant/cross-
respondent.
Howard L. Felsenfeld argued the cause for
respondent/cross-appellant (Felsenfeld & Clopton, PC,
attorneys; Howard L. Felsenfeld, on the briefs).
The opinion of the court was delivered by
MAWLA, J.A.D.
Defendant Frank Fattore appeals from a February 25, 2017 order, which
required him to indemnify plaintiff Margaret Fattore for the loss of her share of
equitable distribution of defendant's military pension, which was waived as a
result of his receipt of disability benefits. Plaintiff cross-appeals and asserts the
trial court should have granted her request for alimony to replace the value of
her lost pension benefit. Pursuant to the United States Supreme Court decision
in Howell v. Howell, ____ U.S. ___, 137 S. Ct. 1400 (2017), we hold a trial
court may not indemnify a payee spouse when the payor spouse waives a
military pension and receives veteran disability retirement benefits. However,
a court is free to treat the pension waiver as a change in circumstances and may
award the payee alimony or modify it. We reverse and remand the trial court's
order for further proceedings consistent with this opinion.
The following facts are taken from the record. The parties were divorced
in 1997, following a thirty-five-year marriage. At the time, both parties were
fifty-five years of age. The terms of the parties' divorce were memorialized in
a six-page consent dual final judgment of divorce.
The judgment included a mutual alimony waiver, which reads as follows:
"Plaintiff and defendant each hereby waive alimony as to the other party no w
and in the future." As to equitable distribution, the judgment provided defendant
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would retain the former marital residence located in Hamilton, and the mortgage
obligation associated with it, and pay plaintiff $55,000 as her share of the equity.
The parties agreed to retain all bank accounts, automobiles, and credit card debt
in his or her own name without a credit, offset, or liability to the other.
The judgment also divided the parties' pensions. Plaintiff, who had been
employed as an operating room nurse in a hospital, had earned a modest pension.
The parties agreed defendant had a fifty percent interest in the marital coverture
portion of her pension, which had "been offset against the equity in the marital
home." Defendant was serving full time in the Army National Guard when the
divorce occurred and had also accumulated a pension. The parties' judgment
divided the marital coverture portion of the military pension equally as follows:
Plaintiff shall be entitled to receive fifty percent . . . of
defendant's military pension which was accumulated
during the marriage . . . via a [q]ualified [d]omestic
[r]elations [o]rder [QDRO] to be prepared by attorneys
for plaintiff. Plaintiff shall not be entitled to any post-
judgment, pre-retirement cost of living increases
related to said pension.
A QDRO of defendant's military pension was completed in 1999.
Defendant continued to serve in the Army, following the divorce, until he
became disabled in 2002. At the time, defendant was able to collect his pension
and disability benefits without any impact upon the pension payout. Defendant
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also received social security benefits. At some point, defendant opted for
disability benefits, which he could receive tax free.
The record reflects plaintiff never contacted defendant to inquire whether
the pension was in pay status and defendant assumed she had received her share
of the benefit. Although the parties share children and grandchildren, they had
little communication during the intervening years since the divorce. In 2010,
plaintiff contacted the office of the Army charged with administering the
pension to inquire why she had not receive any payments. The response was as
follows:
Please be advised that a portion of [defendant's] pay is
based on disability. Therefore, it cannot be divided
under the USFSPA [Uniformed Services Former
Spouses Protection Act, 10 U.S.C. §1408]. The
disability amount is used as an authorized deduction.
In this case, when the disability amount is deducted
from his gross pay along with the survivor benefit
portion, there's nothing left for the community
property.
In 2016, plaintiff filed a motion to compel defendant to compensate her
for her share of the military pension. The court conducted a plenary hearing
over two days and considered the parties' testimony. The trial judge made oral
findings and signed the February 25, 2017 order.
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The judge accepted defendant's testimony his disability forced him to
retire. She found defendant's monthly income to be as follows: military
disability retirement $3400; VA disability benefits $3100; and social security
$1800. Only the social security was taxable. The judge also noted defendant
had remarried and his wife was gainfully employed. The judge credited
defendant's testimony he did not intentionally seek to deprive plaintiff of her
share of the pension, by seeking disability benefits because neither he nor
plaintiff knew of the applicable federal law. Nevertheless, she found the
circumstances worked an unfair result. The judge stated:
[D]efendant took an incredibly unreasonable position,
in that, looking at the statute per se, a QDRO could not
be implemented whereby . . . plaintiff could no longer
receive her [fifty] percent of the coverture value of . . .
defendant's military pay, because now it's been
converted to [one-hundred] percent non-taxable VA
benefits that are exempt.
That doesn't mean that she loses the interest. Even . . .
defendant, when questioned . . . by this [c]ourt . . . didn't
think it was fair, and neither does the [c]ourt.
The trial judge also rejected defendant's argument plaintiff had "sat on her
rights" and was barred from seeking relief, because plaintiff had "limited funds"
and could not hire counsel in 2010. The judge noted plaintiff had retired in
2013, and had to move out of Mercer County because her social security and
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pension totaled $22,848 per year. According to plaintiff's testimony, a
condominium she had purchased in a more affordable area had lost nearly one-
half of its value. The judge noted plaintiff had a "bare bones budget" of $39,540
per year, which still exceeded her income and required she sell assets to meet
her needs. Conversely, the judge found defendant had "tax free income of over
$80,000 per year" and "his budget is only $74,436 [per year]." These figures
did not include his wife's earnings.
As a result, the judge appointed a pension appraiser "to determine the
value of plaintiff's coverture interest in . . . defendant's pension at the time the
parties executed their . . . judgment of divorce." The judge ordered
[i]n the interim, . . . defendant shall pay directly to . . .
plaintiff the sum of $1800 per month, to be paid in a
lump sum by the first of every month . . . . This
payment is not to be considered an alimony payment as
suggested by [plaintiff's counsel], [although] that could
be a course that this [c]ourt could take but, rather, it's
an equitable distribution payment and, therefore, said
payments are not deductible by . . . defendant nor
taxable to . . . plaintiff.
The judge ordered defendant to pay plaintiff the $1800 by either utilizing
the cash surrender value from liquidation of a life insurance policy or by paying
her the sum directly, which the judge noted equaled his social security receipts.
The judge stated the payment of defendant's social security funds to plaintiff
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was "not to suggest that the [c]ourt doesn't believe that . . . plaintiff should
receive nothing from . . . defendant's military pension. She is simply [to] get
payment from some other income or from some other asset."
The judge reached the conclusion to compensate plaintiff for the lost
pension benefit by citing our decision in Whitfield v. Whitfield, 373 N.J. Super.
573 (App. Div. 2004). There, relying upon the extant federal law, we affirmed
a post-judgment order, which required a spouse who had served in the military
"to compensate his former wife directly for the decrease in his pension
occasioned by his voluntary election [of disability benefits] after the divorce."
Id. at 575. The trial judge recited our reasoning that "[s]trong public policy
considerations militate against permitting a retiree to unilaterally convert, for
his own economic benefit, a portion of his military pension to VA disability and
defeat his former spouse's prior equitable distribution award." Id. at 582. The
trial judge noted we found the order under appeal in Whitfield was not
preempted by federal law because it did "not provide for an explicit allocation
of disability benefits or require the military spouse to remit disability funds,
specifically, to the non-military spouse. The order merely enforce[d]
defendant's equitable distribution obligation to his former wife, which he may
satisfy from any of his resources." Id. at 583.
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Regarding the request for alimony, the trial judge held "[t]he [c]ourt is
denying plaintiff's request that . . . defendant should now be compelled to pay
alimony. Alimony is not compensation for equitable distribution. The parties
waived alimony in this matter."
Additionally, the trial judge analyzed plaintiff's request for counsel fees,
and concluded she had filed the post-judgment motion in good faith and had no
ability to pay her counsel fees. The judge rejected defendant's position of
offering nothing to plaintiff. She found defendant's contention federal law did
not permit his pension to be distributed by means of a QDRO, was unreasonable.
The judge awarded plaintiff $10,000 in counsel fees. This appeal followed.
I.
We defer to a trial judge's factfinding "when supported by adequate,
substantial, credible evidence." Cesare v. Cesare, 154 N.J. 394, 411-12 (1998)
(citing Rova Farms Resort, Inc. v. Inv'rs Ins. Co., 65 N.J 474, 484 (1974)).
However, "[t]his court does not accord the same deference to a trial judge's legal
determinations." Ricci v. Ricci, 448 N.J. Super. 546, 565 (App. Div. 2017)
(citing Reese v. Weis, 430 N.J. Super. 552, 568 (App. Div. 2013)). "[T]he trial
judge's legal conclusions, and the application of those conclusions to the facts,
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are subject to our plenary review. Our review of a trial court's legal conclusions
is always de novo." Reese, 430 N.J. Super. at 568 (citations omitted).
On appeal, defendant argues the trial judge erred by requiring him to pay
plaintiff her share of the equitable distribution for the pension from another
source. Defendant asserts this sort of indemnification was expressly preempted
by the United States Supreme Court in Howell. He argues the award of counsel
fees must also be reversed because it was predicated on the trial judge's mistaken
application of the law to compensate plaintiff for the loss of the pension, where
no such right existed.
Plaintiff argues if we conclude the trial judge's order is preempted by
Howell, we must reverse the denial of alimony "given the substantial change in
circumstances both by the judgment of divorce . . . and the current circumstances
of the parties giving full consideration to the contemplation of . . . [p]laintiff
receiving the pension benefits of . . . [d]efendant."
A.
We agree with defendant the trial judge's decision to indemnify plaintiff
dollar-for-dollar from another asset belonging to defendant was erroneous as a
matter of law. However, we must note the trial judge did not have the benefit
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of the Howell opinion, which was issued approximately three months after her
decision.
Prior to Howell, Congress enacted the USFSPA, which permitted state
courts to treat "disposable retired pay" as subject to equitable distribution, but
excluded any pay waived in order to receive veterans' disability benefits from
equitable distribution. 10 U.S.C. §1408(c)(1) and (a)(4)(ii). In Mansell v.
Mansell, 490 U.S. 581, 594-95 (1989), the United States Supreme Court held
the USFSPA preempted state court orders which permitted equitable distribution
of disability benefits.
Howell squarely addressed the issue now raised by defendant on appeal.
There, the parties' Arizona divorce decree stipulated the wife would receive one-
half of the husband's United States Air Force retirement pay. 137 S. Ct. at 1404.
The husband retired one year after the divorce and the wife began to receive her
share of the pension. Ibid. However, thirteen years later, the husband was
declared partially disabled, resulting in the receipt of disability benefits and
waiver of a commensurate amount of retirement pay, which reduced the wife's
share of the retirement pay. Ibid. The wife petitioned the Arizona family court
to enforce the divorce decree and restore the sums she had lost from the
husband's retirement pay. Ibid. The trial court held she had a vested interest
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and right to receive the full one-half amount of the pension. Ibid. On appeal,
the Arizona Supreme Court affirmed the trial court and held federal law did not
preempt the trial court's order. Ibid.
The Howell Court reversed, and held "federal law completely pre-empts
the States from treating waived military retirement pay as divisible community
property." Id. at 1405. The Court held a military pension, which has been
equitably distributed, is not a vested right, but rather, a contingent benefit where
the pension is later reduced as a result of a veteran's disability, and
[t]he state court did not extinguish (and most likely
would not have had the legal power to extinguish) that
future contingency. The existence of that contingency
meant that the value of [the wife's] share of military
retirement pay was possibly worth less—perhaps less
than [the wife] and others thought—at the time of the
divorce.
[Id. at 1405-06.]
Regardless, the Howell Court held Congress intended to omit disability
benefits from disposable retirement pay. Id. at 1406. Therefore, state courts
cannot overcome Congress' intent
by describing the family court order as an order
requiring [one spouse] to "reimburse" or to "indemnify"
[the other], rather than an order that divides property.
The difference is semantic and nothing more. The
principal reason the state courts have given for ordering
reimbursement or indemnification is that they wish to
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restore the amount previously awarded as community
property, i.e., to restore that portion of retirement pay
lost due to the postdivorce waiver. And we note that
here, the amount of indemnification mirrors the waived
retirement pay, dollar for dollar. Regardless of their
form, such reimbursement and indemnification orders
displace the federal rule and stand as an obstacle to the
accomplishment and execution of the purposes and
objectives of Congress. All such orders are thus
preempted.
[Id. at 1406.]
For these same reasons, we hold the order in this case requiring the
calculation of the hypothetical pension benefit waived as a result of defendant's
receipt of disability benefits, and payment of the figure from another asset
belonging to defendant, is preempted and reversed.
B.
Notwithstanding, we agree with plaintiff's argument the disability waiver
was a substantial and permanent change in circumstances warranting
consideration of an award of alimony. Defendant argues "reopening the
judgment of divorce and awarding spousal support would be unfair and contrary
to well-established case law." We hold an alimony waiver cannot withstand
such a substantial change in circumstances as occurred here, and it is neither fair
nor equitable to uphold such a waiver.
At the outset, we note the Howell Court stated:
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We recognize, . . . the hardship that congressional
preemption can sometimes work on divorcing spouses.
But we note that a family court, when it first determines
the value of a family's assets, remains free to take
account of the contingency that some military
retirement pay might be waived, or, . . . take account of
reductions in value when it calculates or recalculates
the need for spousal support.
[Howell, 137 S. Ct. at 1406 (emphasis added) (citations
omitted).]
Defendant argues the highlighted language excludes circumstances where there
has been an alimony waiver. We disagree.
Since Howell, the suggestion has been made of a litany of potential
remedies a state court could employ to overcome federal preemption, including:
application of res judicata to judgments pre-dating Howell; upholding
indemnification agreements on contractual grounds; vacating and reallocating
previous equitable distribution; offsetting the value of a military pension against
another asset; and considering an award of alimony. Eliza Grace Lynch, A
Change in Military Pension Division: The End of Court Adjudicated
Indemnification-Howell v. Howell, 44 Mitchell Hamline L. Rev. 1064, 1082-86
(2018).
The circumstances here do not permit for the remedies of contractual
enforcement of indemnification because the parties had no such arrangement.
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Moreover, offset or reallocation of equitable distribution are not available
remedies because the parties have been divorced for several years, and equitable
distribution is final and not subject to a change in circumstances. In support of
res judicata as a remedy, it has been argued "there is nothing in Howell that
suggests . . . the Supreme Court intended to invalidate or otherwise render
unenforceable prior valid judgments." Id. at 1083. Here, however, res judicata
is an inadequate remedy because Mansell had already held the USFSPA
expressly excluded veteran disability benefits from the definition of disposable
retired pay prior to the entry of the parties' judgment. Mansell, 490 U.S. at 594-
95.
We find consideration of an alimony award to be a potential remedy in
this case. Our Supreme Court has stated "support payments are intimately
related to equitable distribution[.]" Smith v. Smith, 72 N.J. 350, 360 (1977).
Family Part judges possess a broad supervisory role in determining the fairness
of agreements between spouses. Indeed,
trial judges . . . have the utmost leeway and flexibility
in determining what is just and equitable . . . . In each
case the court must determine what, in the light of all
the facts presented to it, is equitable and fair, giving due
weight to the strong public policy favoring stability of
arrangements.
[Ibid.]
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"An agreement that resolves a matrimonial dispute is no less a contract
than an agreement to resolve a business dispute." Quinn v. Quinn, 225 N.J. 34,
45 (2016) (citing Sachau v. Sachau, 206 N.J. 1, 5 (2011)). However,
[t]o be sure, "the law grants particular leniency to
agreements made in the domestic arena" and vests
"judges greater discretion when interpreting such
agreements." This leniency is derived from the terms
of the marital agreement and the nature of some post-
judgment issues, such as . . . financial support for the
family, that may require modification of the marital
agreement over the years as events occur that were
never contemplated by the parties.
[Id. at 45-46 (citations omitted).]
Thus, contract principles and equity and fairness are not mutually
exclusive. Moreover, apart from a judge's role to assure fairness, the parties
owe a duty of fairness to one another. See Tannen v. Tannen, 416 N.J. Super.
248, 262 (App. Div. 2010) (holding spouses have "the obligation to deal fairly
with each other"); see also Frank Louis, Spousal Duty: What Is It and How Can
It Be Used?, 2017 Family Law Symposium Resource Manual 125, 131-36
(analyzing spousal duty, including the responsibility of fairness between
spouses at the end of a marriage).
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With these principles in mind, we address whether the alimony waiver
agreed to by the parties before defendant's retirement and disability can
withstand the inequity created by unforeseeable circumstances.
"Waiver" is the intentional relinquishment of a known
right. It is a voluntary act, "and implies an election by
the party to dispense with something of value, or to
forego some advantage which he might at his option
have demanded and insisted on." It is requisite to
waiver of a legal right that there be "a clear,
unequivocal, and decisive act of the party showing such
a purpose or acts amounting to an estoppel on his part";
"A waiver, to be operative, must be supported by an
agreement founded on a valuable consideration[.]"
[W. Jersey Title & Guar. Co. v. Indus. Tr. Co., 27 N.J.
144, 152-53 (1958) (emphasis added) (citations
omitted).]
Alimony is an "economic right that arises out of
the marital relationship and provides the dependent
spouse with 'a level of support and standard of living
generally commensurate with the quality of economic
life that existed during the marriage.'" . . . "The basic
purpose of alimony is the continuation of the standard
of living enjoyed by the parties prior to their
separation." This permits the spouse "to share in the
accumulated marital assets to which he or she
contributed."
[Quinn, 225 N.J. at 48 (citations omitted).]
Furthermore, courts may award alimony "as the circumstances of the parties and
the nature of the case shall render fit, reasonable and just[.]" N.J.S.A. 2A:34-
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23. "Courts have the equitable power to establish alimony and support orders
in connection with a pending matrimonial action, or after a judgment of divorce
or maintenance, and to revise such orders as circumstances may require." Crews
v. Crews, 164 N.J. 11, 24 (2000) (emphasis added) (citing Lepis v. Lepis, 83
N.J. 139, 145 (1980)).
Here, we hold the alimony waiver was not a bar to a consideration of a
post-judgment award of alimony to plaintiff. Although the waiver of alimony
was mutual, we need not speculate what defendant's reasons for waiving it were
because his waiver stands separate, and presumably had separate consideration,
from plaintiff's waiver. However, the record readily demonstrates plaintiff gave
valuable consideration for the waiver of alimony in exchange for the promise of
the future ability to share in defendant's military pension. Moreover, as
defendant notes in his reply brief, his earnings were approximately thirty-four
percent greater than plaintiff's at the time of the divorce. Thus, there was
valuable consideration given by plaintiff in exchange for the alimony waiver,
and the unforeseeable loss of the bargained for pension benefit was a substantial
and permanent change in circumstances, which invalidated the waiver.
Upholding the alimony waiver in these circumstances would be wholly unfair.
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We agree with defendant that there was not a "full record" created to
address what alimony should be awarded. The gravamen of the trial judge's
decision addressed the parties' dispute through the lens of equitable distribution.
Defendant cites his age as a reason why alimony is inappropriate. Although we
draw no conclusion on that account, we note the court may consider defendant's
assets, or income from assets, as a potential source for an alimony award as long
as it is not a dollar-for-dollar indemnification. See N.J.S.A. 2A:34-23(b)(10)
and (11).
Moreover, we agree with defendant's argument that plaintiff's alimony
claim is primarily tethered to the former marital lifestyle. Quinn, 225 N.J. at
48. The trial judge characterized the parties' marital lifestyle as "frugal." Even
so, this does not obviate an award of alimony to plaintiff because an alimony
determination requires an assessment of "the quality of economic life during the
marriage, not bare survival." Crews, 164 N.J. at 24 (quoting Lepis, 83 N.J. at
150). Moreover, the Legislature has stated an alimony determination shall
consider "[t]he standard of living established in the marriage . . . and the
likelihood that each party can maintain a reasonably comparable standard of
living, with neither party having a greater entitlement to that standard of living
than the other." N.J.S.A. 2A:34-23(b)(4). In light of the lost pension benefit,
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and plaintiff's inability to meet her "bare bones" lifestyle with her income, we
are not convinced she is capable of meeting the quality of the marital standard
of living without alimony. 1
C.
Finally, as we noted, the award of counsel fees was premised on a
mistaken interpretation of federal law and is superseded by Howell. Therefore,
we are constrained to reverse the award of counsel fees. However, we hasten to
add that the record demonstrates plaintiff has no ability to pay counsel and the
need for a contribution to her counsel fees. A Family Part judge is empowered
to make an award of counsel fees to enable the parties to litigate on an even
playing field "irrespective of that party's success in the matrimonial action."
Anzalone v. Anzalone Bros., Inc., 185 N.J. Super. 481, 486-87 (App. Div. 1982).
Similarly, N.J.S.A. 2A:34-23 states:
The court may order one party to pay a retainer on
behalf of the other for . . . legal services when the
respective financial circumstances of the parties make
the award reasonable and just. In considering an
application, the court shall review the financial
capacity of each party to conduct the litigation and the
criteria for award of counsel fees that are then pertinent
as set forth by court rule.
1
We note any alimony awarded shall be retroactive to May 6, 2016, the filing
date of plaintiff's motion seeking it.
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Thus, although we have reversed the award of counsel fees, the trial judge is
free on remand to re-award plaintiff counsel fees to enable her to prosecute her
alimony claim.
Reversed and remanded for further proceedings consistent with this
opinion. We do not retain jurisdiction.
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