New York Law Review

Tag: Earning Potential

  • Hickland v. Hickland, 39 N.Y.2d 1 (1976): Establishing Alimony When a Spouse Voluntarily Reduces Income

    Hickland v. Hickland, 39 N.Y.2d 1 (1976)

    A spouse cannot avoid alimony obligations by voluntarily reducing their income, especially when the reduction appears to be a deliberate attempt to shield assets from the other spouse.

    Summary

    In a divorce case, the wife appealed the Appellate Division’s decision to strike an alimony award and grant the husband farming rights on land where the wife resided. The New York Court of Appeals modified the Appellate Division’s order, reinstating the alimony award. The court held that a husband cannot shirk his alimony duties by voluntarily reducing his income, especially when it seems designed to hide assets. The court emphasized the importance of the marital standard of living and the husband’s earning potential in determining alimony.

    Facts

    The parties married in 1946 and had two children. The husband, an engineer, earned $45,000 annually plus bonuses until 1968. In 1968, he convinced his wife to let him become a full-time farmer. The farming venture proved unprofitable. In 1969, after a tractor accident, the husband switched to freelance management consulting, earning at least $35,000 net annually until 1972. In 1972, during separation negotiations, he abandoned a $20,000 consulting assignment and claimed to be a full-time subsistence farmer, refusing consulting offers. He transferred his real estate and stocks to his sister without cash consideration, receiving instead a car, food, housing, benefits for his children, and a percentage of potential farm profits.

    Procedural History

    Special Term awarded the wife $50 per week in alimony and exclusive possession of the house and farmland. The Appellate Division reversed the alimony award and granted the husband the right to farm the land. The wife appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether a husband can avoid alimony obligations by voluntarily reducing his income and transferring assets to a family member under a no-cash consideration agreement.
    2. Whether the wife’s income should be the primary determinant of alimony entitlement in a long-term marriage where the husband has a high earning potential.

    Holding

    1. Yes, because the husband deliberately stripped himself of income to avoid his obligation to his wife, and his arrangement with his sister was an attempt to avoid his spousal support obligations.
    2. No, because in a long-term marriage, the marital standard of living and the husband’s demonstrated earning potential are important factors in determining alimony, even if the wife has some separate income.

    Court’s Reasoning

    The court found that the husband deliberately reduced his income and transferred assets to avoid alimony obligations. The court stated, “It is the actual marital standard of living, realistically appraised, which provides the basis for an award of alimony where the husband can afford to maintain that standard.” The court emphasized that the husband’s earning potential and the marital standard of living were critical factors, stating, “Under such circumstances, a husband is under an obligation to use his assets and earning powers if these are required in order to meet his obligation to maintain the marital standard of living.” The court rejected the argument that the wife’s income should be the primary factor, especially given the long duration of the marriage and the husband’s ability to earn a substantial income. It characterized the husband’s actions as a “ploy to put his assets beyond his wife’s reach.” The court modified the Appellate Division’s order, reinstating the Special Term’s alimony award of $50 per week, finding the denial of alimony to be an abuse of discretion.

  • Kay v. Kay, 37 N.Y.2d 632 (1975): Determining Alimony and Child Support Based on Earning Potential and Capital Assets

    Kay v. Kay, 37 N.Y.2d 632 (1975)

    In determining alimony and child support, a court can consider a spouse’s earning potential and capital assets, not just their reported income, and should not compel a long-term homemaker to seek employment without considering economic viability and the children’s best interests.

    Summary

    In a divorce action, the wife was initially granted permanent alimony and child support totaling $18,000 plus the family residence. The Appellate Division increased this to $31,000. The husband appealed, arguing the award exceeded his income, his capital resources shouldn’t be considered, and the wife should be compelled to work. The New York Court of Appeals affirmed the increased award, holding that the husband’s earning potential and capital assets could be considered, and that the wife, a long-term homemaker, should not be forced to work without demonstrating economic viability and lack of detriment to the children.

    Facts

    The parties were married for 23 years before the husband abandoned the wife. The wife was 20 years old at the time of the marriage. They had five children, four of whom were under 21. The husband was a salesman with substantial real estate and securities holdings, estimated at nearly a million dollars, much of which was IBM stock inherited from his father. The husband portrayed himself as “property poor” due to low dividends and reliance on the stock as collateral. During the marriage, he claimed limited income and resisted household expenditures. However, he testified to spending $28,000 annually on the family, plus fringe benefits from his employer.

    Procedural History

    The trial court granted the wife a divorce on grounds of cruelty and abandonment, awarding her custody of the children, the family home, and a $10,000 repair fund. Based on the husband’s reported net income of $28,000, the court awarded $18,000 annually for alimony and child support. The Appellate Division modified, increasing the total award to $31,000. The husband appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether permanent alimony and support awarded against a husband may exceed his reported income.

    2. Whether a husband’s capital resources may be considered in fixing alimony and child support amounts.

    3. Whether the wife should be compelled to seek employment to help support herself and the children.

    Holding

    1. Yes, because a court can consider a spouse’s earning potential and true economic status, not just their reported income, especially when the husband obscures his finances.

    2. Yes, because the father’s resources, rather than just net income, are the limit upon child support provision where he can afford more and the children’s interests justify the award. Capital assets are not exempt from maintaining the marital standard of living.

    3. No, because a wife who has been a long-term homemaker should not be forced into the workforce without demonstrating economic viability and lack of detriment to the children, especially where the husband acquiesced in her role as wife and mother for many years.

    Court’s Reasoning

    The court reasoned that the husband’s own testimony indicated a higher standard of living than his reported income suggested. Despite his claim of $28,000 net income, evidence suggested his gross income was significantly higher. The court was not obligated to accept his claimed business deductions, especially when he invoked self-incrimination privileges regarding certain expenses. Citing Orenstein v. Orenstein, the court noted it is entitled to make an award based upon the wife’s proof of her needs when the husband obscures his true economic status.

    Regarding child support, the court emphasized that Domestic Relations Law § 240 allows support to be made “out of the property of either or both of its parents.” Therefore, the father’s resources are the limit on child support, not just his income, particularly when he can afford more. Referring to Swanton v. Curley, the court confirmed that a father’s resources dictate support when the children’s interests justify a higher award.

    The court distinguished this case from those where couples lived beyond their means, as the husband’s means allowed maintenance of the marital standard of living based on income. It drew an analogy to cases considering a husband’s earning capacity, stating that the husband could be required to make his assets earn income commensurate with their potential. His choice to let them grow for his future benefit did not obligate the court to honor that decision.

    Addressing the wife’s employment, the court acknowledged changes in the Domestic Relations Law requiring consideration of a wife’s ability to support herself. However, it emphasized that a woman who contributed to the marriage by raising children should not be penalized by being forced into the workforce after a long marriage. Quoting Phillips v. Phillips and Kover v. Kover, the court reiterated that the realities of long-term homemaking should be considered. The husband failed to demonstrate the economic viability of her employment or the lack of detriment to the children, as required by both the Domestic Relations Law and prior case law.