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The "Lifestyle Analysis"
By Charles F. Vuotto, Jr., Esq. and Carl D. Gensib, CPA, Esq.
With the coming of the most recent pronouncement from our Supreme Court embodied in the case of Crews v. Crews, 164 N.J. 11 (2000), decided May 31, 2000, the requirement that litigants, matrimonial attorneys and family court judges know, appreciate and appropriately consider the "marital lifestyle" has risen to an all time high. The CREWS decision essentially requires a "baseline" for the support structure to be set. There are two critical aspects of that baseline: (1) Income upon which support was based and (2) marital lifestyle. The obligation for a trial court to make a finding of the "marital lifestyle," even in a settled case, creates a universal need for a uniform approach to analyzing the "marital lifestyle" and conveying that lifestyle to one's adversary and, ultimately, to the court. This article will suggest three methods of presenting the necessary baseline, including the marital lifestyle," in the course of a matrimonial action from settlement to uncontested hearing or trial.
A Brief History of "Lifestyle"
As we know, the CREWS decision has made it clear that, in a post judgment application to modify alimony, the court must determine whether the supported spouse can maintain a lifestyle that is reasonably comparable to the standard of living enjoyed during the marriage. The Supreme Court stated that "identifying the marital standard of living at the time of the original divorce decree, regardless of whether a maintenance order is entered by the court or a consensual agreement is reached, becomes critical, then, to any subsequent assessment of changed circumstances when an adjustment to alimony is sought." It is clear from Lepis and its progeny that motion courts have found that the marital standard of living is an essential component in the changed circumstances analysis when reviewing an application for modification of alimony. The Supreme Court then clarified that the procedures to be implemented at the time a settled case is put through as follows:
"accordingly, lest there be an insufficient record for the settlement, the court should require the parties to place on the record the basis for the alimony award including, in pertinent part, establishment of the marital standing of living, before the court accepts the divorce agreement."
Further complicating the job of matrimonial attorneys and judges, the court further noted that reliance upon the Case Information Statement (CIS) will not be sufficient. The court reasoned that since such documents generally "reflect a more current financial picture of the parties," they do not reflect the standard of living enjoyed during the marriage. Therefore, that information is not a substitute for the party's stipulation [or testimony] on the marital standard of living.
The need to determine the marital standard of living was also discussed in last year's Appellate Division case of Carter v Carter 318 N.J. Supra 34 (App.Div. 1999). In Carter, the Appellate Court addressed the issue of whether a dependant spouse could seek alimony after the rehabilitative alimony had expired. Additionally, the court addressed the issue of what special procedure would be required to be employed by a trial court entering a judgement of divorce, whether settled or tried, when rehabilitative alimony was involved. The Appellate Court found that by statute, trial courts must make specific findings on rehabilitative alimony, even in cases where a settlement is obtained. When granting rehabilitative alimony or when endorsing a rehabilitative alimony provision where rehabilitative alimony is a negotiated term of a Property Settlement Agreement, the Appellate Court mandated that trial judges examine each party as to the parties' comprehension of the rehabilitative alimony provision including but not limited to
(A) the reasons for rehabilitative alimony;
This is especially needed where one of both of the parties may incorrectly believe that the duty to pay alimony will conclude at the end of the rehabilitative alimony. The Carter court reasoned that the lack of testimony on the topic of rehabilitative alimony at the divorce proceeding places a motion judge presiding at an ensuing change of circumstances hearing at a disadvantage in reconciling the needs of each party as of the date of the change of circumstances motion with the needs of each party as of the date of the divorce. As in CREWS, a "baseline" was viewed as critical. Just as our Supreme Court has recently done, the Carter Appellate Court found that when determining whether or not to modify alimony, the "overriding equitable consideration is a determination of whether the former marital standard of living is being maintained."
Methods to Present Lifestyle
We propose three basic ways to present the marital lifestyle to your adversary and, ultimately, to a court at the time of trial or an uncontested hearing. Ideally, the most efficient and cost effective method, is to enter into an "Income & Lifestyle Stipulation". When that fails, there are generally two alternative methods to present lifestyle. The first is a narrative with little documentary back-up. The last and preferable method, is a comprehensive "Lifestyle Analysis" by a qualified forensic accountant.
I. Agreement as to Baseline via the "Crews Stipulation"
There may be situations where the parties can agree to the essential baseline elements required by CREWS. In such situations, it is proposed that a uniform form of stipulation be used to work toward and present an agreement on the baseline. Such a form of stipulation should address the categories of expenditures of everyday life. These categories can include, but may not necessarily be limited to the following:
Each of the foregoing may or may not be applicable in every case. Further, there may be additional items that may be required. Nevertheless, if a matrimonial litigant opines as to the majority of these topics it will have a significant impact in conveying the marital standard of living or lifestyle.
A proposed form of stipulation to embody the parties' understanding of the "baseline" is attached to this article. Ultimately, this "Crews Stipulation" can be offered as "J-2" into evidence, after the Property Settlement Agreement. Obviously, the form attached is very broad and every aspect thereof may not be applicable in every case. However, it provides a general outline for constructing and tailoring a stipulation that will be right for any particular case.
It is critical to note that the fact that parties may not be able to agree on all values or aspects of the baseline should not eliminate the ability to enter into a "Crews Stipulation". In such situations, a range of values can be inserted into the stipulation thereby giving a general sense of lifestyle, even though a precise value is in dispute. In other words, whether the parties lived in a $1.5 million house versus a $1.9 million house, doesn't change the fact that they were living a high lifestyle. This will still be of great service to a judge years later if a post-judgment to modify support motion is filed.
If such a uniform stipulation were adopted, it would provide much assistance with the every day problems facing matrimonial judges and practitioners in light of the mandates issued by our Supreme Court.
II. Narrative Approach
When no stipulation can be reached, the simplest method of presenting the "marital lifestyle" (whether to the attorney for the other spouse or a judge at the time of a trial or uncontested hearing) is in a narrative form. There may be little or no documentary backup with this approach. The narrative can track the items referenced in the proposed "Crews Stipulation" herein submitted.
III. Lifestyle Report by Accountant
Where a stipulation cannot be reached and the narrative approach is insufficient, the lifestyle must be adequately analyzed and presented. In such instances, an analysis by a forensic accountant who has reviewed all of the spending records of the parties including but not limited to checks, cash withdrawals from bank or investment accounts, and credit card expenditures over a period of years prior to the parties' separation or filing of complaint for divorce (whichever first occurs) will be very effective in presenting the "marital lifestyle".
The first step of a lifestyle audit is to compile all documentation containing the expenditures of the parties. Such documentation normally consists of checking account records and credit card statements for a three year period prior to the parties' separation or filing of complaint for divorce (whichever first occurs). The accountant will then review every check, credit card transaction and/or debit card transaction so that they may be categorized. The categories presented should mirror those appearing in a standard Case Information Statement "CIS". In other words, the format of the analysis of the three years prior to separation (as well as the "reconstructed" budget) should be broken down among Schedule A, Shelter Expenses; Schedule B, Transportation Expenses; and Schedule C, Personal Expenses. The product of this procedure is a schedule in the lifestyle audit report presenting a three year comparison of expenditures utilizing the CIS format. The three year analysis will include all spending by both parties for themselves and their children.
Once total expenditure levels for a three year base period have been identified, a "reconstructed" marital lifestyle budget for the dependent spouse and children (as applicable) can be prepared. Beginning with Schedule A; Shelter and its first category mortgage payments and proceeding down each category of Schedules A, B and C a determination must be made as to the appropriate level of expense to be inserted into various categories of the marital lifestyle budget. In preparing the budget many issues must be addressed, some of which will require input from the matrimonial attorney. These issues include, but are not limited to the following:
It should be noted that the departure of the supporting spouse from the marital residence for an extended period, prior to separation or the filing of the date of Complaint, can at times result in the best possible financial information for purposes of preparing a marital lifestyle budget report. (Caveat: This assumes that the supporting spouse is providing sufficient funds consistent with historic spending.) With the supporting spouse out of the marital residence reductions in the various expense categories become clear. Therefore, rather than having to make a subjective determination of the percentage of such items as food and household supplies attributable to the supporting spouse in determining the various expenditure levels in the marital lifestyle audit report, we have actual figures. Under such circumstances, it may be best to utilize only the most recent one year period if it presents figures which only represent the lifestyle of the dependent spouse and children.
Conclusion of the Lifestyle Analysis
After reviewing each expense category and taking the above-referenced issues and factors into consideration, the conclusion of the Lifestyle Audit should be presented once again utilizing the CIS format and presenting the marital lifestyle budget on an Annual and Monthly basis. In this "reconstructed" budget, each expense category disclosed should be accompanied by a footnote indicating the manner in which the expense was derived, i.e., current actual expense level, three year average, etc.
Credibility is the key in performing a lifestyle audit. The determination of certain expense categories involves, to a certain extent, subjective determinations. Such determinations must be based upon reasonable presumptions after consultation with the client (and perhaps a meeting with both parties and their counsel) and a reasonable review of all available data. The conclusion must be consistent with the facts and circumstances of the case in hand.
Finally, an important component to a lifestyle audit is the disclosure of the sources of the information presented. The specific bank accounts, credit cards and account numbers should be clearly disclosed. This will avoid situations in which the dependent spouse claims source expenditures were not included in the lifestyle audit and the results of the audit and spending levels understated.
It is important to realize that presentation of marital lifestyle is not something that can wait until trial. Adequately presenting the parties standard of living during settlement negotiations will significantly strengthen your position whether you are representing the supported or supporting spouse.
The recent pronouncement from the Supreme Court has emphasized the need to adequately assess and present the "marital lifestyle" in the course of matrimonial proceedings. Although there are many factors incident to an alimony award in a divorce case, "lifestyle" is arguably one of the most important. Although it would be folly to believe that the marital standard of living is the only issue to address, it would likewise be folly to diminish its importance in the overall scheme of a divorce action. Although the narrative approach of presenting lifestyle is fine in many cases, it is herein submitted that in cases of significant income and net worth, it is prudent for the matrimonial attorney to retain the services of a qualified forensic accountant to perform the "lifestyle analysis", in a manner similar to that presented herein, so that the parties, counsel and ultimately, the court, is fully aware of the full extent of the "marital lifestyle" that the parties enjoyed during the marriage so that a support award may be fashioned to allow each party to maintain a reasonably comparable lifestyles post divorce.
CREWS STIPULATION AS TO INCOME & LIFESTYLE
THIS STIPULATION made by and entered into this _____ day of ______________, 2000 by and between _____________, residing at __________________, New Jersey _________, hereinafter referred to as the "Husband", and ____________, residing at ____________________________, New Jersey, ________, hereinafter referred to as the "Wife",
WHEREAS, the parties hereto were duly married on ______________; and
WHEREAS, the parties have or intend to enter into a comprehensive Property Settlement Agreement resolving all issues raised regarding their marital dispute, and
WHEREAS, the parties acknowledge that their Agreement includes terms regarding alimony; and that the decision of CREWS v CREWS, 164 N.J. 11 (2000) requires a "baseline" to be set.
WHEREAS, The parties seek to submit this Stipulation as their compliance with the CREWS requirements by agreeing to that baseline in two respects: (1) Income upon which support was based and (2) lifestyle.
The parties agree that the current support structure of their Agreement, is based on the following current actual or imputed annual incomes:
HUSBAND: $________________ (actual/imputed)
The parties further agree that they contemplate the following changes in their respective incomes:
The parties agree to the following as to the marital lifestyle that they enjoyed during the marriage:
IN WITNESS WHEREOF, the parties have hereunder set their hands and seals the day and year written below their respective names.
SIGNED SEALED & DELIVERED
IN THE PRESENCE OF:
Carl D. Gensib, Esq., CPA, is a self-employed Certified Public Accountant and Attorney at Law practicing in North Brunswick, New Jersey.
New York City:
Stephen I. Silberfein
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