Skylark.lawCavanagh v. Cavanagh - The Case, the Conundrum, & the Consequences
Introduction by Nathaniel Butzke
Introduction:
In divorce proceedings, determining alimony awards is a complex process that requires careful consideration of various factors. Judges tasked with making these decisions must weigh the financial circumstances of both parties, ensuring that the supported spouse can maintain a lifestyle similar to that before the divorce, and children have access to similar households in either parents' care. However, interpreting the law governing alimony can present practical challenges, especially concerning the interaction between alimony and child support.
The Cavanagh decision questioned the common interpretation of M.G. L. c. 208, § 53 (c) (2) found in the Alimony Reform Act. While a plain language reading might suggest that alimony should be prohibited if child support is awarded, and all the income is used in the child support calculation, this conflicts with other provisions of the act that could be interpreted to allow for concurrent awards of alimony and child support. This ambiguity underscores the need for judges to carefully tailor their decisions based on the specific circumstances of each case.
Child support and alimony serve distinct purposes in family law. Child support is intended for the maintenance and benefit of children, while alimony supports an economically dependent former spouse. Tying the availability of alimony to the provision of child support may blur these distinctions and conflict with the intent of each type of support.
To try and address this, the court in Cavanagh declared that in determining the order of calculating alimony and child support, judges must consider the equities of each approach and fashion an order that is most equitable for the family. This may involve calculating alimony first and then child support, or vice versa, and comparing both approaches' base award and tax consequences. Furthermore, judges must articulate their reasoning if they decide not to include any alimony award, considering the statutory factors and public policy. Failure to do so could be seen as an abuse of their discretion.
The ripples from this decision have been felt throughout the family law legal community and we're still trying to understand the best practices going forward. The shorthand of calculating child support first, and alimony only if excess income was available, is no longer acceptable, but is the replacement too complicated for anyone to prepare without hiring experts? While some of the authors of the Alimony Reform Act lament the court's twisting of their drafting intent, the consequences are real and we must face them as practitioners doing our best to advocate for, educate, and counsel clients trying to find a viable financial future for their family.
The Case - Understanding the Facts and Rulings in Cavanagh
The parties in Cavanagh were divorced in 2016 from a 21 year marriage and this SJC decision stems from a Complaint for Modification filed in 2020. They had three sons, and at the time of the Modification case, the oldest was set to graduate in May of 2021, the middle son was attending the United States Military Academy at West Point and the youngest son was still a minor in a private prep school.
The mother was primarily a homemaker and the father was the wage earner with two jobs working in an orthopedic surgical practice and at a medical center, a second job, which was intended to help pay for private education for the children. The court indicated that the parties lived a comfortable middle class life style. The mother returned to work in 2016 at a catholic school earning $719.24 per week while the father earned $4,388 per week.
The Divorce Judgment which incorporated the parties Agreement included provisions for:
- $20k per year for middle and youngest son towards prep school
- $800 per week in child support for 3 children (upward deviation for sports costs)
- 2nd job not used in child support calculation, but considered for private school costs
- Father not required to pay towards youngest son’s private school
- Two older sons emancipated
- Child support of $650 per week (retroactive to June 4, 2021)
- No alimony
- Each to pay their own legal fees and costs
There were numerous issues raised and addressed on appeal:
Ruling # 1: Concurrent child support and alimony - a 3-step process
After considering child support, the trial judge awarded no alimony to the mother because the judge had "considered all of [the father's] gross income in setting the child support order." The Cavanagh decision summarizes the history of alimony over many pages highlighting that "the recipient spouse's need for support is generally the amount needed to allow that spouse to maintain the lifestyle he or she enjoyed prior to termination of the marriage”, not just subsistence level. The court then gets to the construction of § 53(c)(2):
We agree that a plain language interpretation of §53 (c) (2) whereby alimony is nearly absolutely prohibited where child support has already been awarded is untenable given that such an interpretation of § 53 (c) (2) would conflict with other provisions of the act... Additionally, we note that it makes little sense to tie the availability of alimony to the provision of child support where child support and alimony serve distinct purposes...
In determining what is an appropriate support, the court then requires a 3-step process:
Step 1: Calculate alimony first using 53(a). Then calculate child support using post-alimony incomes.
Step 2: Calculate child support first. Then calculate alimony, to the extent possible. In most cases, this will preclude alimony (child support uses up all the income).
Step 3: Compare base award and tax consequences of step 1 and 2 and determine which is “most equitable". If no alimony is awarded, the trial Judge must “articulate why such an order is warranted in light of the statutory factors set forth in §53 (a).”
Ruling #2: Prep School - You can't get of an obligation by avoiding the discussion
The judgment of divorce, incorporating the parties' separation agreement, provided that the father shall "contribute up to $20,000 per year toward an agreed upon prepatory [sic] school for [the youngest son]." The term "agreed upon" was considered by the SJC to be “ambiguous” when read in conjunction with the dispute resolution provisions. In other words, if the father can avoid the cost by simply refusing to agree and not engage in a conversation then this turns into a unilateral right to veto and in the SJC's opinion makes the obligation to pay "meaningless."
The only way it has meaning is if it is interpreted as follows: "The father is obligated to contribute up to $20,000 annually for the cost of the youngest son's attendance at a preparatory school, presuming that both parties can and do agree on a choice of preparatory school, where both parties have an obligation to make a good faith effort to come to a mutual agreement. In the event that the parties cannot agree despite such good faith efforts, the issue should be presented to the court for resolution.”
While that wasn't how the paragraph was written, the SJC determined that is how they would interpret it, and it may have influenced the court that the father's attorney is the one who drafted the agreement.
Ruling #3: Middle son attending West Point is emancipated & emancipation is up to the Court
The parties agreement included language that a child was emancipated if they entered into military service of the United States, but the mother argued that West Point was attending college, not entering into military service. The court rejected this argument, and then they went a step further. While attendance at West Point is entering into military service (which seems obvious and all that needed to be said), the SJC pointed out that a child in this situation could still be principally dependent on a parent and therefore unemancipated. The court went on to point out that agreement language can't decide when emancipation occurs, only the court can do that.
However, in this case, the son was found to be principally dependent on the U.S. military and not the parents, and therefore emancipated.
Ruling #4: Computing Father's Income - What's in & out
One of the potential complications when calculating child support and alimony is in figuring out what counts as income for each parent. In calculating the father's income, the mother in Cavanagh argued that interest, dividends, and capital gains on investments, and in-kind income as instructor on trips should all be included, however the trial judge excluded them. The SJC agreed that the in-kind income was not a "regular source of income" and could be excluded in the discretion of the trial judge, but concluded that interest and dividends are included (and also capital gains not from real or personal property sales).
Over the the Father's protest, the SJC also included income from his second job and employer contributions to retirement accounts and HSAs. While the parties had agreed in their Judgment to exclude the second job income, the modification reopens that issue because you can't bargain away child support by agreement.
The court acknowledged that "whether employer contributions to a retirement account [and the HSA] count as income for the purposes of calculating child support appears to be a question of first impression in the Commonwealth" and that some states include this and others do not. The court notes that some employees may have the ability to manipulate their employment earnings directly or through negotiation and therefore, these should be included for the child support calculation (and therefore presumably for the alimony calculation as well).
Other Rulings: Merger, Procedure, Spousal Disqualification, etc.
While the scope of this article is limited to the above described rulings, a full reading of the case includes issues of retroactive relief, the scope of pre-trial orders, and whether spousal disqualification of evidence can be used in these types of cases (given some due process questions). If these are ever an issue in your case, you may want to revisit Cavanagh further.
The Conundrum - Ambiguities created by Cavanagh
One of the unwritten rules of law is that every new legal theory, statute, case decision, etc. will inevitably have unintended consequences. Whether you blame the ingenuity (or devious nature) of lawyers or the fact that life is just too complicated, unique and diverse to adhere to universal laws, there are always unintended consequences of a far-reaching decision like Cavanagh. Below we'll explore just some of the conundrums raised by this case's rulings:
Who is doing this 3-step process and how?
The Cavanagh decision requires the court to make factual findings that back up a child support and alimony order or lack thereof, but the calculation is not as straightforward as outlined.
First, when completing Step 1 to calculate alimony first, there is no alimony formula. The statute includes an alimony cap (need or 30-35% of the difference in income). That's not a "calculation" but rather it's an in-depth detailed fact specific investigation into the finances, income, budgets, and marital lifestyle spending of both parties. Simply "calculating alimony" is not the same as calculating child support. There is no proscribed worksheet, and even worse, the 30-35% cap was written prior to the tax law change which now makes alimony non-taxable income to the recipient (and not deductible by the payor).
Assuming you can reach agreement, though, on what an alimony order should be if there was no child support, there is still the issue of calculating child support using post-alimony incomes. In Step 1, what is being used as the income for each party when alimony is not taxable to the recipient? Are you supposed to ignore the tax consequences or should the alimony amount be "grossed-up" for the recipient as other non-taxable income might be in the child support calculation.
Finally, the trial court doesn't do tax analysis on their own. This is because Judge's are not required to be or expected to be tax experts. If the parties don't provide the Judge with a tax evaluation of the different support options, how does the court complete Step 3? How does the court determine what is "most equitable" with only partial information from these steps? These practical questions are not answered by the Cavanagh decision and leave a lot of room for interpretation of how to apply and complete the three step evaluation.
Plain language doesn't matter
The SJC seemed to acknowledge that a plain language reading of the alimony statute would exclude the Step 1 alimony first look. Similarly, a plain reading of the prep school language would lead to the conclusion that since father didn't agree to the prep school he doesn't have to pay for it.
So why is plain language not read plainly? The SJC reminds us that in both statutory and contract interpretation the whole document must be given meaning and inconsistencies have to be reconciled to give as much meaning to each section as possible. When this leads to the court having to essentially re-write "plain language" to what the drafters "must have" intended, it takes all meaning away from the term "plain language."
In actuality, the court is noting an ambiguity and doing their best to reconcile it, despite the fact that this new interpretation may fly in the face of the drafters intent. The lesson drafters should learn is that if you leave any ambiguity the court gets to decide your intent, and even what may appear to be "plain language" needs to be consistent with other parts of the agreement.
What is principally dependent?
While we're on the subject of ambiguous language, the child support statute defines a child as emancipated between age 18 and 21 only if they are no longer "principally dependent" on a parent or in college. In Cavanagh the term "principally dependent" mattered, and the parties had agreed that enlisting in the military counted as no longer "principally dependent". While the court agreed that the child was no longer principally dependent in this case, the court did not agree that the parties were allowed to agree to that meaning in a contract. The court reserves the right to protect children's support rights (even for children who have reached the age of legal majority), and therefore only the court can determine when a child is "principally dependent."
Except that isn't really true all the time, but only when the people choose to take their case to the court, like the Cavanaghs. If they had agreed to abide by the language in their agreement and consider the second son emancipated, then the court would have never rejected their child support agreement and said you can't do that. It's only because they disagreed that the court now determines the definition of "principally dependent." So if we know as a practical matter that parties can agree to this at the time, why are they not allowed to agree to these terms up front. When the legislature has failed to adequately determine a term like "principally dependent" why should parties not be able to define consistency and expectancy for themselves by adding definition to that term, definitions which were then approved as "fair and reasonable" by a prior Judge when approving their agreement and issuing the Judgment of Divorce. The SJC doesn't address this inconsistency and the consequence is greater ambiguity for every family that now follows this decision.
When does Second Job Income count?
Another area where the SJC reiterated that the parents could not waive the rights of the children to support was in excluding second job income from the calculation of child support. Again, this is an area of ambiguity or discretion in the guidelines:
The Court may consider none, some, or all overtime income or income from a secondary job. In determining whether to disregard none, some or all income from overtime or a secondary job, due consideration must be given to the history of the income, the expectation that the income will continue to be available, the economic needs of the parties and the children, the impact of the overtime or secondary job on the parenting plan, and whether the overtime work is a requirement of the job.
If after a child support order is entered, a payor or recipient begins to work overtime or obtains a secondary job, neither of which was worked prior to the entry of the order, there shall be a presumption that the overtime or secondary job income should not be considered in a future child support order.
The parties have defined for the court by agreement, what history should be considered, and the SJC essentially rejects any ability for them to do this if they disagree in the future. Once again, this is denying them the right to negotiate predictability and reliance on an agreement. In the original agreement second job income was excluded to be used for education. The SJC says it should be included AND he should pay the agreed upon amount of $20,000 to prep school. If the income is included in the child support calculation, shouldn't the amount of school contribution be revisited at least and the overall support calculation (including school costs) be "equitable"?
Interest, Dividends and Capital Gains are Income, but how much are they?
While interests and dividends are small for most cases and therefore inconsequential, if this is a significant source of income for clients how is it determined? Do they come back every year? Consider an example: if the payor inherits $10 million in inheritance and invests it simply and straightforward then the interest income every year may be relatively consistent. But who invests that much money simply? A diversified portfolio would include some short term investment payoffs, but also many long term investments which might not bear short-term income. This court approach encourages weighing long term or real property investments over short-term gains. While its simple to say "include interest, dividends and capital gains" the court creates specific guidelines and steps for other issues, and ignores the complexity of this ruling, providing no standard for calculating this "income".
Retirement and HSA Contributions are Income, but how much are they?
These contributions do not appear on the regular paystubs for most employees, and the current court form Financial Statement does not include a line for this type of income. This means that practically in cases without counsel, most people are not going to ask for or know about this additional income, creating a significant potential disparity between those who are represented and those who are not. The court should update the financial statement to include the disclosure of these contributions, otherwise the economic impact of this ruling will be very obviously inconsistent and discriminatory.
Footnote 9 - a headscratcher
While there are numerous practical questions raised by the Cavanagh decision, some of which we've already described above, one footnote in the Cavanagh decision is hard to reconcile with common practice. A modification of alimony typically requires a showing that first there has been a material change in circumstance and second that the change warrants a change in alimony. In Footnote 9 of Cavanagh, the SJC indicates that in this modification the mother doesn't need to address the first step because the issue of future alimony was "expressly reserve[d]" in the language of the parties' Separation Agreement.
It is very typical to write that past and present alimony is waived and future alimony is open, merged, modifiable or reserved. These are all different ways of saying alimony now is $0 but modifiable in the future. The reading of Footnote 9 turns this on its head and says that alimony "now" wasn't dealt with because future alimony was reserved. This is confusing at best. We have to acknowledge that "present" alimony obviously means a current order of alimony that is ongoing until a modification. To interpret this differently is to imply that the intent of both parties was that a modification of "future" alimony could be filed the day after the divorce and be heard. The court needs to reconcile the ideas of plain language and common sense intent in their reading of the requirements and Footnote 9 seems like the worst kind of "dicta", that we can only hope never surfaces again.
The Consequences - Finding Ways to Create Less Ambiguity in an Ambiguous World
A case like Cavanagh leads to so many seminars and discussions amongst the bar, mediators, CDFAs and other divorce professionals because everyone wants to know how best to provide their current and future clients with predictability in outcomes. As we've described above, this case makes that job harder in many ways, but there are still some ways that we can try to assist our clients in reducing that impact and maintaining as much predictability as possible:
Recommendations for Advocating and Advising
Determining what is income and how to calculate potential support orders using the 3-step process requires an understanding of tax consequences in addition to the more basic financial calculations. Good advocacy is always knowing when to bring in an expert and more often than not the Cavanagh evaluation will require an expert evaluation. Practitioners should review sample Cavanagh calculations and if they don't understand them well enough to explain them thoroughly to a client or the court, then bring in an expert to do so.
Recommendations for Drafting
Drafters should be concerned whenever they see a decision that finds plain language to be ambiguous. But there are some lessons to be learned from Cavanagh to keep these risks to a minimum:
- Always indicate in your drafted Agreements that the agreement was drafted by both sides and there should be no presumption in the drafting against either party (to avoid the presumption against your client).
- Delete emancipation definitions that differ at all from the statutory definition, or try to further qualify the definition. Judges are and should be rejecting these additional provisions given the Cavanagh ruling.
- Note that any deviations from child support are always reviewable by the court in a modification, even if in consideration for other provisions.
- When drafting alimony orders that are modifiable indicate clearly what the current order is, even if it's $0.
- Review your agreements for any ambiguities created by "boilerplate language". Consider whether dispute resolution provisions override any requirements that changes be "agreed upon" and define it clearly when a client has intended veto power (or veto power of the purse). If you are not careful with these drafting inconsistencies, you risk that "agreed upon" will be read as "agreed upon through the dispute resolution provisions outlined herein and agreement not to be unreasonably withheld."
Recommendations for Living
As a final note, we can't ignore the fact that this case has already been remanded and a new Judgment issued by the trial court. In that Judgment, the court ordered $635 per week (less than the original Modification Judgment) partly because during that time, the mother's income had gone up. The trial court performed the 3 step process required by the SJC and determined that the equitable award was child support only and no alimony. It's unknown at the time of writing this whether we will see another appeal decision for this Judgment.
Despite the lengthy decision of the SJC and the remanding of the case, the support order did not go up for mother. Despite "winning" at the SJC, the result was mostly unchanged, other than the cost of the ongoing litigation presumably depleting the resources of both parties.
While we read a case like Cavanagh for all the consequences it may have for the many families to come after them, it's important to also note the real people that these cases get named after. They're real families, whose lives move on while the courts evaluate their circumstances as if they're frozen in time. Not only does life go on for parties in these disputes (children grow up, jobs change, people move and remarry etc.), the law changes and evolves around them at the same time. While this case was pending in the appeals court the first time, new child support guidelines were issued. Other cases relevant to alimony (like Openshaw) are decided while this family continues to deal with their own disputes.
The point is that the law, like our lives, is not a static thing. Despite the goals we might have as practitioners to provide our clients with as much predictability as possible, we can't rely on the court to be predictable and we need to be honest and clear with clients about the fact that the law goes on living just like they do. They should take that unpredictability into account when they do their own risk-benefit analysis, when they consider whether to litigate or mediate, to continue to negotiate or to settle, and when to examine their life as it was or just get on living as it is.
Comments
Post a Comment