Docket No. A-1240-19
Decided March 29, 2021
Submitted by New Jersey Family Lawyer, Jeffrey Hark.
In a recent unpublished decision the Appellate Division reviewed a trial court’s denial of defendant’s motion to require plaintiff to pay half of outstanding tax liabilities after a division of retirement accounts resulted in an unforeseen tax bill.
In Mariana, On December 11, 2018, the court issued a final judgment of divorce which terminated the parties’ nearly twenty-year marriage and incorporated the terms of the MSA. The MSA, which the parties characterized as “fair, just, adequate[,] and reasonable,” awarded plaintiff $255,000 in lump sum alimony and also addressed issues related to medical and life insurance, and the equitable distribution of the marital property and retirement accounts.
The parties acknowledged that the MSA was a final, negotiated, and integrated agreement and its purpose was to resolve completely “all questions regarding support and equitable distribution of the assets of the marriage . . . .” Consistent with that goal, the MSA contained broad and mutual general releases.
Paragraph 14 addressed the division of five of the parties’ investment accounts, two of which—account numbers 3772 and 4052—are the subject of this appeal. Paragraph 14 provided: “The assets in the above-listed investments accounts shall be equally divided “in kind” between the parties to equalize the potential taxes and/or losses to each party. The parties shall work with their brokers and/or a mutually acceptable accountant to divide these investment accounts “in kind” within ten . . . days of the date of this [a]greement. The cost of the broker or mutually acceptable accountant, if any, shall be equally shared by the parties.”
The parties filed separate tax returns. Eight months prior to signing the MSA, defendant exercised, with plaintiff’s knowledge and consent, certain stock options obtained from his prior employment. Believing that all required taxes were withheld, defendant deposited the net proceeds in account number 4052 and purchased mutual funds. The parties thereafter liquidated those investments and distributed the funds in account number 4052, along with the remaining accounts listed in paragraph 14, in accordance with the MSA.
After defendant filed his 2018 state and federal tax returns, he was advised that he was responsible for additional taxes because his investment advisor under-withheld taxes related to his exercise of the options. Further, account numbers 4052 and 3772 had untaxed dividends and capital gains. As a result, defendant requested plaintiff pay him fifty percent of the assessed tax liability.
Plaintiff refused and defendant filed a motion to force plaintiff to be responsible for half the tax liability. Plaintiff refused, arguing it was her understanding there were no additional tax liabilities for her, otherwise she would not have agreed in the first place. The trial court denied defendant’s motion, ruling he had eight months before signing the MSA to find out about the issue and he did not.
Defendant appealed. The Appellate Division remanded for further information regarding the parties’ intent of the MSA. There were two competing certifications with different understandings as to the dividing of accounts and the resulting tax liabilities. Therefore, the trial court was required to hold a plenary hearing to determine the parties’ intent of the MSA. Only then can it make a determination as to the tax liability.
This case is important for the use of consent orders when coming to agreements in divorce and family cases. The agreements must be clear, in writing, and preferably filed with the court. They are interpreted by courts with an understanding of the surrounding circumstances and overall fairness and equity. The courts do their best to interpret the intent of the parties. When the intent is clear, the Court may enforce the agreement as written. When the intent is ambiguous, the court must hold additional proceedings, such as a plenary hearing or trial, to determine the intent of the parties through testimony and evidence.
At Hark & Hark, we help clients with domestic violence restraining orders, prenups, divorce, custody, domestic violence, child support, alimony issues and more.
In recognition of these trying financial times due to COVID-19, we are reducing fees and working with clients to come up with manageable payment plans. While we combat Coronavirus, we are offering special deals for first responders and individuals currently working in the medical field. Initial consultation is always free and we are available remotely.
We represent clients for any case in any county in New Jersey including Atlantic, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Mercer, Ocean, and Salem counties. We represent clients in all towns in New Jersey, including Newark, Jersey City, Paterson, Elizabeth, Edison, Woodbridge, Lakewood, Toms River, Hamilton, Trenton, Clifton, Camden, Brick, Cherry Hill, Passaic, Middletown, Union City, Old Bridge, Gloucester Township, East Orange, Bayonne, Franklin Township, North Bergen, Vineland, and Union.