Opinion
No. FA00 037 24 55
June 27, 2007
MEMORANDUM OF DECISION
The issue before the court is the amount of alimony to be paid by the plaintiff to the defendant. Both parties have made postjudgment motions for modification. The defendant seeks an upward modification based on her contention that the plaintiff's receipt of $2.4 million in taxable income from the maturation of Lehman Brothers restricted stock units has created a substantial change in the plaintiff's circumstances. The plaintiff seeks a downward modification based on his contention that while his income has been eliminated, the defendant's income, on the other hand, has increased, constituting a substantial change in circumstances.
On March 14, 2001, a judgment of dissolution was entered by the court in the matter of Mellon v. Mellon, Superior Court, judicial district of Fairfield, Docket No. FA 00 0372455 (March 14, 2001, Thim, J.). The judgment, which was incorporated into the separation agreement by reference, provided that the plaintiff husband would pay the defendant wife "during his lifetime, until (i) her death, (ii) remarriage; or (iii) cohabitation. . . whichever event shall first occur, alimony in the amount of $12,500.00 per month." The agreement further provided that the alimony payment was nonmodifiable as to the defendant seeking upward modification and the plaintiff seeking downward modification, "except in the event of a substantial change in the [plaintiff's] circumstances" and "that the [plaintiff's] retirement on or after age [sixty-five] shall constitute a substantial change in circumstances."
On March 16, 2006, the plaintiff filed a motion for a postjudgment modification of alimony. In the memorandum in support of the motion, he argued that his involuntary resignation from Lehman Brothers in November 2005 had created a substantial change in his circumstances, as he no longer received income. The motion was scheduled to be heard by the court on April 13, 2006, but instead, the parties agreed to a temporary modification of alimony in a stipulation for modification. On April 12, 2006, the court, Dennis, J., granted the plaintiff's motion for modification in accordance with the stipulation.
The stipulation provided that commencing January 1, 2006, and continuing through November 30, 2006, the plaintiff's alimony obligation was to be $6,250 (half of the amount set in the judgment of dissolution) per month and that the parties stipulate that the change was based on the plaintiff's unemployment. The stipulation also provided that in the event the plaintiff became reemployed in any paid position prior to November 30, 2006, he was to notify the defendant and provide his current compensation from employment. The parties were to then enter "good faith discussions to arrive at a mutually acceptable alimony payment from the [plaintiff] to the [defendant] based upon the [plaintiff's] then current earned income, but in no event shall the alimony be less than $6,250 per month through November 30, 2006. Thereafter, the amount may change." The stipulation instructed the parties to do the same if the plaintiff was not reemployed by the date the stipulation expired (November 30, 2006). The stipulation stated that in the event the parties could not reach an agreement on the amount of alimony to be paid, the matter would be submitted to the court in the form of a motion for modification and any orders entered with respect to that modification would be retroactive from the date the plaintiff became reemployed. Finally, the stipulation stated that "[e]ither party may argue to the [c]ourt for a greater or lesser amount of alimony than provided herein at any point in time subsequent to December 1, 2006. However, in no event can the [plaintiff's] alimony obligation to the [defendant] ever exceed $12,500 per month. . ."
On March 14, 2007, the defendant filed a motion for an upward modification of alimony. On April 27, 2007, the defendant filed a memorandum in support of the motion. The plaintiff filed a memorandum in opposition to the defendant's motion for modification on May 3, 2007. In the memorandum, the plaintiff also moved for modification of alimony. On April 12, 2007, the parties presented oral argument to this court in support of their respective positions. On May 10, 2007, the defendant filed a reply memorandum to the plaintiff's memorandum in opposition.
Upon the dissolution of a marriage, a trial court has the power to order either of the parties to pay alimony to the other. General Statutes § 46b-82. After the judgment of dissolution, a court may order any final order for the periodic payment of permanent alimony or support to be "continued, set aside, altered or modified by said court upon a showing of a substantial change in the circumstances of either party," "[u]nless and to the extent that the decree precludes modification. . ." General Statutes § 46b-86. However, "[b]efore a court can consider whether to modify alimony under the authority of § 46b-86, a threshold question must be resolved. . . [T]he court must find a substantial change in circumstances with respect to one or both of the parties. Borkowski v. Borkowski, [ 228 Conn. 729, 737, 638 A.2d 1060 (1994)]." Gervais v. Gervais, 91 Conn.App. 840, 854, 882 A.2d 731 (2005). Following such a finding, the court then answers the question of modification, taking into account the general alimony factors found in § 46b-82, i.e, "the length of the marriage, the causes for the annulment, dissolution of the marriage or legal separation, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate and needs of each of the parties and the award, if any, which the court may make pursuant to [General Statutes § ]46b-81, and, in the case of a parent to whom the custody of minor children has been awarded, the desirability of such parent's securing employment." Gay v. Gay, 266 Conn. 641, 645, 835 A.2d 1 (2003). Finally, the court must compare "the present overall circumstances of the parties. . . with the circumstances existing at the time of the original award to determine if there has been a substantial change." Gervais v. Gervais, supra, 854.
In her memorandum in support of her motion for upward modification, the defendant argues that since the date the stipulation for modification of alimony went into effect, there has been a substantial change in circumstances for the plaintiff, which provides a basis for the court to modify the 2006 temporary stipulation. The defendant alleges that since the stipulation was entered, the defendant has received taxable income from matured shares of Lehman Brothers restricted stock units, in the amount of $885,500 in 2006 and $1,582,760.30 in 2007. The defendant asserts that the court can consider the plaintiff's ownership of the Lehman Brothers restricted stock units in its determination of the motion because they are a "source of income" under § 46b-82. The defendant also contends that at the time the parties entered into the stipulation, she did not have in her possession the plaintiff's 2005 income tax return, which showed that the defendant received $1,312,295 in earned income that year. The defendant concludes that "the [p]laintiff's receipt of $2.4 million dollars of taxable income since she entered into the [s]tipulation for [m]odification of [a]limony. . . a year ago without benefit of seeing [p]laintiff's tax return, provides the basis for the [c]ourt to modify the. . . temporary [s]tipulation and reinstate the alimony payments the parties agree to in their. . . [s]eparation [a]greement."
In his memorandum in opposition to the defendant's motion for modification, the plaintiff asks the court to modify the terms of the alimony and enter an order that he pay the defendant alimony in the amount of $25,000 annually ($2083.33 monthly) based on his current earning capacity. The plaintiff asserts that he continues to have no income from employment and that the Lehman Brothers restricted stock units are not income, but are assets that were distributed pursuant to the property division in the parties' separation agreement; thus, they should not be considered by the court in its determination. The plaintiff asserts that the defendant, on the other hand, has had an improvement in income. The plaintiff contends that the defendant has accumulated additional assets and is earning a higher salary. Thus, the plaintiff argues that there has been a substantial change in circumstances warranting a downward modification.
In her reply memorandum, the defendant argues that the plaintiff relies on inapplicable case law to "mischaracterize" the income from the restricted stock units as an asset, even though they were received five years after the parties' dissolution and did not exist at the time of the property settlement. The defendant states that she is not asking for a reallocation of property, but for the contractual alimony to be reinstated because the plaintiff has the means to pay it. The defendant also asserts that the plaintiff is voluntarily unemployed.
The following is in regards to the defendant's motion for modification. Restricted stock units constitute a promise to transfer shares of a company's stock at a later date, after the applicable vesting conditions on the promise have been satisfied. Under normal federal income tax rules, an employee receiving restricted stock units is not taxed until the stocks vest (when the restrictions lapse). The amount of income subject to tax is the difference between the fair market value of the grant at the time of vesting or distribution, minus the amount paid for the grant, if any. Upon a later sale of the shares, assuming the employee holds the shares as a capital asset, the employee would recognize capital gain income or loss.
In Gay v. Gay, supra, 266 Conn. 641, 647-48, the Supreme Court, in reversing the Appellate Court's decision, in part, held that capital gains, although income for Internal Revenue Service purposes, are not income for purposes of modifying an alimony order if those gains do not constitute a "steady stream of revenue." "The fact that a party has enjoyed such gains in a particular year does not provide a court with an adequate basis for assessing that party's long-term financial needs or resources. . . There is nothing in the record to suggest that the plaintiff can, through the ongoing sale of capital assets, maintain the income stream found by the trial court. Accordingly, we conclude that, regardless of when the capital assets sold by the plaintiff were acquired, the gains on the assets were not income." Id. See also Caragnano v. Caragnano, Superior Court, judicial district of New Haven, Docket No. FA 99 0424285 (March 14, 2004, Abery-Wetstone, J.) (court held that because the substantial appreciation in the value of the family home awarded to the plaintiff is not a liquid capital asset available for the plaintiff's support, as it does not represent a "steady stream of revenue," it would not consider it as a basis for a change in circumstances warranting a reduction of alimony); Juliano v. Juliano, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. FA 93 01342515 (August 23, 2006, Tierney, J.) (42 Conn. L. Rptr. 107) (court held that the evidence failed to establish that defendant's cashing in of his retirement account and exercise of stock options were a "steady stream of revenue").
The Supreme Court, in Gay v. Gay, supra, 266 Conn. 648, stated, however, that: "[t]he fact that capital gains on property distributed at dissolution may not be considered income under § 46b-82 does not mean, however, that changes in the value of such property, whether realized or not, may never be taken into consideration by a court in considering a modification of alimony. The fact that the trial court has no authority to modify the assignment of property made at dissolution; see General Statutes § 46b-86(a); does not mean that the court cannot consider a change in the value of that property in determining whether there has been a substantial change of circumstances justifying the modification of an alimony award." (Emphasis added).
In the present case, the plaintiff has not sold his shares of Lehman Brothers stock; thus, he has yet to even realize a capital gain income or loss from them. Furthermore, the evidence fails to establish that any gains he realizes when he sell his shares will produce a "steady stream of revenue." Thus, contrary to the defendant's argument, although the plaintiff's restricted stock units are considered income for the purposes of the Internal Revenue Service, they are not considered income for the purposes of § 46b-82. According to the Supreme Court's holding in Gay v. Gay, supra, 266 Conn. 648, however, any changes in the value of the restricted stock units, whether realized or not, may be taken into consideration by the court in determining whether there has been a substantial change of circumstances justifying the modification of an alimony award.
Nevertheless, even taking into consideration the change in the value of the restricted stock units, the fact that the plaintiff is still unemployed remains. He continues to receive no income from employment and the Lehman Brothers restricted stock units are not a supplement for this because they do not constitute income for § 46b-82 purposes. The plaintiff has made a good faith effort to find a comparable job in the financial industry. The defendant's allegations that the plaintiff has the ability to work, but prefers not to, and that any substantial change in circumstances are due to he and his wife's new expenses are not persuasive. Thus, the court will not reinstate the amount of alimony the parties agreed to in the separation agreement.
In regards to the plaintiff's motion for modification, the parties' separation agreement provided that alimony was only modifiable as to a substantial change in the plaintiff's circumstances. Thus, the court will not take into consideration any change in the defendant's income. Moreover, because the plaintiff has thus far been able to pay the amount of alimony provided in the stipulation of modification, the court will not modify the alimony payments downward from that amount.
The court orders that the alimony award shall remain at the amount set in the stipulation for modification, $6,250 a month. In view of the court's ruling herein, defendant's claim for counsel fees is denied.