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Court’s Determination of Imputed Income Stands where Spouse Refuses to Supply Information

woman calculating debt

A recent case before the New Jersey Appellate Division is an example of the tools available to parties to a divorce where their spouse has obstructed the court’s attempt to determine their income and assets.

Spouse fails to turn over complete and honest financial records

In the case titled Brandspiegel-Arbely v. Arbely, the couple at the center of the case had filed for divorce in 2011. During the marriage, the husband had owned a store which sold automotive audio equipment on a wholesale basis. He sold the business shortly after his wife filed for divorce, and had not since sought other employment. During the discovery phase of the divorce, where parties exchange documents which the other party has a right to receive, the husband failed to make complete, truthful, and coherent financial disclosures. The wife repeatedly requested these documents, but never received them.

Judge applies negative inference against non-disclosing spouse

The couple opted to hold a bench trial to resolve their divorce. In order for the judge to divide the couple’s assets and determine a fair alimony payment, the wife presented expert witness testimony from an accountant. This witness used average profit earnings of stores similar to the husband’s to estimate the value of the store he sold, as well as his likely salary, to calculate his earning capacity and assets. (Unfortunately for the husband, this accountant also discovered what appeared to be nearly $2 million in sales that he had failed to report to the IRS.) The husband contested the accountant’s testimony and accompanying report, but failed to produce documents which would disprove the testimony.

The judge determined that the accountant was a more credible (or, trustworthy) witness than the husband, and relied on the expert’s report in calculating the husband’s income and assets for purposes of awarding alimony to the wife and dividing the couple’s assets. The judge also determined that the wife should not bear the cost of presenting the accountant’s testimony, since that testimony would not have been necessary had the husband made complete disclosures, and compelled the husband to pay the expert’s fees. The husband appealed, but the Appellate Division affirmed the trial judge’s decision.

Imputing income where parties make incomplete disclosures

When spouses are not employed, courts will determine an imputed income for that spouse for purposes of calculating spousal support payments. Imputed income amounts will take into account the individual’s past work history, education, and the current state of the job market to determine their likely earning capacity. These calculations can become more complex when the unemployed spouse was previously a small business owner, as the court must determine what the profits of the small business likely were, and how much of that amount the spouse would have paid themselves in a salary.

Courts generally do not look kindly upon parties to a divorce who fail to make mandatory disclosures or participate equally in the discovery process. This issue tends to arise most often when spouses do not make complete financial disclosures. Essentially, if a judge is forced to guess what a spouse earns, or what would be an appropriate value to assign to their property, the judge will draw a negative inference against that spouse; i.e., assume the higher of the options for the amount that the spouse might earn or own. Additionally, if the opposing party in a divorce is forced to spend money on expert witness testimony to present evidence that a spouse should have turned over voluntarily, judges may turn around and impose the costs of that expert witness on the non-disclosing spouse. While these types of highly-contested divorces may be difficult to litigate, New Jersey courts do provide means for spouses to receive justice when the other spouse attempts to prevent a just result.

If you’re facing divorce in New Jersey, contact the seasoned and knowledgeable Union family law attorney John B. D’Alessandro for a consultation on your case, at 908-964-0102.

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