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Downturn muddles family law matters

On Behalf of | Mar 26, 2020 | Firm News

But some hopeful that, out of chaos, benefits emerge

By: Kris Olson March 26, 2020

While the new coronavirus has disrupted the professional lives of virtually all attorneys, the family law bar is particularly affected by the way in which the pandemic-induced economic downturn is complicating their cases.

Given that so much of what they do is premised on assessing parties’ incomes and the value of their assets, the sudden change in financial fortunes is forcing quick reevaluations of whether agreements or judgments that seemed fair just weeks earlier remain so.

Not only that, but attorneys are having to adjust to the rapidly changing economic reality without access to the Probate & Family Court, which is closed except in cases of emergency. Those already overburdened courts are likely to face an onslaught of filings upon reopening, lawyers predicted.

“If people have a judgment that directs that assets be offset, by the time the QDRO is drafted and offered for approval by the plan administrator, chances are the pension is not going to be worth the same as the house that it was intended to offset.”

— Marsha V. Kazarosian, Haverhill

Nonetheless, attorneys are holding out hope that the unprecedented situation may in the long run turn out to be something of a blessing, once the immediate curse is lifted.

QDRO quandary

In the COVID-19 era, checking the balance of one’s retirement account has become a dread-inducing proposition. Now, imagine those retirement benefits are the subject of a qualified domestic relations order, or QDRO, the special court order entitling a person to a portion of the retirement benefits his or her former spouse has earned through participation in an employer-sponsored retirement plan.

QDROs tend to be written either to account for ups and downs in the market or not.

Typically, if a QDRO or separation agreement lists a specific dollar amount to be divided, there is not a fluctuation clause written in, Needham attorney Gabriel Cheong noted.

“Given the recent market turmoil, this would be a good thing for recipients and not payors,” he said.

If a divorce was finalized months ago but the QDROs for retirement funds are just now being submitted for the division of retirement assets, and the QDRO contains language that suggests that the market fluctuations affect the final figures, there is an issue, according to Haverhill attorney Marsha V. Kazarosian.

“If people have a judgment that directs that assets be offset — such as ‘the wife gets the house; the husband gets the pension’ — then there is a problem because by the time the QDRO is drafted and offered for approval by the plan administrator, chances are the pension is not going to be worth the same as the house that it was intended to offset,” Kazarosian said.

It is less of a problem if the order or agreement simply says that each party will get 50 percent of the pensions, because they each take the hit on the asset, she added.

But even in such circumstances, there is an argument to be made that some type of relief or stay is warranted, if a particular agreement was struck with the understanding they were dividing a million-dollar retirement account that is now worth half as much, Boston attorney Marc E. Fitzgerald said.

“Is that the deal that was bargained for?” he said. “It’s an interesting question.”

Cheong noted parties’ options are limited.

“As QDROs usually ‘survive’ a judgment of divorce, they are not typically modifiable, even if the recent market turmoil was unforeseen,” Cheong said. “As such, if such a provision is less advantageous now to one spouse, there’s not much they can do about it to ask the court to modify or renegotiate the divorce agreement.”

‘Need’ takes on new meaning

But retirement accounts are not the only assets that have seen their value plummet.

Many businesses have lost much of the valuation they had six months ago, Kazarosian said.

Restaurants are a textbook example. Their value is generally calculated on capitalization of income, which now may be zero or at least far less than it had been.

“That is a huge problem when that is the major asset of the parties,” Kazarosian said.

Then there are the issues of alimony and child support.

Alimony guidelines became outdated as soon as the Tax Cuts and Jobs Act of 2017 — which eliminated the alimony deduction for payors that had been in effect for 80 years — was passed, Cheong said.

Now, that inequity is being compounded with the prospect of unemployment climbing as high as 20 percent in the coming months, he said. Such drastic changes in income would obviously profoundly alter the calculation of alimony and child support, he said.

“The job loss or hours lost could be temporary or the new normal,” Cheong said.

One issue that will have to be resolved is how “need” is analyzed, said Boston attorney Holly A. Hinte.

Under the rule established by the Supreme Judicial Court’s 2017 decision in Young v. Young, the recipient spouse’s need of support could be measured by considering his or her station in life as it existed at the time of separation, with the drastic and substantial degradation of the economy not part of the calculus, she said.

Moreover, federal and state forms of emergency assistance — such as rent waivers, suspensions of mortgages, loan payments or government-issued checks — may actually decrease need, she added.

It is likely that the courts will soon find themselves inundated with modification requests for alimony and child support on an “ongoing and prolonged basis,” due to fluctuations and uncertainty around income, said Needham lawyer Gabriel Cheong.

Cheong said it is likely that the courts will soon find themselves inundated with modification requests for alimony and child support on an “ongoing and prolonged basis,” due to fluctuations and uncertainty around income.

Until the Probate & Family Court reopens, a need for a temporary reduction in a support order is generally not the type of “emergency” that will get a party before a judge, Kazarosian noted. As a result, the environment is ripe for abuse by payors and payees alike.

“Without the access to a quick hearing, people will start to resort to self-help and either stop paying, knowing that the payee spouse has few options to enforce on a short-term basis, or they reasonably reduce the payments and subject themselves to a contempt [finding],” she said.

There might be some benefit to filing a request for a modification now, even though there is no chance it will be heard before May 1, Fitzgerald suggested. Doing so will preserve a client’s rights and establish a demarcation point of when circumstances changed.

“Whenever you get before a judge, you can point to the filing date,” he said.

Of course, that will require finding someone to handle service of the other party.

“That’s a complication as well, for the short term at least,” he said.

Involuntary breathing room

At least outside of exigent circumstances, the family law bar is being forced to take a deep breath, Framingham lawyer Matthew P. Barach said.

Elsewhere, less impact seen

While the economic downturn may be a big deal in the family law context, it is far less of an issue with personal injury cases, according to Boston attorney Marc L. Breakstone.

The common law does not look at the economic climate when it addresses the question of lost earning capacity, he noted.

“Even someone who is unemployed has an earning capacity,” Breakstone said.

As a result, rising unemployment and a devalued stock market should not change anything, except perhaps the perception of jurors, he said.

On the question of economic damages, the downturn might lead to a counterintuitive increase in awards by fostering a greater appreciation for the economic harm a plaintiff has suffered, leading jurors to conclude that significant compensation is warranted.

“In my experience, economic downturns have not resulted in downward pressure on economic damage claims,” he said.

Breakstone theorized that the state of the economy might also result in a greater number of claims being brought, given that, in sturdier economic times, potential plaintiffs may forego the pursuit of compensation through a lawsuit if they are otherwise gainfully employed.

The state of the economy is also unlikely to impact meaningfully the imposition of restitution in white-collar criminal cases, given that the amount of restitution is typically tied to the crime and not to the ability to pay, said Boston lawyer Michelle R. Peirce.

“The ability to pay impacts monthly payments required by a criminal defendant who is convicted, but even that can change if someone’s financial circumstances change,” she noted.

“People are not looking to make life-altering decisions right now,” he noted. “Things are sort of in flux until the crisis passes.”

Kazarosian agreed that some people are holding off filing for divorce because of the uncertain times.

“But that only works if they are in agreement or can somehow reasonably interact with each other,” she said.

The emotionally fraught nature of family law cases adds to the challenge of closed courthouses, she said.

“There is always someone more than willing to take advantage of a situation to gain a leg up, either in a property or asset division, or knowing that a mentally abused spouse or one who needs more support can’t get quick or easy access to the court, so they continue with the inappropriate or unsavory behavior,” she said.

“You hope that the attorney on the other side will be reasonable and can work cooperatively on pressing issues if the parties can’t get into a courtroom, but that is not always the case,” she added.

For those who already have agreements in place, Fitzgerald said the current situation is reinforcing the value of parenting coordinators, who are serving as a vital resource in helping navigate schedules and transitions between households.

But he agreed that many are left in difficult situations, if the mother and father are unable to communicate well.

Barach prefers to look at the challenge as also presenting an opportunity, however.

While he agreed that the Probate & Family Court is likely to be strained in the short term when it reopens, he suggested that the family law bar should see that as a challenge to step up and resolve matters to help reduce the backlog.

Barach is also hopeful that the Probate & Family Court can emerge on the other side of the coronavirus crisis in a better place.

Over the next couple of months, family law attorneys will be forced to make increased use of e-filing and do more to resolve uncontested matters electronically or on the papers, fortifying “muscles” that will serve the bar well once the courthouse doors swing back open.

“You will see more creativity and an entrepreneurial type of approach in the Probate Court that will be a long-term benefit,” he said.

Family law attorneys can also take advantage of an unexpected opportunity to do some forward planning, he said.

“There’s a certain inertia when you have to go to court and have to be prepared,” he said. “With the courts closed, there’s a void, and you can take advantage of that to regroup, plan and think about your cases — what could be settled to get cases off the docket.”