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Malkin v. Malkin

Court of Appeals of Tennessee, Jackson

October 7, 2019

KAREN ABRAMS MALKIN
v.
REED LYNN MALKIN

          Session: June 19, 2019

          Appeal from the Chancery Court for Shelby County No. D27924 Walter L. Evans, Judge

         This appeal involves a former husband's fourth petition to reduce or terminate his alimony in futuro obligation since the parties were divorced. When considering the appeal of husband's third attempt, in Malkin v. Malkin, 475 S.W.3d 252 (Tenn. Ct. App. 2015), this Court reversed the trial court's reduction of the award and reinstated the prior alimony obligation. We found that the husband's retirement was objectively reasonable and constituted a substantial and material change in circumstances, but we concluded that the husband failed to prove that the change in circumstances significantly diminished his financial ability to pay alimony or his former wife's need for it. Just months after the Tennessee Supreme Court denied the husband's application for permission to appeal, he filed his fourth petition to reduce or terminate his obligation. The wife filed a counter-petition to increase the award. The trial court granted the husband's petition, again, and reduced the award to less than half of its previous amount. The wife appeals. We reverse and remand for further proceedings.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed and Remanded

          Lori R. Holyfield, Memphis, Tennessee, for the appellant, Karen Abrams Malkin.

          Robert A. Wampler and J. Luke Sanderson, Memphis, Tennessee, for the appellee, Reed Lynn Malkin.

          Carma Dennis McGee, J., delivered the opinion of the court, in which J. Steven Stafford, P.J., W.S., and Thomas R. Frierson, II, J., joined.

          OPINION

          CARMA DENNIS McGEE, JUDGE

         I. Facts & Procedural History

         Reed Lynn Malkin ("Husband") and Karen Abrams Malkin ("Wife") were married in 1978. Prior to the marriage, Wife had worked as a professional ballet dancer and owned a dance studio for a few years. She also worked at a restaurant owned by her father. However, Wife spent a substantial amount of time out of the workforce during the marriage to serve as primary caretaker for the parties' two children. Husband worked as an attorney throughout the marriage. According to Wife, the parties traveled around the world, they bought whatever they wanted, and she never thought about money.

         Wife filed for divorce in 1996. The chancery court held a two-day trial in March 1998, and a divorce decree was entered in April 1998. Husband admitted to inappropriate marital conduct. The parties' older child was at or near the age of majority, and Wife was awarded custody of the younger child. The divorce decree did not contain any findings regarding Husband's income, but it contained the following paragraph addressing alimony:

[T]he Court finds, after considering all of the relevant factors set forth in T.C.A. § 36-5-101, such as the length of the marriage, [Wife's] age, [Wife's] education, and other relevant factors, that she is so economically disadvantaged that rehabilitation is not feasible or possible, so that the Court awards [Wife] alimony in futuro in the sum of $3, 500 per month, which shall be paid beginning April 1, 1998, and the first of every month thereafter until her death or remarriage[.]

         Husband was also ordered to pay $1, 500 per month in child support.

         In April 2003, five years after the divorce decree was entered, Husband filed his first petition to reduce or terminate his alimony in futuro obligation. Husband alleged that "at the time of the divorce," he was earning a gross income from his "professional corporation" of $2, 221, 962, and the annual distribution to him from his professional corporation was $744, 231. For the most recent tax year, 2002, Husband alleged that his professional corporation had received annual gross income of $882, 650, and it distributed gross income to him in the sum of $157, 298. Husband alleged that his taxable income had decreased from $736, 009 in 1998 to only $90, 969 in 2002, for a decrease of 88 percent. Husband argued that this constituted a substantial and material change in circumstances justifying a reduction or termination of his alimony in futuro obligation. He further alleged that Wife "was not fully employed" at the time of the divorce decree and that she had refused to work on a full-time basis since that date.

         After a hearing, the chancery court entered an order addressing Husband's petition in January 2004. The trial court found that Husband had a sharp increase in income in 1998 due to the settlement of one case, but his income was not nearly that high in the years before or after that settlement. More importantly, however, the trial court found nothing in the record to indicate that the 1998 income figure was before the original chancellor at the time of the divorce trial in March 1998. The trial court found that Husband's taxable income in the two years prior to the divorce trial equaled $273, 000 in 1997 and $271, 000 in 1996, and this was the information the court had before it at the divorce trial when it made its original award.

         Putting aside the anomaly that occurred in 1998, the trial court found that Husband's taxable income for the five years since the divorce (from 1999 to 2003) ranged between $157, 000 and $281, 000. Recognizing the "up and down" nature of a law practice, the trial court decided to calculate Husband's average taxable income for the past five years, which equaled $221, 894. The trial court determined that this represented an 18 percent decrease in income for Husband from the $271, 000 he earned around the time of the divorce.

         The trial court also found that at the time of the divorce trial, Wife had shown her expenses to be approximately $6, 250 per month. The trial court noted that Wife's current affidavit of income and expenses reflected only $4, 705 in expenses, indicating a decrease of 25 percent. Considering Husband's decrease in income and Wife's decrease in expenses, the trial court reduced Husband's alimony obligation by 18 percent, from $3, 500 to $2, 870 per month effective February 1, 2004. However, the court also ordered Husband to pay a portion of Wife's attorney's fees.

         Three years later, in 2007, Husband filed his second petition to reduce or terminate his alimony in futuro obligation. He alleged that Wife had been unemployed "during most if not all of the parties' marriage," at the time of the divorce, and at the time of the last hearing, and he claimed "it was not foreseeable that she would ever be employed." Husband alleged that Wife had recently obtained employment with a ballet school in Nashville and was believed to be earning at least $25, 000 per year. He argued that this constituted a substantial and material change in circumstances warranting reduction or termination of his alimony obligation. Wife filed a counter-petition seeking an increase in her alimony obligation.

         The second modification proceeding lasted three years. The matter was tried over the course of six days in late 2009. The trial court's order noted the "excessive amount of legal energy, talent, and expenses consumed and invested into this proceeding on both sides." The trial court found that Husband's average taxable income for the past five years was $265, 397, nearly as much as he earned at the time of the original divorce hearing ($271, 000).[1] The court also found that Wife had "relevant monthly expenses" of $6, 200 per month, roughly the same amount she had at the time of the divorce. However, the court found her income to be approximately $1, 300 per month, and it found that she was also qualified to receive some social security retirement benefits because she had reached the age of 64. Considering these additional sources of income now available to Wife, the trial court found that the existing alimony award of $2, 870 per month should not be disturbed despite the increase in Husband's income and Wife's expenses since the last hearing. Both petitions to modify were denied pursuant to an order entered in April 2010.

         Three years later, in May 2013, Husband filed his third petition to reduce or terminate his alimony in futuro obligation. This time, Husband alleged that he had retired in December 2012 and was only drawing social security and pension funds, so he could no longer afford to pay Wife alimony in futuro at the rate of $2, 870 per month. After a very brief hearing in December 2013, with the entire transcript spanning only 88 pages, the trial court entered an order granting Husband's petition. The trial court found that Husband had retired at the age of 67 and that his income was limited to $8, 000 per month, consisting of $5, 500 from a retirement account and $2, 500 from social security. The trial court found that "[Husband] was earning approximately $271, 000.00 per year at the time of the previous modification of alimony setting that amount at $2, 870 per month and he is now earning approximately $98, 000.00 per year." As such, the court found that Husband "suffered at least a 2/3's decrease in income and therefore the alimony in futuro heretofore awarded should be modified to the sum of $1, 035.00 per month effective January 1, 2014." Wife timely filed a notice of appeal to this Court.

         On appeal, we began by examining the type of alimony awarded to Wife by the final decree of divorce:

This case involves an award of alimony in futuro. This type of alimony "is intended to provide support on a long-term basis until the death or remarriage of the recipient." Gonsewski [v. Gonsewski], 350 S.W.3d [99, ] 107 [(Tenn. 2011)] (citing Tenn. Code Ann. § 36-5-121(f)(1)). Alimony in futuro can be awarded "when the court finds that there is relative economic disadvantage and that rehabilitation is not feasible." Tenn. Code Ann. § 36-5-121(f)(1). In other words, alimony in futuro is appropriate when one spouse "is unable to achieve, with reasonable effort, an earning capacity that will permit the spouse's standard of living after the divorce to be reasonably comparable to the standard of living enjoyed during the marriage, or to the post-divorce standard of living expected to be available to the other spouse[.]" Tenn. Code Ann. § 36-5-121(f)(1).
An award of alimony in futuro remains in the court's control for the duration of the award and "may be increased, decreased, terminated, extended, or otherwise modified, upon a showing of substantial and material change in circumstances." Tenn. Code Ann. § 36-5-121(f)(2)(A). The party seeking modification of the alimony award "bears the burden of proving that a substantial and material change in circumstances has occurred." Wiser v. Wiser, 339 S.W.3d 1, 12 (Tenn. Ct. App. 2010) (citing Freeman v. Freeman, 147 S.W.3d 234, 239 (Tenn. Ct. App. 2003)). "'[W]hether there has been a sufficient showing of a substantial and material change of circumstances is in the sound discretion of the trial court.'" Bogan [v. Bogan], 60 S.W.3d [721, ] 727 [(Tenn. 2001)] (quoting Watters v. Watters, 22 S.W.3d 817, 821 (Tenn. Ct. App. 1999)).

Malkin v. Malkin ("Malkin I"), 475 S.W.3d 252, 257-58 (Tenn. Ct. App. 2015) (footnote omitted).[2]

         With respect to this first prong of the analysis, we discussed the circumstances surrounding Husband's recent retirement and whether his retirement constituted a substantial and material change in circumstances:

It is well-settled that "when an obligor's retirement is objectively reasonable, it does constitute a substantial and material change in circumstances-irrespective of whether the retirement was foreseeable or voluntary-so as to permit modification of the support obligation." Bogan, 60 S.W.3d at 729. However, it is equally clear that "an obligor cannot merely utter the word 'retirement' and expect an automatic finding of a substantial and material change in circumstances. Rather, the trial court should examine the totality of the circumstances surrounding the retirement to ensure that it is objectively reasonable." Id. In the case before us, the trial court found that Husband "retired at sixty seven (67) years of age from the practice of law," but the court did not make any finding regarding whether Husband's retirement was objectively reasonable. On appeal, Wife seems to imply that Husband's retirement either was not "bona fide" or was not objectively reasonable, noting that he maintained his law license in "active" status and continued to advertise his services as a mediator. Husband testified that he officially closed his law office on March 1, prior to the filing of his petition for modification on May 31, 2013. He testified that he would be interested in doing mediation work but said he had not received any calls for such work. Husband testified that his law practice essentially "dried up" because his work was primarily worker's compensation cases involving employees of Northwest/Delta, and Northwest/Delta no longer maintained a workforce in Memphis. He testified that he experienced periods of several months without any new clients, and he did not earn enough to cover his overhead during the last five months he practiced. Husband also testified that he shared office space and expenses with a gentleman who was retiring, and the building they leased had been sold, so in order to continue practicing he would have been required to lease a new office and hire new staff. Husband was 67 years old and dealing with some health issues. Considering these circumstances, Husband's retirement was bona fide and objectively reasonable. . . .

Id. at 258. We held that "Husband's retirement constituted a substantial and material change in circumstances," but, we added, "this finding does not end our inquiry." Id.

         Next, we turned to the second prong of the alimony modification analysis:

"[E]ven when an obligor is able to establish that a retirement is objectively reasonable, and therefore that it constitutes a substantial and material change in circumstances, the obligor is not necessarily entitled to an automatic reduction or termination of his or her support obligations." Bogan, 60 S.W.3d at 730. The alimony statute provides that an award of alimony in futuro "may" be modified upon a showing of a substantial and material change in circumstances. Tenn. Code Ann. § 36-5-121(f)(2)(A). "As evidenced by its permissive language, the statute permitting modification of support awards contemplates that a trial court has no duty to reduce or terminate an award merely because it finds a substantial and material change in circumstances." Bogan, 60 S.W.3d at 730. Instead, the change in conditions resulting from retirement merely allows the obligor the opportunity to demonstrate that reduction or termination of the award is appropriate. Id. The "actual modification of the award, if any, is addressed to the trial court's discretion after considering the relevant factors listed in Tennessee Code Annotated section 36-5-[121(i)]." Id. at 727. Although the statute lists numerous factors for consideration, "the two most important considerations in modifying a spousal support award are the financial ability of the obligor to provide for the support and the financial need of the party receiving the support." Id. at 730.

Id. at 258-59 (footnote omitted).

         We noted that the trial court made few findings to justify its reduction of the award from $2, 870 to $1, 035 per month. Id. at 259. Initially, we noted that the trial court made an incorrect factual finding regarding Husband's income, as the trial court found that "'[Husband] was earning approximately $271, 000.00 per year at the time of the previous modification of alimony setting that amount at $2, 870.00 per month and he is now earning approximately $98, 000.00 per year.'" Id. (emphasis added). We explained that this finding was factually incorrect because Husband was actually earning approximately $271, 000 at the time of the divorce, and at the time of the modification to $2, 870 in 2004, he was earning $221, 894. Id. at 260.

         In any event, however, we found that the trial court applied an incorrect legal standard by focusing solely on the decrease in Husband's income without making "any findings regarding Husband's expenses, Wife's income, Wife's expenses, or any other factors relevant to setting an alimony obligation." Id. The trial court had simply considered Husband's decrease in income and reduced the alimony award by a corresponding percentage. Id. We explained:

Deciding whether an obligor has the ability to provide spousal support requires consideration of more than the obligor's income. See, e.g., Evans v. Young, 280 S.W.3d 815, 827 (Tenn. Ct. App. 2008) (finding that an obligor still had the "ability to pay" the same level of alimony despite his retirement and significant reduction in income). A decrease in income "should not be viewed in a vacuum." Proctor v. Proctor, No. M2006-01396-COA-R3-CV, 2007 WL 2471504, at *5 (Tenn. Ct. App. Aug. 31, 2007). To the contrary, we must consider the obligor's "ability to pay" the alimony obligation, which can be impacted by a variety of factors. Id. "Income is but one of the factors to be considered." Id. The obligor's expenses are another important factor for consideration. Id. Moreover, "the trial court should carefully consider the relevant factors of Tennessee Code Annotated section 36-5-[121(i)] in deciding by what amount, if any, the award should be modified." Bogan, 60 S.W.3d at 734. The need of the receiving spouse cannot be overlooked; it is "an important consideration in modification cases." Id. at 730.

Id. at 261.

         Because the trial court had erred in its factual findings and also applied an incorrect legal standard, we reviewed the limited evidence presented at the hearing to determine whether modification of the alimony award was appropriate. Id. From our review of the record, we concluded that Husband failed to meet his burden of demonstrating that modification was warranted. Id. Although he had experienced a decrease in income due to his retirement, he was still receiving $8, 166 per month from retirement benefits and social security. Id. Husband's retirement funds were valued at approximately $1.2 million, and he decided how much to withdraw from the accounts based on online formulas and annuity tables. Id. If he continued his current level of withdrawals, his retirement funds would last until his mid-eighties, which corresponded to his life expectancy. Id.

         Notably, despite Husband having the burden of proof, "he did not produce any evidence of his monthly expenses in an effort to demonstrate an inability to pay his current level of alimony." Id. The limited evidence he presented regarding his expenses showed that his current monthly income enabled him to pay Wife's alimony and all of his expenses without going into debt. Id. He was paying the bulk of the household expenses for himself and his new wife, who was 49 years old and had accepted a voluntary buyout enabling her to stop working during the same month as Husband. Id. When asked about his deposition testimony in which he estimated that he and his wife spend $1, 500 per month on groceries, he responded,

All right. You asked me a bunch of questions about expenses in the deposition.... And to be honest with you, I wasn't prepared to answer those because I only thought the only issue involved in this was the fact that my income had dropped while I was-a significant amount and the fact that my ex-wife had done nothing in terms of rehabilitation.

Id. at 261-62. Even at the modification hearing, Husband testified, "I would be guessing at what each expense is.... I couldn't break down exactly what my expenses are." Id. at 262. Although he testified to charging some expenses to credit cards, he was able to pay off those balances at the end of every month. Id. His expenses included considerable discretionary spending, and he was voluntarily paying off his daughter's student loan of $20, 000. Id. at 261. Husband claimed to have "cut back" on some "social things," but he was still traveling to France every year. Id. at 262. We found that "Husband's lifestyle indicated that he had no trouble paying for luxuries in addition to meeting his obligations," and we concluded that he "still has the financial ability to pay Wife's current level of alimony in the sum of $2, 870 per month." Id.

         We also considered Wife's financial need for the current level of alimony. She was 69 years old at the time of the hearing in 2013, and her most recent full-time employment was four years earlier when she worked as a secretary at the ballet school, earning $22, 728 per year. Id. The ballet school "let [her] go" when a new director was hired and brought in his own staff. Id. Wife had only minimal income since then, earning $3, 585 in 2010; $1, 023 in 2011; and $312 in 2012. Id. She had worked at a real estate company for $12 an hour but was replaced by someone with an accounting degree. Id. At the time of trial, she was working three to six hours per week at a yarn store. Id. She attributed her lack of meaningful employment to her advanced age, health issues, and her lack of education. Id. She had begun drawing social security benefits in the past year and was receiving around $1, 150 per month. Id. Aside from her social security benefit, minimal paycheck, and alimony payment, she had no other source of income. Id. She had no savings and no retirement and said she did not really own anything besides thirty-year-old furniture and an old car. Id. at 262-63. Wife testified that she lived "[v]ery frugally" and was unable to afford vacations or other luxuries. Id. at 262. When asked if her monthly expenses had decreased since the last hearing, Wife said, "I can promise you it's less. I don't do anything extra." Id. at 263. She testified that some months she had a deficit, and some months she had a surplus, but she used any surplus to pay on a $150, 000 tax debt she owed to the IRS[3] or for attorney's fees from defending against Husband's petitions to modify "every couple of years." Id. She believed she would have to live with one of her children if her alimony was significantly reduced. Id. Considering all these facts, we concluded that Wife had continued financial need for her current level of alimony. Id. Even though her expenses had decreased somewhat, we said this did not warrant a further decrease in her alimony payment. Id. (citing Richards v. Richards, No. M2003-02449-COA-R3-CV, 2005 WL 396373, at *11 (Tenn. Ct. App. Feb. 17, 2005) ("Wife's frugality should not be held against her."); Claiborne v. Claiborne, No. C/A 744, 1988 WL 5684, at *2 (Tenn. Ct. App. Jan. 29, 1988) (declining "to penalize wife for being prudent and frugal")).

         In sum, in Malkin I, we concluded that Husband's retirement did constitute a substantial and material change in circumstances, but we found that he failed to prove that the change in circumstances significantly diminished his financial ability to pay alimony or Wife's need for it. Id. "Despite Husband's retirement," we said, "he is financially able to continue to pay spousal support at pre-retirement levels." Id. We reiterated that "'[e]ven a material change of circumstances does not necessarily require a reduction of alimony, if the payor still has the ability to pay the support awarded and the need of the payee has not diminished.'" Id. (citing Willet v. Taeubel, No. E2014-00364-COA-R3-CV, 2014 WL 5812338, at *8 (Tenn. Ct. App. Nov. 10, 2014)). We reversed the trial court's reduction of alimony to $1, 035 and reinstated the previous obligation of $2, 870 per month. Id. We held that if ...


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