The Colorado Court of Appeals recently issued an unpublished decision where a successful surgeon testified he planned to pack it all in, sell his medical practice to his partner for $40K (the trial court found it was worth 44 times that value, or $1.76m), and forsake his compensation of $720K/yr (plus generous perks) compensation to volunteer in Cambodia for just $36K/yr. This proposed 95% pay cut certainly triggers alimony in Colorado concerns.
I addressed the divorce business valuation issue in a companion blog post today; the topic of this post is how the court addressed a successful surgeon proposing to pay no maintenance due to a massive, voluntary reduction in pay he was anticipating.
In Kim, the trial court awarded each spouse more than $4m in marital assets. In the husband’s eyes, that was enough, and he should not owe any spousal support. Unfortunately for him, Colorado alimony laws, and the family law judge, said otherwise. The parties agreed that the wife was capable of earning $40K/yr, or $3333/mo.
Based upon a 19-year marriage, and the husband earning $60K/mo, the wife was awarded $14,000/mo for 12 months, and then $7500/mo for 9 more years, for a total of $984,000 during 10 years of maintenance.
In reality, it appears the husband got off lightly. Colorado’s spousal maintenance formula does not apply to high-income earners with a combined income over $240,000/yr. However, the rationale behind the formula (both spouses contribute towards the marriage, the wife’s raising the family enabled the husband to have a successful career), suggesting that a 60/40 pretax income ratio is about right, is still persuasive. And per our Colorado alimony calculator, applying the formula would have resulted in his owing about $16,500 for half the duration of the marriage, or about 9.5 years. That would mean $1,881,000 in total maintenance.
So while the husband did not feel lucky since the court rejected his Cambodia plans, given the reality of his earnings he actually ended up paying about half what the formula would have required. While it’s common to see courts come in below the formula for high income earners, typically one may expect a 10-20% reduction, not a 50% reduction.
Or another way of looking at it is that after the first year when the alimony went down, the husband’s gross monthly income after deducting the $7500 maintenance would be $52,500, compared to the wife’s $10,833 after adding the alimony. Now this is not exactly an “apples to apples” comparison, since the husband would be paying taxes on the spousal support, and the wife would have at least some rental income coming in (see next section) but it’s still a pretty significant disparity in incomes.
But not good enough for the husband, so he appealed. And the Court of Appeals upheld the trial court judgment, rejecting the husband’s arguments.
Standard for Alimony in Colorado
The standard for an award of alimony in Colorado is that it “shall be in an amount and for a term that is fair and equitable to both parties.” C.R.S. 14-10-114(2). As we discuss in our Alimony in Colorado article in the Colorado Family Law Guide, there are a variety of factors family law judges must apply when determining an appropriate amount of spousal maintenance.
Sufficient Marital Property to Meet Needs
The wife received a total of just over $4m in assets, comprised of $1.3m in retirement, plus $2.8m in real property. But, as the trial court found, the assets were illiquid. And while the trial court did not completely accept the wife’s assertion that she would only net about $1277/mo after paying the mortgages and other expenses associated with seven rental properties awarded to her (rental income, which counts for purposes of alimony), the court did apparently accept that the net income would not be much.
Moreover, it would take 6-12 months to sell the properties, as some still had tenants, during which she would still be paying the expenses associated with the properties. In short, the marital estate awarded to the wife would not give her sufficient funds to obviate the need for alimony.
Impact on Spousal Support of Husband “Retiring” to Cambodia
Where the husband really lost, however, is that the court found his plans to turn his back on a $720K/yr medical practice to earn just $36K/yr in Cambodia was not not a good faith career choice, so if the husband actually did that, he would have been voluntarily underemployed:
“When determining maintenance, a court may consider whether a spouse is voluntarily unemployed or underemployed. Voluntary underemployment means that the party is shirking a financial obligation by unreasonably forgoing higher paying employment that he or she could obtain.
A spouse may not be deemed voluntarily underemployed if their employment is a good faith career choice. However, a career change may not be in good faith if it was intended as a means to reduce or eliminate a maintenance obligation. The court may interpret a spouse’s lack of initiative in finding or keeping work as a voluntary refusal to fulfill a support obligation.”Kim, ¶¶ 44-45 (Cleaned Up).
The husband was only 50 years-old, too young to actually retire from the workforce. What hurt the husband, beyond proposing a 95% pay cut contemporaneous with divorce, was that he freely admitted he did not want to pay his wife anything to “finance her lifestyle.” The Court of Appeals concluded there was sufficient evidence that the husband’s Cambodia proposal was not a good faith career choice, but he instead had “the intention to avoid paying a maintenance obligation.” ¶ 47.
Traditional Factors for Alimony in Colorado
The trial court further considered substantial evidence for the alimony in Colorado factors, among them:
- The Wife was a stay-at-home parent for virtually the entire marriage, caring for the parties’ minor children.
- The parties had an “upscale lifestyle”, routinely spending more than $30,000/mo, taking trips, eating at nice restaurants, having nice cars, paying $30,000/yr private school fees for each child, etc.
The appellate court concluded with language that showed it considered the husband to be a sore loser, upset at his unreasonable retirement plans being rejected:
“We conclude that the court appropriately weighed all relevant factors in its maintenance determination, and we disagree that the award is unfair simply because the court did not base its decision on husband’s early retirement plans.”Kim, ¶ 50.
The takeaway? If a spouse wants to chuck it all in and head for the hills, he better do that long before divorce. Because announcing plans to slash your income by 95% to avoid paying alimony, contemporaneous with divorce, will be viewed with more than a little skepticism by the family law judge.
Award-Winning Alimony in Colorado Law Firm
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