Alimony for the heiress? Imputing income to assets: the important question is precisely what income, if any, should be attributed or imputed to which of the marital and nonmarital assets owned by the parties after distribution.

• Author: Stolberg, William H.

The aging of the baby boomers in the U.S. has resulted in many late-in-life divorces that leave one or both parties with substantial assets. Some assets may be the result of work and investment both before and during the marriage, and some may be inherited or gifted. The property owned by each party after distribution, including the nonmarital property, can bear heavily upon an alimony determination, depending upon what income is thrown off by those assets. The important question, and one for which there is a dearth of authority and guidance, is precisely what income, if any, should be attributed or imputed to which of the marital and nonmarital assets owned by the parties after distribution. All assets are not equal. Or are they?

What Assets?

Both marital and nonmarital assets are part of the alimony equation. In assessing both the need and ability to pay alimony, the court is required to consider all relevant economic factors, including the financial resources of each party, the assets and liabilities distributed to each in the divorce, the nonmarital holdings, and "all sources of income available to either party." (1)

Under this broad mandate, the courts are presented with the problem of whether they should consider realized income currently produced by an asset; deferred income; income potential; or all three. Is a vacation home in Vail worth $800,000 to be accorded the same treatment as a stock portfolio with the same value but producing interest, dividends, and capital gain? What of unexercised, vested stock options, and deferred income retirement vehicles? In the existing Florida cases, not all assets are equally factored into the alimony income equation.

Cash and Liquid Assets

Cash can be deceptively simple. While the law clearly requires the imputation of income to cash and other liquid assets, (2) there are some minor twists. In some cases, the investment corpus has been reduced by cash needed for attorneys' fees and new housing before the income calculations were made. See Elliott v. Elliott, 867 So. 2d 1198 (Fla. 5th DCA 2004), and McLean v. McLean, 652 So. 2d 1178 (Fla. 2d DCA 1995). The hidden consequence in reducing the cash (and therefore the income from that cash) by the amount of a fee obligation, with a concomitant increase in alimony, is that the payor spouse indirectly pays the other's attorneys' fees where fees were not otherwise awarded.

Should either spouse be permitted to shelter liquid assets from the income equation by investing in low- or non-income-producing portfolios? If a reasonable income is not imputed to that capital, one party may be indirectly subsidizing the high-risk, long-term gain strategy of the other.

The New Jersey Supreme Court, in Miller v. Miller, 734 A.2d 752 (N.J. 1999), pointed out that the law does not hesitate to impute income to an underemployed spouse for the purpose of support issues, and that persons with a duty of support to another are not expected nor will they be permitted to underutilize their talents and capabilities ("human capital") at the expense of the other. Id. at 760. By the same token, a party is not expected nor permitted to underutilize financial capital. In the Miller case, the court found there was "no functional difference between imputing income to the supporting spouse earned from employment versus that earned from investment. "Id, at 760. In this case, an experienced investor-husband who was earning 1.6 percent annually on his growth stock investments was found to be underinvested, and the court held it appropriate to impute a more reasonable income to those investments.

Real Estate

Real estate presents a unique set of problems. Parties own not just their residences, but very often vacation homes or land upon which to build a retirement home. Vacant land, rental, or development properties may be carried at a loss but held for long-term appreciation and eventual profit. The risk is the investor's, but should that strategy be used to advance an "inability to pay" argument or, conversely, to enhance a needs claim?

In Rosecan v. Springer, 845 So. 2d 927 (Fla. 4th DCA 2003), the trial court found that the wife had minimized her income from her rental property by collecting no rent in one instance, and in renting below fair market value in the other. The alimony award was held excessive in light of those particular findings and other factors, and remanded for reconsideration. In that case, the trial court had also noted that the wife's income was dependent on what she did with her liquid assets and whether she converted her...