Real Estate Moguls and Divorce

Every estate planner is pushing developers to gift real estate now while values and interest rates are low using GRATs, IDIT and other fancy acronyms. But low property values and other economic issues befalling some real estate investors and developers won't necessarily support a sufficient change in circumstances to modify alimony or child support obligations, according to a recent New Jersey case. If you file an application for a downward modification of support, the court's analysis will focus on your ability to pay. Miller, 160 N.J. 408 (1999). In conducting this analysis, the court may consider your income as well as your

assets. N.J.S.A. 2A:34-23(a)(3).  In Ferraro v. Ferraro, Docket No. A-1963-07T21963-07T2 the impetus for the husband's motion was the slow-down in the real estate market, which consequently impeded his ability to develop the parcels he owned and thus, thwarted his ability to generate sufficient income to meet his support obligations. He cited the change in the economy, the large tax debts he owed the IRS and the State of New Jersey, increased expenses resulting from rising mortgage interest rates, property taxes and utility costs, and decreased cash flow because income producing assets were liquidated. The Court held that Husband bears the burden of showing: (1) The financial changes he experienced; (2) That those changes are permanent; and (3) His inability to pay the level of ordered support.  Lepis V. Lepis, 83 N.J. 139 (1980).  The Court found that Husband's certification did not elucidate the details of his employment efforts and current business enterprises or attach documentation to support his inability to further liquidate assets. Further, the Court noted that the identified shortfalls were only after consideration of "paper deductions," such as depreciation.