An IRA account may not be insulated from a Family Court’s reach when the account holder fails to comply with a Court Order to pay attorneys’ fees incurred by the other party in enforcing or defending a support order.
In a recent case, the ex-husband filed a motion to reduce alimony claiming that his business was making substantially less money than at the time of the party’s divorce. The ex-wife had to hire an attorney, as well as a financial expert, to review the ex-husband’s records and to render a report. This report proved the ex-husband’s allegations as incorrect, and he in fact was earning substantial income. The ex-husband’s own expert reported that he made substantive income from his business. The ex-husband withdrew his request of the court to reduce/modify alimony, and the ex-wife sought counsel fees and expert fees of approximately $125,000 incurred in having to respond to the ex-husband’s motion.
The trial court ordered that the ex-husband pay those fees in full, and the Appellate Court agreed. After the appeal, the trial court ruled on other issues requiring the ex-husband pay $4,300 for the children’s unreimbursed medical expenses and $18,000 in additional attorneys’ fees. The trial judge imposed a constructive trust on the ex-husband’s IRA for the amounts owed; however, the court concluded that it was not authorized to liquidate or otherwise encumber the IRA to satisfy the outstanding counsel fee debt.
A constructive trust is an equitable remedy imposed by a court to benefit a party who has been wrongfully deprived of his/her rights by another party, especially if the latter party will be unjustly enriched.
On appeal, the ex-husband argued that pursuant to N.J.S.A. 25:2-1(b) – which states that any property held in a qualifying trust shall be exempt from all claims of creditors – the lower court abused its discretion by imposing a constructive trust on a retirement account. The ex-wife argued that retirement accounts are not immune from liquidation under an exemption to the above provision which exempts claims for child support or spousal support.
The Appellate Division agreed with the ex-wife, recognizing that the ex-husband fraudulently attempted to obtain a reduction in his alimony obligation which cost the ex-wife a considerable amount of counsel and expert’s fees. By insulating one of the ex-husband’s assets, which was the only asset available to pay the ex-wife’s fees, it would be tantamount to reducing the support order. The Appellate Division held that IRA’s are not insulated from execution under the above facts.
Maria Imbalzano is the Co-Chair of Stark & Stark’s Divorce Group in the Lawrenceville, New Jersey office. For questions, please contact Ms. Imbalzano.