Lieberman v. Lieberman

ROSALYN B. BELL, Judge. The primary issue before us is whether a court may modify the support specified in a tax-structured family support agreement, incorporated but not merged into a ⁵⁷⁹ divorce decree, where the full amount of the support then being paid relates exclusively to children. Appellant contends the contract precludes modification. We disagree and hold the court may modify child support in such an agreement.

We will explain, answer a number of other issues raised and examine the award of attorney’s fees. Mark and Kathleen Lieberman were married in June of 1979. Their son, Andrew, was born less than three weeks later. The parties separated in September of 1981.

About two months later, a second son, Michael, was born. The parties, both represented by counsel, entered into a Separation and Property Settlement Agreement in May of 1982. The parties were divorced in June of 1983. The relevant portions of the agreement and the divorce decree will be detailed later.

Of substantial significance in this case is the current wealth and lack of wealth, respectively of the Liebermans. Mr. Lieberman is the president of Londontown Corporation, maker of London Fog raincoats, outerwear and other clothing. He has a yearly income of approximately $387,000 per year and his net worth exceeds one million dollars. Ms. Lieberman, on the other hand, has a negative net worth and an annual income in the neighborhood of $16,000.

In January of 1988, Ms. Lieberman filed a Petition for Contempt, Breach of Contract, Modification of Support, Request for Appointment of Counsel for Minor Children, and other Relief in the Circuit Court for Howard County. She based her claims for relief upon the Separation and Property Settlement Agreement. An evidentiary hearing was held on the Petition and on January 30, 1989, the court issued a Memorandum and Order granting modification of support, but leaving the issues of contempt and breach of contract open. On February 10, 1989, Mr. Lieberman filed a Motion to Revise, Alter ⁵⁸⁰ or Amend, or for New Trial. 1 Ms. Lieberman filed an Answer to this Motion on February 14, 1989.

Prior to the hearing on these motions, Mr. Lieberman filed an appeal to this Court and Ms. Lieberman filed a timely cross-appeal. Mr. Lieberman, appellant/cross-appellee, presents the following questions: —Is the judgment of the trial court appealable? —Did the court err in modifying a tax-structured family support agreement which was incorporated, but not merged, into the June 1, 1983 Decree of Divorce when it had no jurisdiction to do so on the ground of res judicata, and the parties had themselves contracted to preclude such modification? —Did the court err by construing the phrase “share all medical expenses not covered by insurance” to mean divide equally? —Did the court err in making certain evidentiary rulings? —Even if the court were empowered to modify the Agreement, was the increased amount awarded excessive? —Did the court err in granting Ms. Lieberman $5,000 in counsel fees when there was no “substantial justification” for the institution of the proceedings? Ms. Lieberman, appellee/cross-appellant, raises two additional questions: —Was the amount of child support awarded by the court sufficient, in light of the demonstrated needs of the children and their father’s admitted financial ability to meet those needs? —Was her award of counsel fees inadequate in light of the parties’ incomes and the circumstances of this case? ⁵⁸¹ APPEALABLE ORDER In a rare moment of accord, the parties agree that the judgment of the trial court is a fully appealable final order. The parties, however, cannot confer jurisdiction, so their agreement that the judgment of the trial court is appealable does not resolve the inquiry.

We will be able to accommodate them, but only in part. In the separation agreement, Mr. Lieberman was “to maintain medical insurance coverage through his employer or an equivalent plan for the benefit of the ... children until the occurrence of a terminal event,” as set forth in the agreement between the parties. 2 Thereafter, Mr. and Ms. Lieberman would “share all medical expenses for said children not covered by insurance.” The children needed and were provided with psychological services over a substantial period of time with payments being made directly to the health care provider. Unbeknownst to Ms. Lieberman, while the services were being rendered, Mr. Lieberman’s carrier declined to cover further services, deeming them unnecessary. The carrier stated that a protest could be filed.

Mr. Lieberman filed no protest and no further payments were made by the carrier. Ms. Lieberman sought to resolve this problem but was unsuccessful. She then brought this petition which included a request for an adjudication of contempt and breach of contract. She contended that, over and above the agreement, the psychological services were necessitated by Mr. Lieberman’s abandonment of the children.

The court in its memorandum and order expressly postponed a decision on the question of contempt: “The Defendant alleges that the Plaintiff is in contempt of this Court’s Decree by virtue of his failure ‘to share in the payment of certain psychological services rendered to the children.’ Paragraph Nine of the agreement, which was incorporated by reference into the Decree provides ⁵⁸² that ‘Husband and Wife will share all medical expenses for said children not covered by insurance.’ The parties acknowledge that the Decree requires some clarification as to the respective obligations of the parties with reference to the payment of medical expenses not covered by insurance and for that reason the Court mil reserve ruling on the alleged contempt so as to afford the parties an opportunity to act upon This [sic] Court’s construction of Paragraph Nine. This Court construes the word ‘share’ as used in Nine to mean that the Husband and Wife are to divide equally the cost of medical expenses of the children not covered by insurance.” (Emphasis added.) No reference was made to the failure to deal with the breach of contract claim. Ordinarily, this reservation would preclude any appeal in the absence of a certification under Rule 2-602(b) since such action would result in “piecemeal” appeals. Preclusion is not the result here, however, as certain interlocutory orders are appealable.

Maryland Cts. & Jud.Proc.Code Ann. § 12-303 (1974, 1984 Repl.Vol., 1989 Cum.Supp.), provides: “A party may appeal from any of the following interlocutory orders entered by a circuit court in a civil case: sje sj! # * 5k “(3) An order: jH s}: j>s >}! sjs “(v) For the sale, conveyance, or delivery of real or personal property or the payment of money, or the refusal to rescind or discharge such an order, unless the delivery or payment is directed to be made to a receiver appointed by the court.” That order, which did not address the contempt issue, increased payments to Ms. Lieberman from the date of the order to $1,500 per month per child and granted an additional $5,000 to her for counsel fees. Certainly, these two parts of the order are appealable since payments of money are involved. We cannot, however, review that ⁵⁸³ portion of the order dealing with the medical expenses and contempt request. No order on this subject was entered by the court nor was one ever directed to be entered.

Had the court entered an order in accordance with its opinion as to the division of the medical expenses, we would have been in quite a different position. See Frey v. Frey, 298 Md. 552, 555-57 , 471 A.2d 705 (1984). Counsel for Ms. Lieberman urges us to enter an order under Rule 8-602(e)(3) that there is no just reason for delay and direct the entry of final judgment under Rule 2-602(b). The obvious response is that the parties would fare no better, since the order entered would relate to the already appealable interlocutory order.

Since no final judgment on the construction of the medical provision or breach of contract has been entered, those claims remain unresolved. While both counsel urge us to conclude that implicit in the court’s decision was the intention to enter a judgment for one-half the medical expenses, we cannot, in the exercise of appropriate appellate discipline, make such a leap. We will consider those portions of the order which are properly before us as interlocutory orders to pay money but will not reach the questions dealing with the interpretation of the word “share” of medical expenses, the matter of contempt or breach of contract. TAX-STRUCTURED FAMILY SUPPORT AGREEMENT Lester Payments Mr. and Ms. Lieberman entered into an agreement that was patterned on what has come to be known as Lester payments 3 after the case entitled Commissioner of Internal Revenue v. Lester, 366 U.S. 299 , 81 S.Ct. 1343 , 6 ⁵⁸⁴ L.Ed.2d 306 (1961).

The question in Lester involved the validity of the payor spouse’s deduction from his gross income of the whole of his periodic payments to his divorced wife pursuant to a written agreement entered into by them and approved by the court as a part of the divorce decree. The agreement provided for a flat sum as family support but that “[i]n the event that any of the [three] children of the parties hereto shall marry, become emancipated, or die, then the payments herein specified shall ... be reduced in a sum equal to one-sixth of the payments which would thereafter otherwise accrue.” The Supreme Court held that the written agreement must specifically designate the amount of child support and not leave it to conjecture. Lester, 366 U.S. at 306 , 81 S.Ct. at 1347 . Hence, unless specifically designated as child support, the full amount of alimony and support payments was includable in the income of the recipient under then I.R.C. § 22(k) (1939), and deductible by the payor.

Mr. Lieberman bargained for the advantage of this holding in the parties’ 1982 agreement. —The Contract— As a part of the separation agreement, the parties agreed to settle all their financial and property issues. Mr. Lieberman was to pay Ms. Lieberman “fixed and unchangeable (non-modified) the sum of $2,600 per month for three years; $2,400 for three years and $1,800 a month until termination.” The payment would be reduced to $1,800 a month upon Ms. Lieberman’s remarriage; the sum would be reduced by $900 a month upon the death of either child, court ordered change of custody of either child, or marriage of either child; the sum would be reduced by $1,800 per month upon the first to occur of (1) the death of both children, (2) court ordered change of custody of both children, (3) marriage of both children, (4) the youngest child reaching 18, or (5) both children becoming self-supporting or emancipated. All payments would cease upon the death of Mr. or Ms. Lieberman. The agreement also specified that the payments would cease and support would be submitted to the appropriate tribunal under certain specified circumstances ⁵⁸⁵ but “the court shall have no power to grant alimony beyond May 1, 1988 on which date [alimony] is forever terminated.” The agreement also provided that the custody, support and attorney’s fees provision should be incorporated into the divorce decree but regardless of that incorporation the agreement “shall not be merged in said Decree.” The court’s order granting the divorce did incorporate the provisions for custody and counsel fees.

It also incorporated the provisions for support and maintenance subject to the terms of the agreement. To the extent that the court approved and confirmed the contractual award, it was incorporated. The decree did not specify whether the agreement was merged into the decree, but by its own terms, it could not have merged. If the decree had specified that the agreement was merged, it would have merged the entire agreement, including the nonmerger provision.

Hence, the very act of merging would have been a nullity under the contract. Mendelson v. Mendelson, 75 Md.App. 486, 498-99, 541 A.2d 1331 (1988). Mr. Lieberman contends that, since the support and maintenance for Ms. Lieberman and the support, maintenance and education of the children, was agreed to be nonmodifiable and has been incorporated into an enrolled decree, the court has no jurisdiction to modify save under a few contingencies, which have not occurred. In Mendelson, 75 Md.App. at 502, 541 A.2d 1331 , Judge Bloom, speaking for this Court, said: “In summary, an agreement for spousal support that is not merged into the divorce decree remains entirely contractual and passes beyond the court’s power to modify it for any reason—other than one provided for in the contract—once the decree is enrolled.

And the agreement between the parties to this case cannot be modified or terminated because the contingencies that would authorize modification or termination have not occurred.” In the instant case, to the extent that spousal support is involved, the contract is not subject to modification by the ⁵⁸⁶ court except within the narrowly defined limits of the contract. 4 Is the same true of child support terms? We hold it is not. We explain. —Termination of Payments— Under the agreement, payments would be terminated and the question of alimony and child support submitted to an appropriate tribunal under three specified situations: “(1) Determination by the Internal Revenue Service or any other administrative body that the above payments are not deductible by the Husband and reportable as income to the Wife on their Federal and State income tax returns; or “(2) A court-ordered determination of a child support award or any other court-ordered modification of the sums herein; or “(3) Decrease in Husband’s combined earned and unearned income (as defined by the Internal Revenue Code of 1954) below the sum of $100,000.00 per year.” Mr. Lieberman argues that none of these events occurred and says specifically that the purpose of (2) was to cover the possibility that the court would not approve the child support in granting the decree. He urges that, once the court ratified and enrolled the judgment, the contract became fixed and nonmodifiable, and there could be no court ordered determination.

Moreover, he contends that, since the tax structure was an essential term of the contract, the court has no power to modify the contract. If we follow this argument to its natural conclusion, termination event (2) could never occur once the agreement was enrolled. If that were so, the statement preliminary to the three possible reasons for court jurisdiction which stated: ⁵⁸⁷ “It is further provided that the Court shall have no power to grant alimony beyond May 1, 1988 and on said date it is forever terminated[,]” would be of no significance. The agreement was entered into in 1982 and divorce proceedings were already pending.

Arguably, this termination contingency occurred concurrently with the court’s determination and was, in effect, self-executing. Furthermore, the provision could just as easily be a recognition by the draftsperson that the court could always modify child support. We need not wholly rely on this interpretation, however, as there is a more basic overriding reason to affirm the action of the trial judge. —Modification of Child Support— Mr. Lieberman takes the position that for a number of reasons the family support provided for in this agreement is nonmodifiable. We will discuss those points in detail later, but first we will consider modification of child support in general.

Allocated child support is clearly modifiable. A long line of cases, one of the more recent being Haught v. Grieashamer, 64 Md.App. 605 , 497 A.2d 1182 (1985), clearly stated this principle. Judge Wilner, speaking for this Court, said: “In examining these complaints, we have first to consider some procedural strictures. Child support is one of those matters over which the court has a continuing jurisdiction.

No order establishing an amount of such support, however final for other purposes, is beyond modification at any time, provided that the person seeking modification can demonstrate a sufficient change of circumstances since the order was entered to justify the modification.” Haught, 64 Md.App. at 611 , 497 A.2d 1182 . More recently, the Legislature enacted a statute designed to spell out the specifics of modifying a child support award: “(a) Prerequisites.—The court may modify a child support award subsequent to the filing of a motion for ⁵⁸⁸ modification and upon a showing of a material change of circumstances. “(b) Retroactivity of modification.—The court may not retroactively modify a child support award prior to the date of the filing of the motion for modification.” Md.Fam.Law Code Ann. § 12-104 (1984, 1989 Cum.Supp.). An agreement establishing family support which is clearly identifiable as child support cannot change that basic feature of child support. A parent cannot agree to preclude a child’s right to support by the other parent, or the right to have that support modified in appropriate circumstances.

Moreover, there are public policy considerations. The State has a vested interest in requiring a responsible parent to support his or her child. Otherwise, the State could be responsible in whole or in part for the support of a minor child, even though a parent is financially able to meet those obligations. We hold that a parent may not, even potentially, shift the burden of support to the State. —Is This Child Support?— Just because Mr. Lieberman calls this monthly $1,800 “spousal support” and the Internal Revenue Service included the full amount as “alimony” under this pre-1986 agreement, does not make it “spousal support.” In fact, the $1,800 is child support.

We explain. The agreement provided that no alimony could be awarded after the May 1, 1988 payment. The payments would be reduced to $1,800 on Ms. Lieberman’s remarriage and after the May 1, 1988 payment. The $1,800 would be reduced by $900 in the event of either child’s death or court-ordered change of custody or the marriage of either child.

Under the current Internal Revenue Code, the $1,800 payments of this agreement, with the contingency for reductions, would have been labeled child support. I.R.C. § 71(c)(2) (1989). The mere fact that under former tax law ⁵⁸⁹ the amount may have been fully taxable to the wife does not require us to call it something it is not. In the present case, there is no question but that the only amount being paid after May 1, 1988 was the $1,800 and no alimony was included in that sum.

The full amount of $1,800 was child support and hence subject to modification. —Unallocated Child Support— Mr. Lieberman argues that a court is not always empowered to modify child support, citing Quarles v. Quarles, 62 Md.App. 394, 406 , 489 A.2d 559 (1985). He contends that in Quarles we recognized that a court has no authority to modify an unallocated award for alimony and child support where that award is nonmodifiable. Mr. Lieberman’s reliance on Quarles is unfounded. There, the parties had entered into a separation agreement to provide $800 support for the wife and the two children, with no fixed allocation for alimony or child support; as the Court noted, “they intended the entire payment as alimony.” Quarles, 62 Md.App. at 404, 407 , 489 A.2d 559 .

This amount was not, according to the agreement, modifiable, nor were there any terminal events for these payments. Quarles, 62 Md.App. at 407 , 489 A.2d 559 . Mr. Quarles unilaterally reduced the amount upon the one son reaching his majority. He was found in contempt.

We did not hold that the $800 sum for family support was not modifiable. We affirmed the ruling of the trial court that Mr. Quarles was in contempt as he could not unilaterally modify the award. This Court stated that, “despite the parties’ agreement, child support is always modifiable by the court. Alimony, on the other hand, is modifiable or not, as the parties agree.

Here, then, only the alimony award is non-modifiable.” Quarles, 62 Md. App. at 405 , 489 A.2d 559 . Mr. Lieberman also refers us to Carey v. Carey, 9 Kan.App.2d 779 , 689 P.2d 917 (1984), to further bulwark his position that a nonmodifiable unallocated amount cannot be modified. In Carey , the parties entered into a Lester agreement which was reflected in the decree ordering the ⁵⁹⁰ husband to pay family support and alimony of $340 per month. Thereafter, the husband sought to reduce his support obligation by one-third because one of the two minor children had reached majority.

The trial court denied the post-trial motion. The appellate court affirmed, holding that due to the unallocated family support award, the trial court had no jurisdiction to modify the amount except as provided by the agreement or by consent of the parties. The Kansas Court of Appeals did state that the court retains jurisdiction to modify child support payments on a change of circumstances which the parties cannot divest by agreement. Carey, 689 P.2d at 919 .

In Carey , the $340 payment to the wife was, according to the agreement and decree, to continue until the wife’s death or remarriage. Mr. Lieberman also refers us to certain language in Smith v. Smith, 79 Md.App. 650 , 558 A.2d 798 (1989). In Smith , we referred to our prior unpublished opinion in that case where we expressly stated that “ ‘the support provision of paragraph eleven [, which relates to payment of unallocated alimony and child support,] is not subject to court modification.’ ” Smith, 79 Md.App. at 657 , 558 A.2d 798 . The parties in Smith agreed that it cost a specific figure to support the wife and children.

The husband agreed to provide the difference between that figure and the earnings of the wife as “unallocated alimony and child support.” The parties agreed they would consider modification under certain circumstances but no specific figures were established. When the courts refer to “unallocated” in Quarles, Carey and Smith , they mean precisely that: “unallocated and unidentifiable.” No set amounts for alimony or for child support are identifiable in these cases. —Case at Bar— In the instant case, it is clear what was alimony and what was child support. The payments would be reduced to $1,800 upon the remarriage of the wife or after May 1, 1988. This coupled with the prohibition against awarding ⁵⁹¹ any alimony by the court after the May 1, 1988 payment, make clear that $1,800 is the child support allocation.

This is confirmed by the $900 reduction if either child dies, has custody changed or marries. The alimony was not modifiable by agreement, but no alimony was payable after May 1, 1988. Regardless of whether we would be persuaded that the amount was unallocated family support prior to that date, it is patent that after that date only child support was being paid. The child support award is always modifiable. —Revision Is Not Modification- On a related