Facts: The parties divorced in 2003 after 27 years of marriage. At the time of divorce, Husband, who was an equity partner in a prominent law firm, entered into a Marital Dissolution Agreement (“MDA”) that required him to pay permanent alimony to Wife. Six years later, Husband was expelled from his former law firm because of conflicts of interest with the law practice of Husband’s new wife. Husband then joined his new wife’s law practice, which resulted in a substantial decrease (~75%) in his income. Husband petitioned to terminate or reduce his alimony obligation. After a hearing, the trial court found Husband to be willfully underemployed and declined to modify the previous alimony award. Husband appealed.

On Appeal: The Court of Appeals vacated the trial court’s judgment.

A court may not modify an award of spousal support absent a finding that a substantial and material change in circumstances has occurred since the award was entered. Generally, a change in circumstances is considered “material” when it (1) occurred after entry of the original decree and (2) was not anticipated by the parties when the order was entered. A change in circumstances is considered to be “substantial” when it significantly affects either the obligor’s ability to pay or the obligee’s need for support. Demonstrating that a substantial and material change in circumstances has occurred does not automatically entitle the petitioner to a modification of the alimony award. The decision to modify an award of spousal support is factually driven and calls for a careful balancing of numerous factors.

Here, the trial court made no specific findings about whether a material and substantial change in circumstance had occurred. Wife argued that Husband’s change in employment did not constitute a substantial and material change because no evidence was submitted to support a finding that Husband lacked the capacity to earn the income he earned with his prior firm. The Court rejected this argument, stating “it cannot be reasonably disputed that [Husband’s] circumstances have changed substantially and materially in ways that were not anticipated at the time the MDA was entered.” The Court then turned to willful underemployment, restating the issue as follows:

The real issue in this case, as we perceive it, is whether [Husband] accepted a lower fee structure at a far less well established firm, one exclusively owned by his wife, thereby manipulating his income. In short, the question in this case is whether [Husband], who has practiced law since 1975 and was a named partner in a highly successful practice, is manipulating his income by choosing to work at a much lower salary in a firm solely owned by his wife, who has been practicing law for approximately ten years.

The determination of willful and voluntary underemployed is a highly fact-driven inquiry that must take all attendant circumstances into account. It is often difficult to determine the true income of an obligor spouse who is in an employment situation in which he or she can manipulate the amount of income received. To correct a situation wherein an obligor spouse accepts a low-paying job to avoid an alimony obligation, the Court has ruled that the support obligation will be determined by that spouse’s earning capacity. Even so, the Court has acknowledged that income can be manipulated in a number of ways, including paying the obligor spouse a lower salary, not paying dividends, and permitting a self-owned business to accumulate and retain earnings. In this case, the Court recognized the potential for income manipulation because Husband is employed in a law firm solely owned by his wife.

Upon review of the entire record in this case, however, we believe the reasonableness of [Husband’s] choices must take into account the entirety of the circumstances. There is no proof in the record to demonstrate that [Husband’s] choice to join his wife in building [her law firm] was unreasonable per se. . . .

Although the trial court’s comments during the hearing of this matter indicate that the court believed [Husband] was manipulating his income, the trial court made no specific findings upon which to base its findings of voluntary underemployment. Moreover, although [Husband] undisputedly earned upwards of $400,000 per year as an equity partner at [his former law firm], there is nothing in the record to demonstrate that he could command such an income after being expelled from the firm after more than thirty years of practice, retaining no clients. We accordingly vacate the finding of voluntary underemployment, and remand for further proceedings, including further discovery, if necessary, to determine whether [Husband] is, in fact, manipulating his income so as to shift income to [Husband’s new wife] and avoid his alimony obligation. Upon remand, we instruct the trial court to make specific findings of fact as required by Rule 52.01 of the Tennessee Rules of Civil Procedure.

Thus, the case was sent back to the trial court for specific findings of fact that should have been made the first time. Although the trial court was adverse to Husband the first time it heard these arguments, one would assume the Court’s comments above will effect the proceedings on remand, likely resulting in a reduction less than what is sought by Husband.

Flynn v. Flynn (Tennessee Court of Appeals, Western Section, January 27, 2012).

Information provided by K.O. Herston: Knoxville, Tennessee Matrimonial, Divorce and Family Law Attorney.