United States: Supreme Court Of New Jersey Addresses Equitable Claims And Remedies (While Reinforcing A Potential Palimony Loophole Through The Proverbial "Black Hole")

Last Updated: February 10 2017
Article by Robert A. Epstein

What rights do people have to an equitable distribution of assets stemming from a period prior to the marriage itself? If there is no right to equitable distribution under those circumstances, then what rights exist and what remedies can be implemented to protect those rights? In Thieme v. Aucoin-Thieme, a post-Judgment dispute involving several interesting issues including the equitable distribution of marital assets, distribution of assets pursuant to equitable principles stemming from a pre-marital cohabitation period, and the remedy of a constructive trust in connection with an ex-husband's receipt of a bonus, the Supreme Court of New Jersey primarily held that:

  1. said bonus received by the ex-husband (Michael) was subject to equitable distribution to the extent it was earned during the parties' marriage; and
  2. the matter's "extraordinary circumstances" merited imposition of a constructive trust to protect the ex-wife's (Bernice) claim of unjust enrichment and request for a portion of the bonus earned during the parties' pre-marital cohabitation period.

Before even getting into the details of what happened, what is, perhaps, most interesting about this matter is not the very specific facts and circumstances at issue and how such circumstances led to an understandably fair result but, rather, how this case addresses the sort of equitable claims that may arise in connection with a palimony claim that were kept alive in Maeker v. Ross. While the 2010 amendment to the statute of frauds requires that all post-amendment palimony agreements be in writing, this case also provides a window to argue around the amendment in certain cases if no writing exists – in other words, even without a written palimony agreement for a post-amendment case, the equitable arguments discussed in Maeker can still be made to procure relief. The case certainly is not limited to that sort of analysis, and, in because of the unique circumstances at issue it even seems to overcome prior case law suggesting that the rights of cohabitants come to an end once the marriage occurs. With that being said, let's take a look into what happened...

Here are the unique facts you should know:

  • Michael and Bernice cohabited for eight years and were then married for a brief time.
  • During the cohabitation period and marriage, Michael was an employee of a company called IBG. He had no ownership interest in IBG, but the company's principals made a written commitment to Michael that IBG would compensate him for his contributions to the company if it sold. A written Statement of Understanding was executed, and Bernice's knowledge as to same was the subject of dispute at the subject post-Judgment trial.
  • Based on that commitment, Michael and Bernice "made personal and financial decisions" with the expectation of such future compensation including, but not limited to, Michael working and traveling extensively for the company, Bernice foregoing employment to devote her time to the parties' child, and the parties purchasing a new home.
  • The parties divorced and the resulting settlement agreement distributed their assets.
  • During the divorce negotiations, the parties discussed Michael's potential receipt of deferred compensation or some form of ownership stake in the company, with Michael representing that it "may never happen," and that he did not anticipate a "big cash payment." He further indicated to Bernice that they could revisit the issue in the future should something transpire with the company.
  • Three months after the divorce concluded, IBG was sold and paid Michael $2.25 million (described as a "closing bonus") for his contributions to the company. The bonus was paid in accordance with the earlier Statement of Understanding and was paid "to show our appreciation for [Michael's] contributions in helping [IBG] grow into the successful organization that it is today." During a deposition, a company representative testified that the bonus was based on Michael's contribution to the company over thirteen years and that Michael did not know about the sale before its completion.
  • Bernice first learned of the bonus payment when Michael deposited the money into a bank account that, unknown to Michael, remained a joint account despite the divorce. Bernice, without notice to Michael, withdrew the funds from the account.
  • Bernice then filed an application for a share of the closing bonus.
  • The trial held that Bernice was entitled to distribution of the bonus, but only that portion stemming from Michael's work during the marriage. The Appellate Division affirmed the trial court.

In affirming in part and reversing in part, the Supreme Court, in a decision authored by Justice Anne Patterson, held as follows:

  • It would contravene New Jersey's equitable distribution statute to find that the portion of the bonus earned prior to the marriage was a marital asset subject to distribution. As a result, the Court held that the trial court properly allocated the pre-marital and marital periods in determining what portion of the bonus was subject to equitable distribution. While arguments can be made that this component of the trial court's decision should not have been upheld based on how the marital portion of the bonus was calculated, that is not the primary focus of the case or this blog post.
  • As Justice Patterson noted, however, the story was not over. As for that portion of the bonus earned during the parties' cohabitation period, the Court addressed whether Bernice had made a claim of unjust enrichment. Addressing a claim for unjust enrichment and its related remedies, the Court provided:

    To prove a claim for unjust enrichment, a party must demonstrate that the opposing party 'received a benefit and that retention of that benefit without payment would be unjust.'
  • Bernice would also have to show that she "expected remuneration" from Michael at the time she "performed or conferred a benefit" on Michael and that "the failure remuneration" enriched Michael "beyond [his] contractual rights".
  • In the event of unjust enrichment, a court may impose the remedy of a constructive trust to prevent such enrichment. Legally speaking, a constructive trust is "the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee." More generally, such a trust is a remedy designed to protect a party harmed by another party's receipt or retention of property procured through unjust enrichment or some other wrongful means (fraud, mistake, undue influence, and the like).
  • Relying on its prior decision in Carr v. Carr, wherein the trial court equitably imposed a constructive trust awarding a wife a share of the marital assets controlled by the husband's estate where the husband died during the divorce proceedings, the Court here held:

    As the evidence presented at trial made clear, the prospect that [Michael] would be generously compensated was a significant factor in the parties' personal and financial planning from the early stages of their relationship. [Michael] and [Bernice] each relied on the expectation of deferred compensation if IBG were sold as they made important decisions for themselves and their family.

    The parties' shared anticipation that [Michael] would be paid deferred compensation was more than wishful thinking. Given IBG's written commitment to [Michael], and its owners' genuine desire to reward their valued employee, both parties had reason to anticipate a significant payment in the event of a sale.

    . . .

    [I]t is clear that on multiple occasions [Michael] advised [Bernice] about his expectation that any sale of IBG could generate a substantial financial reward for their family.

    . . .

    [I]BG's commitment to reward him was an important consideration in the decisions made by the parties throughout their cohabitation and marriage . . . In short, as they planned their finances and personal lives, [Michael] and [Bernice] anticipated that they might someday share in the proceeds of the company's sale.

    During the parties' eight years of cohabitation, and for most of their brief marriage, [Bernice] undertook significant efforts to support [Michael's] challenging career.

    . . .

    Indeed, [Michael] himself recognized that [Bernice's] contributions to their family should be rewarded.

    . . .

    Accordingly, the record supports the conclusion that [Bernice's] decision not to seek further education and employment was made, at least in part, in reliance on [Michael's] financial commitment to her.

As family law practitioners, Thieme v. Aucoin-Thieme provides guidance as to how to not only bring an equitable claim stemming from a period when parties were not married, but also the sort of appropriate remedy that can be imposed in the event of a viable claim. In a way, despite its specific factual scenario, it also opens the door to creative lawyering as to when these types of equitable claims could come into play. Especially in the context of a palimony matter where other related equitable claims are raised, there is, perhaps, more opportunity to overcome an adverse party's argument that all of the equitable claims are simply palimony claims dressed in different clothes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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