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The Tax Cuts and Jobs Act of 2017 and Your Divorce

If you are considering divorce, you may wonder how the tax act of 2017 could affect your final agreement. Changes have been made in many areas including new tax brackets, modified deductions as well as significant corporate tax changes. A lesser known change is the tax treatment of alimony paid upon divorce.

 

What is Alimony?

Alimony, maintenance or spousal support (however it is described in your state) represents a payment from a higher-earning spouse to the other spouse for their support after a divorce.

 

How has Alimony Changed?

Decades ago, it was almost always paid from a husband to a wife for longer periods. In a very long divorce where the wife had no skills, it was sometimes ordered for life. More recently, it is paid from the higher-earning spouse regardless of gender. In addition, the time frame has shortened significantly considering the time needed for the receiving spouse to increase earning capacity through education or experience within a current job.

 

Changes in Comparing Spouses’ Fault

Until 1969, every state in the country considered the fault of each of the parties which affected property division and alimony payments. This could be abandonment, adultery, extreme cruelty, etc. Now, only approximately half the states take fault of the parties into consideration when determining whether to award alimony. Some states have a hybrid system where the parties may waive a waiting period if they agree to a no-fault divorce. The 2017 tax law did not impact the consideration of fault in alimony.

 

Alimony Deduction with the Prior Law

The change came from how the payments were treated as taxable income. Under the prior law, alimony, maintenance or spousal support (however it is described in your state) was deducted from the income of the higher-earning spouse and treated as the taxable income of the receiving spouse. By shifting the taxes to the person with the lower tax obligation, the couple paid fewer taxes overall. Our attorneys at Derr & Villarreal have helped couples divorcing couples find an agreed-upon amount of alimony where there was significant disparity in income so that as a couple, they paid less tax.

Here is an example of how it works. Bill is a sales manager who makes $320,000 and Amy is a librarian. They’ve been married for 32 years and have no children. Under the old law, if Bill paid Amy $5,000 per month in alimony, he could deduct $60,000 annually from his $320,000 annual income leaving adjusted gross income of $260,000. His federal tax would be approximately $62,000. If he didn’t deduct it, his federal tax would have been approximately $82,000, which is $20,000 federal tax savings! If Amy included the alimony in her income, her tax would be $15,000. If she didn’t include the alimony, her tax would be $2,000.

If Bill saves $20,000 and Amy pays an additional $13,000, Bill and Amy together save $7,000 in federal taxes that are never paid by either of them as shown in this table:

 

SpouseFederal Taxes paid if Bill Deducts AlimonyFederal Taxes paid if Bill does not Deduct AlimonyTaxes Saved
Bill$62,000$82,000+$20,000
Amy$15,000  $2,000      -$13,000
Taxes saved by deducting alimony       +$7,000

 

Alimony with the Tax Deduction Eliminated

But under the new law, the government will receive more money from divorcing couples because alimony will no longer be deductible for parties who signed settlement agreements after January 1, 2019. In this new scenario, Bill could pay Amy $5,000 per month but without being able to deduct it, his total federal tax remains at $82,000. (This does not take into effect other tax changes in 2018 such as the elimination of the personal exemption or doubling of the standard deduction.)

 

The good news is that couples with significant earnings disparity who have decided to divorce can take advantage of the fact that all agreements signed before January 1, 2019 will allow the payer to deduct payments to the recipient.

 

How is child support determined and is it required?

In Texas a large number, mostly all, family law cases will involve child support. This article is meant to aid in the understanding of how child support is calculated and determined in a general since. Other factors can contribute to the outcome of a specific case such as a family violence finding, disabled child(ren) or even custom access and possession agreements that call for irregular or no child support. Child support and medical support can be ordered by a judge as part of a: divorce case, custody case (called a Suit Affecting the Parent-Child Relationship), paternity case, family violence case or modification case (if there is already a court order pertaining to the child). If you need a family violence protective order call the National Domestic Violence 24 Hour Hotline at 1-800-799-SAFE (7233). They can refer you to help in your community.

Child support is money that the non-primary parent pays to help with the cost of raising a child, such as the cost of food, housing, clothing, school supplies, daycare and activities. To expand, child support is to be paid to the person with whom the child lives the majority of the time; the primary parent or guardian, usually a parent, but not always. The primary or guardian who is entitled to child support is called the “obligee” or “custodial parent.” A parent ordered to pay child support is called the “obligor” or “non-custodial parent.” It is essential to remember that even if there is no court order, both parents are expected to financially support their child. Some non-primary parents have the misunderstanding that because they leave the home or end the relationship with the primary parent that they do not have to pay until an order is granted by the judge for them to do so. A non-primary parent who does not help support the child may be ordered to pay retroactive support to the primary parent.

If an unmarried father is already providing support, is it necessary to establish paternity? Yes. Even though the child’s father is providing support, he may become disabled, or even die. This way unmarried parents can ensure certain benefits for their children only if paternity has been established.

A common question is if the non-primary parent is entitled to visit the child if he or she is not paying child support? Yes, child support and visitation rights are separate issues. The primary parent must obey the court order for visitation, even if the non-primary parent cannot or will not pay child support. The court can enforce its orders against either parent via your attorney, like a child support or child custody lawyer Arlington TX turns to.

 

What if the non-primary parent gets behind in child support payments or refuses to pay?

If a non-primary parent does not pay child support, he or she is subject to enforcement measures to collect regular and back payments. The Child Support Division uses many ways to enforce child support orders, including: forcing employers to deduct court-ordered child support from the non-primary parent’s paycheck through a Income Withholding Order. They can hold federal income tax refund checks, lottery winnings, or other money that may be due from state or federal sources; file liens against their property and assets, suspending driver’s, professional, and hunting and fishing licenses; and file suit. A judge may sentence a nonpaying parent to jail and enter a judgment for past due child support.

What is medical support?

        Medical support is additional child support a parent is ordered to pay to cover the cost of health insurance for a child. A parent can be ordered to pay medical support by: providing health insurance coverage for the child, reimbursing the primary parent for the cost of health insurance coverage, or paying cash medical support to the Attorney General if the child receives Medicaid. Commonly, both parents are expected to pay 50% their child’s uninsured expenses. For example, if you are ordered to pay $500 per month child support and $150 per month medical support, then the total amount you are ordered to pay is $650 per month.

       

        Guideline’s for child support is slightly different if the non-primary parent has other children that are outside of the said case before the court. Net resources are determine using a table in the Texas Family Code and includes salary, commissions, overtime, bonuses, dividend income, lottery winnings, etc. There are caps and other considerations on child support amounts that may affect your amounts.

How child support is calculated

        Texas law sets the following general guidelines for calculating child support. Child support based on these guidelines is called “guideline child support.”

1 child = 20% of the non-custodial parent’s average monthly net resources

2 children = 25% of the non-custodial parent’s average monthly net resources

3 children = 30% of the non-custodial parent’s average monthly net resources

4 children = 35% of the non-custodial parent’s average monthly net resources

5 children = 40% of the non-custodial parent’s average monthly net resources

6 or more children = not less than 40% of the non-custodial parent’s average monthly net resources

        Can grandparents file for child support to establish support for their grandchild(ren)? The simple answer is yes. If the grandparent can provide proof that the child has been living with and under the supervision of the grandparent for at least a period of six months they can file for child support or a SAPCR. If a grandparent has been appointed the legal guardian of the grandchild and the grandparent needs help financially to support the grandchild, they may file. Also, if the grandparent is receiving government benefits such as TANF or Medicaid they may file.

        In addition, if the non-custodial parent is in jail or prison when the order is made and the non-primary parent does not have any income due to incarceration the law says the judge should not order child support but they are still responsible for arrears and accruing interest. When the non-primary parent gets out of jail or prison, either parent can file a modification case to ask that child support be ordered if their rights have not been terminated due to incarceration.


Thanks to our friends and contributors from Brandy Austin Law Firm, PLLC for their insight into child support.

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Family issues are sensitive and often result in heated arguments. This can largely be avoided by seeking legal help and expertise. Another advantage to seeking a neutral legal professional is that family law is complex. There are many reasons to work with a knowledgeable and experienced family lawyer such as the Divorce Lawyer Phoenix AZ locals trust. Here are five of the most common reasons why someone might hire a divorce lawyer: (more…)

5 Do’s And Don’ts For Step-Parents To Connect With Step-Kids

What are some practical ways to help be the best step-parent possible?

Here are 5 Do’s:

  1. Do listen to the children and reflect their feelings. “Sounds like you’re angry . . . ” All kids want to be heard. This doesn’t mean you can’t enforce boundaries but you can still listen and empathize with them. For example, “I can see that you’re angry that we wouldn’t let you stay out later. You’re still going to be grounded for 2 days because you intentionally broke the curfew.” But let the bio parent deliver the punishment if at all possible especially if it is early in the relationship.
  2. Do keep your intimate dating relationship and PDA’s private.
  3. Do stay open to the children even if they first reject your friendly overtures. They have their own time frame so hang in there.
  4. Do speak positively about both bio parents. If there’s nothing good to say about the ex at the moment, say nothing. If there is a significant problem with placement and you can’t work it out, consider mediation.
  5. Do have a family meeting to resolve problems openly and patiently. Remember to speak about how you feel and drop the lectures (they don’t work anyways.)

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