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Recent Posts in Collaborative Process Category
| May 21, 2010 |
| What is HEAD OF HOUSEHOLD status for IRS purposes? |
| Posted By Thurman Arnold |
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Q. What is the effect of claiming "head of household" status in a tax return?
A. Head of household does not apply to joint tax returns. If you are divorced, or if you are married filing separately, you may be entitled to claim HH status. This is also often referred to as HH/MLA (married living apart). There are important tax advantages to filing HH/MLA. It is not an exemption, but a filing status just like filing "married," "married filing separately," and "single."
To qualify you must be separated from your spouse during the last 6 months of the calendar year and have at least one child living with you for more than 50% of the time.
There is an extremely important piece of knowledge here that many attorneys and most family law judges seem to forget or ignore: In situations where each parent has exactly 50% custody of the children, neither can file HH/MLA. 50-50 custody is a common shorthand way to characterize true joint physical custody arrangements. But to be eligible for this filing status, the custody cannot be exactly the same for each parent; if you presently share custody per a equal custody order, you would do well to modify the order (and even alter slightly your actual custodial timeshre). All you need do to avoid this problem is give one parent 50.1% custody and the other 49.9%, particularly in any orders that are drafted and filed with the Court. Squabbling over these percentages is a waste of time and money - it will not hurt you to be the 49.9% parent.
If there is more than one child, then parents can modify the parenting schedule so that each can claim one in order to maximize each party's tax savings and the support dollars.
Your filing status is important to your spousal and child support rights and obligations. Family Code § 4059(a) requires that child support orders be based upon accurate tax filing assumptions, and the support programs (the Dissomaster, Xspouse) similarly require a status to be selected before a support number can be rendered.
For a payor spouse, the child support will be less if the filing status is Single than it will be if the status is HH/MLA, but if you truly file Single the costs paid to the government will likely exceed any perceived savings on child support. This is because a person has more net disposable income after taxes when they are HH/MLA or even MFS than when they are Single. In the same way, the child support may be less for a parent claiming HH/MLA depending upon their income but if they have little income the HH/MLA may have little or relatively little economic value to them.
This is a good example of how Mediation and/or Collaborative Divorce can be used to benefit separating spouses. Money can be saved for both parties where they structure their dissolution to maximize tax benefits and minize tax consequences to each - which nobody typically considers or does in the midst of a hostile, contested divorce. The IRS benefits when couples are at war! In a mediated or collaborative dissolution, neutral tax experts can be consulted and used to design agreements that save the higher earning parent money while increasing the cash available to the supported spouse and for children. Would you not rather give money to your kids than to Uncle Sam?
Thurman W. Arnold III
http://www.ThurmanArnold.com |
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| March 25, 2010 |
| What is GUIDELINE SUPPORT in California? |
| Posted By Thurman Arnold |
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Q. How is child support calculated in California? I have heard about "Guideline Support" but am wondering what this means?
A. In 1993 California adopted a Statewide Uniform Guideline to come into compliance with a federal mandate. (Family Code section 4050). This followed wide variability of orders and a prior failed attempt to ensure predictability. Its effect was to greatly increase the monies available to children and to begin to end gender bias in assessing support. Family Code section 4052 requires California court Commissioners to adhere to the uniform guidelines and to "depart from the guideline only in special circumstances...."
Family Code section 4053 lists principles to be followed by the Court in implementing the guidelines. This is a statute worth reviewing, and using to remind family court judges of what our State child support policy is. These include the directives that:
(1) A parent's first and principal obligation is to support their minor children "according ot the parent's circumstances and station in life."
(2) Both parents are mutually responsible.
(3) The guideline must take into account each parent's actual income and the level of responsibility for the children.
(4) "Each parent should pay for the support of the children or according to his or her ability."
(5) The interests of children are the State's top priority.
(6) Children should share in the standard of living of both parents. Child support may therefore be appropriately used to increase the standard of living of the custodial household to improve the lives of the children.
(7) Disparities of living standards in both homes, particularly where both parents have high levels of responsibility for raising the children, should be minimized through the use of guideline child support orders.
(8) A parent having primary physical responsibility for the children (a term that is nowhere defined in the Family Code) is presumed to be contributing a significant portion of their available financial resources to the support of these children.
(9) The guideline is intended to encourage settlement between parents by creating predictability.
(10) The guideline is presumptively correct in all cases, and ony in special circumstance should child support orders be less than guideline.
(11) Child support orders must reflect the greater standard of living and costs of living in California as opposed to other states.
California Family Code section 4055 sets forth the formula for assessing guideline support. Don't even bother to look at it, you will need to be a mathematician or logics teacher to understand or explain it. While gross income numbers (or imputed income) are used, the guideline tax effects this income so that net income is generally what is determinative - however, this complicates doing the math. The percentage of parent's income allocated to children is called the "K" factor, and this number moves depending upon how many children there are. It assumes, for instance, that 26% of the joint income of most families is spent on families with one child, and 60% where there are three children. Forturnately these calculations are done for us through computer programs. The most common are the Dissomaster and Xspouse, which I will explain further in another blog. Riverside County in Indio utilizes the Xspouse. The Xspouse is a spin off from the people who devised the Dissomaster, after they had a parting of the ways.
Child support always takes precedence over spousal support, or personal expenses. Relative timeshare between the parents is a major factor in using the formula - the higher the noncustodial parent's timeshare, the less they pay.
Unfortunately this means in practice that there is much legal wrestling between parents about timeshare that has nothing to do with the children's best interests but often everything to do with economic warfare. I write about this in separate articles detailing Collaborative Law processes where we attempt to refocus parents on best interests rather than legal rights (per the guideline formula, for instance) so that primary parent's (often mothers) will give up more custodial time and fathers will pay a little more for this time and then actually undertake using that time (as opposed to having it on paper in a court order, but generally ignoring the increased responsibilities). Please see this link to our Collaborative Divorce Team.
Importantly, even when courts order child or spousal support to women, studies have shown that most children who are entitled to child support from their fathers never receive it (Huang, Mincy, and Garfinkel, 2005). There may be a number of reasons for this. One determinant of fathers meeting these obligations is their ability to pay. Researchers have found that when child support obligations exceed 35% of a father' sincome, he is less like to comply (Meyer and Barfeld, 1996). Lower earner fathers are generally required to pay a higher proportion of their income in child support in child support than higher earners, which pressures the poorest members of our society (Huang, et al., 2005).
Women in heterosexual relationships, as single parents (or child-caretaking partners), are at greatest risk of becoming systemically impoverished (Strong, et al., 2008). Following divorce, women are principally responsible for both child-rearing and their own economic support. At a minimum a woman may suffer a significant decrease in her financial condition. Studies have shown that a single mother's income may decrease by twenty-seven percent or more. (Peterson, 1996; Smock, 1993). [Please contact me if you want the actual citations to these studies].
These realities may or may not interest you. They do affect children and parents in very deep ways, nonetheless.
In any event, now that you have the background I will provide more detailed information on how the Xspouse and Dissomaster programs work in practice very soon. Try using our search engine at the upper right corner of any page on this site and you will find those articles when they are up.
TWA
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