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| June 11, 2010 |
| What should I know if I want to LIMIT or TERMINATE SPOUSAL SUPPORT in the future? |
| Posted By Thurman Arnold |
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Q. My wife and I were married for 14 years. We have two children, aged 11 and 13. We are both in our early 40's. My wife has a college degree, but quit working shortly before our first child was born. I am a doctor, and she was a nurse at the local hospital before she quit. Our divorce is not final. I think she should be able to support herself once she gets some updated training, although I don't object to supporting our children. She says she won't work until until our youngest child finishes high school. What should I ask the judge to do and what should I expect to limit my spousal support exposure?
A. There are a number of things you need to know.
First, you have a long term marriage within the meaning of Family Code section 4336. Start with the expectation that you will be paying alimony for at least half the length of the marriage.
Second, Family Code section 4320 sets forth the most important factors that a court is required to consider in issuing a spousal support award; it is also the decisive section for determining whether spousal support should be modified, reduced, or terminated in the future. As to later modifications, this means that whatever the court decides as to the 4320 factors (or depending upon what facts are recited in your Marital Termination Agreement) may have a huge impact on how much you pay and for how long. The 4320 factors only come into play when a final judgment enters: Although courts are supposed to consider them in dealing with temporary spousal support issues, they typically do not.
Third, it is essential that you convince the Court to give your former spouse a Gavron warning. I have separately blogged this concept. In essence its effect is to give a supported spouse something of a free pass to rehabilitate themselves and enter the work force until and unless they've been given advance notice of that expectation. If you settle your case without going to trial, as I sincerely hope you do, make sure that a Gavron Admonition is included in your settlement agreement. It starts the clock ticking on your former wife's obligation to become self-sufficient. However, you need to realize that her ability to do so will be impacted by her child rearing responsibilities to whatever extent they exist, and most courts will consider this. It becomes less relevant with older children. Given the length of your marriage (14 years) your youngest child will be finishing high school right about the time that you reach half the length of the marriage.
Fourth, consider trying to get what is called a Richmond Order. Essentially this is an order or an agreement to terminate spousal support jurisdiction on a specified date unless, prior to the fixed termination date, the supported spouse files a motion showing good cause to modify the amount of support or its duration. Unlike most orders which are open-ended, a Richmond Order discourages delay and supports the goal of California that an ex-spouse receive support only so long as is reasonably necessary to get back on their own two feet. They are generally not appropriate in extremely lengthy marriages, or in situations where health or age makes it unreasonable to believe the other party can become self-supporting.
Age is a factor in your case because there is still time for your Wife to develop financial independence.
The effect of the Richmond Order is to place the burden upon the supported spouse to justify continuing support because of unforseen future events. Most judges prefer Richmond orders, but you won't get it unless you request it. Attorneys representing supported spouses are less likely to agree to them in Marital Settlement Agreements at first blush. There may be good reasons, however, that be persuasive if you persevere.
Fifth, consider a request for step down spousal support orders where support is reduced in increments into the future; this may make perfect sense depending upon the length of marriage, whether there are children, and the supported spouse's age.
Sixth, consider a Family Code section 4331
Vocational Training Examination. Even if the Court concludes that it is not reasonable for your wife to work now, this may create an important benchmark which will be useful to you in the future. Downstream if she does not obtain employment she arguably might have, the Court may be convinced it should impute income to her that might have otherwise earned.
At this stage of the proceedings you are setting the stage for a future reduction. That requires smart advance preparation. Find a competent spousal support attorney in your area!
By the way, this is exactly why you should want mediation rather than a court judgment. IMHO. Mediation takes the future into consideration, and creates a safe container for the parties to talk about it!
Thurman Arnold
http://www.DesertDivorceandFamilyLawyer.com
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| May 20, 2010 |
| What are the TAX CONSEQUENCES of CHILD SUPPORT and SPOUSAL SUPPORT? |
| Posted By Thurman Arnold |
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Q. My husband and I have separated, and pretty much agreed to work everything out without going to Court. But I would like some information about how any support we agree upon is taxed.
A. Child support is not taxable to the recipient, nor is it deductible by the payor.
Spousal support, or "alimony" as it is known in some states, is taxable to the recipient and deductible to the payor as long as certain Internal Revenue Code requirements are met. It is important that you obtain a professional explanation and review of these requirements in terms of what you write up in the settlement agreement (the agreement should be filed with the Court), because in some situations people have the highly unpleasant surprise of believing their support agreement passes muster only to find years later that it violated one of the provisions of the IRC - if that happens, the paying spouse may be forced to recapture the deductions in such a way that they are denied by the IRS, which now means not only that the payor owes monies for increased taxes, but they also owe substantial penalties.
To be deductible spousal support must meet the requirements of IRC section 71. These are known as DRTRA (pronounced "durtra"). The general requirements are that the spousal support obligation must be set forth in a written instrument (i.e., a Marital Termination Agreement), the payments must terminate at death, the payments must be in cash (and not as a swap of property, although it is possible to structure a property settlement in periodic payments of spousal support if done properly), and the parties must reside in separate households.
A common mistake includes "front-loading" or concentrating spousal support in the period immediately after divorce. Spousal support awards that decrease by no more than $10,000 per consecutive years are usually safe, but if you are contemplating a progressive decrease in spousal support over some years, you must have this agreement examined by a qualified professional in order to assure you are protected - this could be an accountant.
A common inadvertent mistake is to terminate spousal support on a date coinciding with a child's age of majority (turning 18). The IRS views this as an attempt to classify or hide what is really child support as deductible spousal support, and when this occurs the IRS may declare these payments that you believed were alimony for tax purposes all to have been child support - regardless of your true intentions - and so disallow the deductions from the time of the agreement forward. This will mean that the receiving spousal who has declared them as income may then be entitled to file an amended return to recover the taxes he or she paid. (Incidentally, the way this problem is often brought to the IRS's attention is where the recipient spouse doesn't declare the income, but you declare the deduction). There should be at least a six month differential between the timing of the termination of spousal support and a child's 18th birthday.
These issues can create a real shock, and totally undermine parties' expectations. Please have your settlement agreement reviewed by a competent attorney, and seek advice beyond the scope of this Blog in order to safeguard your interests!
Thurman W. Arnold III
http://www.ThurmanArnold.com
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| December 28, 2009 |
| What is permanent SPOUSAL SUPPORT in California? |
| Posted By Thurman Arnold |
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Q. What rights do I have to permanent spousal support?
A. Permanent spousal support is not usually "permanent," although it can be in cases of very long marriages. Lawyers and judges also refer to it as post-judgment spousal support, alimony, judgment spousal support, or long term support.
Unlike temporary spousal support, long term spousal support is only issued after a final judgment of Dissolution of Marriage or Legal Separation. It is equally available to domestic partners. Also unlike temporary support, it is not based on any computer formula or state or county guideline, but must be determined and fixed depending on the facts of every individual case. If long term support is important to your future wellbeing, you are going to need an experienced support attorney.
There are several very important rules to keep in mind. First, a marriage in California which lasts more than 10 years (defined as the time between date of marriage and physical separation), is "long term" marriage. The general rule is that in marriages which are not long term, spousal support should not be payable for more than one-half the length of marriage - or to put in differently, the law presumes that the recipient spouse should be rehabilitated and so become self-supporting in a period equal to 1/2 the marriage. However, this presumption becomes less important in cases involving older couples, especially where people can not be realistically expected to re-enter the work force, in cases where there children who remain minors, or where the party asking for support has a debilitating disease or disability.
There is no magic ratio for how long a former spouse might be ordered to pay long term support. Each case depends upon its own facts, the quality of your attorney, and the attitudes of the family court judge. Even in cases of long term marriages, the support obligation typically will end at some point in time. However, if usually will not end on its own - meaning that when a trial court orders long term support it will reserve jurisdiction to continue to extent it, until some time when a party petitions the court to terminate support and a judge finally says "enough is a enough."
Imputed income is often an important argument in long term support marriages, where one party convinces the court that the other party is shirking or failing to genuinely try to become self-supporting. It is sometimes necessary to have the supported spouse evaluated by a vocational rehabilitation expert.
There are four components to an award of of permanent support: 1) Amount; 2) duration; 3) substantive increases or decreases over time; and 4) jurisdictional step downs and ultimately a termination date.
Second, Family Code section 4320 is a critical support statute. I have provided a link and uploaded it so that you may read it. Essentially it sets forth all the factors that the court must consider in setting post-judgment support, and you will see that it is not an exhaustive list and the court can consider anything else it deems important to the decision. Support factors include the extent to which the earning capacity of each party is sufficient to maintain the marital standard of living established during the marriage, considering: a) the marketable skills of the supported party, the job market for those skills, the time and expense required to train that party including education and b) the extent to which the supported party's present or future income earning ability is impaired by periods of unemployment or were incurred during the marriage to permit that party to devote time to domestic duties.
Another factor is whether the supported party contributed to the attainment of an education, training, license, career, or position by the supporting party.
Another factor is the ability of the supporting party to pay, taking in account that person's earning capacity, income, and assets and standard of living.
Another very important support consideration is the needs of each party - including both.
Another factor is the obligations and assets of each spouse, including the separate property which each has or gained upon the dissolution.
Another is the ability of the supported spouse to engage in gainful employment without interfering with the needs of dependent children in their custody.
The age and health of the parties is critical in some cases. 65 years of age is the presumed retirement age for adults today, and courts cannot order a person to continue to be employed beyond that age - but, if they make that choice, their income can be considered.
A documented history of domestic violence can affect the right to receive support or the obligation to pay it.
The tax consequences between the parties must be considered.
And, basically, as I said, any other specific facts that trend one way or another.
The three most common factors are the marital standard of living (MSOL), need and ability to pay, and the assets the parties end up with upon divorcing.
Courts cannot order lump sums for support. Spousal support is generally taxable to the recipient and deductible to the payor, but there are very specific IRS requirements that must be met for this to actually be so.
Courts are required to state their findings on each relevant issue in writing. In practice though, most people settle their divorce cases by way of settlement agreements. Unfortunately, lawyers often leave out these findings so that when a court is asked, down the road, by the payor to terminate or decrease support, or by the payee to increase it, there is no map for the court to use to base its modification findings on.
If support is an issue for you either way, please hire a competent lawyer. There are many attorneys moving into family law from civil practices who are clueless about these things. Caveat emptor!
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| December 28, 2009 |
| How is TEMPORARY SPOUSAL SUPPORT Determined in California? |
| Posted By Thurman Arnold |
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Q. How is temporary spousal support calculated in California?
A. In order to be entitled to spousal support, parties must be married or be registered domestic partners. Spousal support (which is not usually referred to as "alimony" in California) is available in dissolution proceedings, actions for legal separation, and in connection with domestic violence applications.
Spousal support orders may be temporary, or they be what is called permanent. Different rules apply to how temporary support is figured than to permanent or long-term support. I address permanent spousal separately.
Temporary spousal support is designed to preserve the status quo pending a final judgment. Family Code section 3600 provides that during the pendency for dissolution of marriage or legal separation or in any proceeding where there is at issue the support of a minor child, the court may order the husband or wife to pay any amount that is necessary for the support of the husband and wife (subject to limitations contained in FC section 4320 and FC section 4325). Again, parties dissolving domestic partnerships may also be awarded support.
Temporary spousal support has nothing to do with the length of the marriage. Courts look at what the spending pattern was pre-separation and issues a spousal support award based upon need. If there isn't enough money on the basis of need, then an amount is ordered based upon the higher earner's ability to pay. A party seeking spousal support isn't deprived on the right to receive support even if they have income - the question is the relative income circumstances of the two parties.
Most California counties have formulas that determine temporary spousal support, but the two most important are Santa Clara and Alameda counties. Essentially the spousal support formula for Santa Clara County - which is the dominant one - is as follows: From any amount which is not allocated to child support, take 40% from the net income of the payor spouse, less 50% from the net income of the recipient spouse. The resulting number is the temporary spousal support. You do not need to have children to be entitled to receive spousal support.
As a practical matter, courts typically use one of two computer programs that generate these numbers: Either the Dissomaster or Xspouse. The Indio courts use Xspouse and the Santa Clara guidelines.
Into one of these programs are inputted the respective gross incomes of the parties. If there are children of the parties, the custodial timeshare in percentages is inputted (because only a party who has physical custody for more than 50% of the year can claim the tax benefits of HH/MLA or head of household status, the programs require one to be considered to have 51% even in true joint custody arrangements).
Only certain expenses matter for purposes of temporary support in California. What doesn't matter at all is most personal expenses (like mortgage payments, utilities, debt). This effectively ignores the entire debt structure of the parties at time of separation. Health insurance, union dues, and mandatory contributions to retirement (i.e., typically not IRA contributions), and obligations existing to other minor children living in one party's home, or as to which an actual court order requires they make support payments, are also entered. The support program 'tax effects' these numbers and figures out the net incomes of the parties. It renders a number that tells the Court how much the higher earning spouse must pay for purposes of a court order.
Since the court determines the support obligation some weeks after a request for support is made (by way of Motion for Order to Show Cause application), it typically makes the support order retroactive to the date of the filing for the request. Most courts order support payable one-half on the first and fifteenth of the month. For this reason, if you file for support on the 5th day of the month, the court will not make support retroactive to the 1st but will start of the obligation on the 15th day of the month.
This might sound like temporary spousal support is easy to fix and who needs a lawyer? This is not at all the case. The final support numbers depend upon how much income the Court is attributing to each party. Each is required to submit before the hearing an FL-150 Income and Expense Declaration.
For instance: A husband's (and wife's) income numbers are usually but not always based upon historical earnings, and the California judicial council form (FL-150) requires both to set forth there total gross for the past 12 months and also the past month. The legal assumption is that historical earnings are a reliable guide to future earnings, but this may not be at all true. Especially in today's economy, historical earnings may not be indicative of what the income stream will be going forward. This information needs to be credibly presented to the Court.
In cases where one party is a self-employed spouse, their net pre-tax earnings must be determined after deducting business expenses. This is a common and complex area of dispute, because what is deductible for purposes of Schedule C accompanying a tax return according to the federal government is in no way binding upon California courts for purposes of figuring support. If somebody works from home and charges part of the mortgage expense as a business deduction, that expense may be added back into the income stream as being available for support.
Another support battleground often involves imputed income. What if one party refuses to work, or insists on working at a lower paying job? Perhaps a support recipient believes they will get more money from their spouse if they have no job but if they tried to get one, they could? What if one party claims that they aren't working and that no jobs are available? Imputing income cuts both ways, and is extremely sophisticated. I will address another blog to it.
Incidentally, while only temporary alimony is calculated in this way, child support is always figured in this manner regardless whether there is a spousal support obligation.
http://www.DesertDivorceandFamilyLawAttorney.com
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| August 29, 2009 |
| Is OVERTIME considered in fixing CHILD SUPPORT? |
| Posted By Thurman Arnold |
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Q.: Is overtime a factor in considering child support?
from T
A. T:
Yes, if there is already a history of overtime - meaning a court won't order a parent to work overtime who hasn't been (there is case authority that a court cannot order a parent to work more than a regular work regimen), but if they have already been working it then the court must take that history into account when projecting future income for purposes of
guideline support (Xspouse or Dissomaster, depending which California county you are in).
Please see this Blog article about temporary support. This applies equally to spousal support.
T.W.A.
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